While there are some instances in which PPPs can increase the 'fiscal space' available for infrastructure, these are in practice very limited. In the case of government-pays PPP projects, the cost of the infrastructure is ultimately met from the public purse either way-in practice, the payment stream to repay a debt-financed public procurement may be very similar to a stream of availability payments under a PPP for the same project.
Absent real efficiency gains, this means the apparent fiscal advantages of PPP arise from accounting quirks- the limitations of cash budgeting, or the definition of public sector debt. At best, this can create budgeting issues; at worst, it can enable governments to use PPP to bypass their own prudent public borrowing and budget limits-creating a temptation to spend more now, in response to political and other pressures to deliver new and improved infrastructure.
Abrantes de Sousa's paper on Portugal's PPP experience [#1] describes how inadequate control of the PPP process meant the Government of Portugal took on significant fiscal exposure to its PPP contracts, contributing to its 2011 fiscal crisis. Abrantes de Sousa describes how the PPP program has created budget problems, and highlights the incentives faced by agencies to use PPPs simply to loosen budget constraints. The United Kingdom's Private Finance Initiative (PFI-a large British PPP program) has also come under criticism for concealing the cost of the government's obligations. A House of Lords Select Committee inquiry into PFI found many witnesses imputed the choice to use PFI to the fact that the government's commitments under these contracts were often not recognized as part of public debt [#248, pages 16-18].
Recognizing these challenges, the treatment of PPP in public sector accounts has evolved over time. The latest public sector accounting standards require most PPP assets and liabilities to be included in government balance sheets, as described in Section 2.4: Public Financial Management Frameworks for PPPs. However, at the time a PPP project is approved, the future payment commitments still may not be included in budgets and expenditure plans, which often do not look more than one to three years ahead. Sections 2.4 and 2.4.1 provide guidance on how governments can manage the fiscal implications of PPPs to help avoid these problems.