How South Asia Ben­e­fits

In South Asia, the ADB prom­ises to play an im­por­tant role by aim­ing to achieve in­clu­sive and en­vi­ron­men­tally sus­tain­able growth, re­gional co­op­er­a­tion and in­te­gra­tion.

Southasia - - CONTENTS - By Mirza Aqeel Baig

Start­ing in 1966, as an in­ter­na­tional fi­nance in­sti­tu­tion, the Asian De­vel­op­ment Bank, now has a rich his­tory of 50 years. The Govern­ment of Ja­pan is host­ing the ADB's fifti­eth An­nual Meet­ing in Yoko­hama from May 4 to 7. The four-day meet­ing is ex­pected to present a com­pre­hen­sive re­view of the ADB’s role in Asia. Ini­tially, the ADB had lit­tle im­pact in Asia with its small size and limited fi­nan­cial en­dow­ment, but over the years it has earned a sig­nif­i­cant po­si­tion in Asian de­vel­op­ment. Ac­cord­ing to the ADB an­nual re­port, with 48 mem­ber coun­tries, 2015 has been the ADB’s most pro­duc­tive year as the size of its to­tal op­er­a­tions ex­ceeded $27 bil­lion in a year for the first time in his­tory.

Though Pak­istan is ge­o­graph­i­cally and his­tor­i­cally si­t­u­ated in the heart of South Asia yet the ADB does not in­clude Pak­istan in the South Asian re­gion. ADB’s clas­si­fi­ca­tion of South Asia in­cludes Bangladesh, Bhutan, In­dia, the Mal­dives, Nepal and Sri Lanka. Pak­istan is part of Cen­tral and West Asia along with Afghanistan, Ar­me­nia, Azer­bai­jan, Ge­or­gia, Kaza­khstan, the Kyr­gyz Repub­lic, Ta­jik­istan, Turk­menistan, and Uzbek­istan.

A glance at Table1 re­veals that South Asia is an im­por­tant part of the lend­ing plans of the Asian De­vel­op­ment Bank. In fact, the re­gion’s sig­nif­i­cance can be seen from its con­sis­tently ris­ing per­cent­age share in to­tal ADB lend­ing. As men­tioned in the Ta­ble, the re­gion's share in to­tal lend­ing by ADB was a mere 11% and 18% dur­ing 1966-76 and 1977-1986 pe­ri­ods, re­spec­tively. It has been more than 28% on an av­er­age for the last three decades. It even reached 30% dur­ing the fifth decade of ADB op­er­a­tions (2007-2015). South Asia’s share in to­tal ADB lend­ing in­creased sharply from the mid-1980s. This rise took place af­ter In­dia came out of its hi­ber­na­tion pe­riod and started bor­row­ing since 1986, though In­dia had been a mem­ber of the ADB since its in­cep­tion. Dur­ing the same year the ADB com­menced op­er­a­tions in In­dia and now it is the fourth­largest share­holder of the ADB.

South Asia oc­cu­pies a sig­nif­i­cant po­si­tion in the ADB as ev­i­dent from the fact that In­dia, Bangladesh and Pak­istan have been among the top five bor­row­ers of ADB for the last two decades. A look at the his­tory of ADB’s sup­port to three ma­jor coun­tries of South Asia re­veals that by April 2016, South Asia, in­clud­ing Pak­istan, had ac­quired an ag­gre­gate of $95 bil­lion from the ADB. Ta­ble 2 shows coun­try­wise to­tal size of loans from the ADB by the South Asian group and Pak­istan. Out of a to­tal $36.8 bil­lion ac­quired by In­dia from the ADB, en­ergy (32.20%), trans­port (32.06%) and fi­nance (12.62%) have been the main re­cip­i­ent sec­tors. In case of Bangladesh, en­ergy (23%), trans­port (22.32%), agri­cul­ture and nat­u­ral re­sources (12.79%), and ed­u­ca­tion (12.52%) got the ma­jor chunk of ADB sup­port. Sim­i­larly, Pak­istan ac­quired al­most 28% of to­tal ADB fi­nanc­ing in the en­ergy sec­tor. Trans­port (16%) and agri­cul­ture and nat­u­ral re­sources (14.26%) have been among other pri­or­ity sec­tors.

This sum­mary in­di­cates that gen­er­ally the en­ergy and trans­port sec­tors are high pri­or­ity sec­tors for the ADB. In other words, the ADB’s de­vel­op­ment par­a­digm con­cen­trates on

in­fra­struc­ture de­vel­op­ment and re­gional in­te­gra­tion.

The sit­u­a­tion in 2015 por­trays a con­tin­u­a­tion of lend­ing pat­terns pre­vail­ing for three decades. ADB’s com­bined as­sis­tance to South Asia in the form of loans and grants crossed $4 bil­lion in 2015. The sup­port was pro­vided for 22 projects. The re­gion was awarded new projects of $3.17 bil­lion. In­dia, be­ing the largest na­tion, got 48% of to­tal loans by ADB in South Asian re­gion, fol­lowed by Bangladesh (30%), and Sri Lanka (13%). ADB also pro­vided $2.14 bil­lion in co-fi­nanc­ing for South Asia. ADB claims to as­sist coun­tries in achiev­ing high sus­tained and in­clu­sive eco­nomic growth. For this pur­pose it fo­cused mainly on trans­port, en­ergy, fi­nance, and ed­u­ca­tion sec­tors. In 2015, these sec­tors were, re­spec­tively, al­lo­cated 24%, 23%, 15% and 13% of to­tal fi­nanc­ing to South Asia. As has been the case in the past, the real es­tate sec­tor as well as the health sec­tor didn’t at­tract much at­ten­tion of ADB in 2015.

