New private activity continued to takeplace in developing countries in Aug-Nov 2008 with projectsbeing developed, tendered, and taken to financial close, butat a rate that was about 40 percent lower than in the sameperiod in 2007. The slowdown reflects an initial impact ofthe financial crisis which has made financing more onerousand difficult to secure as access to capital markets andbank lending has been reduced or halted and risk perceptionincreased. Projects are facing higher cost of financing, butthe major impact to date is project being delayed orcancelled. It is, however, too early to assess the fullimpact of the crisis on new Public-Private Investment (PPI)projects. Many investors and financiers are in await-and-see mindset and are likely to be so for the next 3to 6 months or until the breadth and depth of the crisisimpact become clearer. When financial markets bottom out orstart to recover, project financing levels are likely toremain impacted over a significant period of time if thetrends shown in previous financial crises are repeated. Asthe "flight to quality" sets in for banks andother financiers, the likely impact will be more stringentfinancial conditions, not only via higher cost of financingbut also with lower debt/equity ratios and more conservativestructures. The expected economic downturn in developed anddeveloping countries is also likely to reduce demand levelsand have a significant impact on project revenues, andconsequently on projects' financial viability.
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