Infrastructure Bonds. The Case of Brazil

Debntures Incentivadas or incentivized bonds are securities first issued in 2012 whose interest and capital gains enjoy income tax exemption conditional on using funds to finance infrastructure expenditures. They have a minimum duration at issuance of four years, are denominated in reais and traded in local markets under national jurisdiction. In US dollar terms, the value of bonds issued reached a peak of $9.5 billion in 2019, and the overall number of bonds since inception of the program exceeds 400. The amount of infrastructure bonds issued every year rivals BNDES loans in terms of the total amounts of financing of infrastructure projects. The Brazilian experience with creating a market for incentivized bonds can be useful to other countries in the region seeking to develop long-term financing markets in local currency to finance infrastructure.