In the South Asian re­gion, ADB prom­ises to play an im­por­tant role in fu­ture also. Ac­cord­ing to its 2016-2018 pro­grams for In­dia, ADB has shown its com­mit­ment to achieve in­clu­sive and en­vi­ron­men­tally sus­tain­able growth, as well as re­gional co­op­er­a­tion and in­te­gra­tion by con­tin­ued sup­port to the pri­or­i­ties of the In­dian govern­ment.

Sim­i­larly, ADB will con­tinue to back Bangladesh’s ef­forts to at­tain the ob­jec­tives of quicker, in­clu­sive and sus­tain­able growth and ac­com­plish­ment of mid­dle-in­come sta­tus by 2021. ADB will pro­vide as­sis­tance for large-scale in­fra­struc­ture projects, es­pe­cially in trans­port and en­ergy sec­tors. Projects to cre­ate re­gional con­nec­tiv­ity with Bangladesh are also part of the fu­ture plan.

The ADB’s Coun­try Op­er­a­tions Business Plan (COBP) 2016–2018 is aligned with the pri­or­i­ties and de­vel­op­ment plans of the Pak­istan Govern­ment. COBP’s 2016-2018 lend­ing is in con­gruity with Pak­istan’s in­vest­ments and pol­icy re­forms in the en­ergy sec­tor, trans­port con­nec­tiv­ity and eco­nomic cor­ri­dors, bet­ter man­age­ment of water re­sources, and stim­u­lat­ing the pri­vate sec­tor.

Like other in­ter­na­tional fi­nan­cial in­sti­tu­tions, ADB has been a warm sup­porter of eco­nomic in­te­gra­tion among dif­fer­ent re­gions and coun­tries. In 1994 ADB came up with a spe­cific Re­gional Co­op­er­a­tion Pol­icy (RCP) and a Re­gional Co­op­er­a­tion and In­te­gra­tion (RCI) pro­gram to ac­cel­er­ate the pace of eco­nomic in­te­gra­tion. In the pur­suit of RCP, the South Asia Subre­gional Eco­nomic Co­op­er­a­tion (SASEC) pro­gram was set-up in 2001. There are seven mem­ber coun­tries of SASEC - Bangladesh, Bhutan, In­dia, the Mal­dives, Nepal, Sri Lanka and Myan­mar. The Mal­dives and Sri Lanka be­came SASEC mem­ber in 2014, while Myan­mar joined it in Fe­bru­ary 2017.

The ADB is also the ma­jor provider of fi­nan­cial and tech­ni­cal as­sis­tance to SASEC. Since the be­gin­ning of SASEC, the ADB has pro­vided $5.7 bil­lion in the form of loans and grants to 46 projects. ADB’s in­di­cated pro­gram of as­sis­tance for the next three years in­cludes $3.6 bil­lion loans. The main fo­cus is on projects in trans­port, en­ergy, trade fa­cil­i­ta­tion and eco­nomic cor­ri­dor de­vel­op­ment. Re­cent in­clu­sion of Myan­mar as the sev­enth mem­ber of the South Asia Sub-re­gional Eco­nomic Co­op­er­a­tion (SASEC) part­ner­ship is vi­tal as Myan­mar is the only land link­age be­tween South Asia and South­east Asia. As Ron­ald Bu­tiong, Di­rec­tor for Re­gional Co­op­er­a­tion for ADB’s South Asia De­part­ment ob­served, it opens up a new win­dow of op­por­tu­ni­ties and sup­ply chain links for trade and business for SASEC coun­tries. This is ex­pected to ac­cel­er­ate in­ter as well as subre­gional co­op­er­a­tion be­tween South Asia, South­east Asia and be­yond. BBIN is an­other sub-re­gional group which co­prises Bangladesh, Bhutan, In­dia, and Nepal and is ex­pected to strengthen co­op­er­a­tion and con­nec­tiv­ity in the re­gion. In 2015, BBIN signed a Mo­tor Ve­hi­cles Agree­ment ( MVA) al­low­ing seam­less tran­sit across each other's ter­ri­to­ries.

Eight of the ten CAREC coun­tries (Cen­tral Asia Re­gional Eco­nomic Co­op­er­a­tion (CAREC) Pro­gram are land­locked and this makes Pak­istan the pre­em­i­nent po­ten­tial mem­ber coun­try in CAREC with a gate­way that con­nects all mem­bers with each other and with the rest of the world with sea routes. Thus, Pak­istan pos­sesses greater com­pet­i­tive ad­van­tage in CAREC than it might in BBIN and SASEC where most coun­tries have their own ports. In view of this fact, there is lit­tle rea­son, if any, to worry about Pak­istan’s non­in­clu­sion in SASEC. Once CAREC coun­tries are con­nected eco­nom­i­cally and the China Pak­istan Eco­nomic Cor­ri­dor (CPEC) be­comes func­tional, it would be dif­fi­cult for the South Asian coun­tries, in­clud­ing In­dia, to ig­nore Pak­istan, as it would be the most cost­ef­fi­cient trade route to CAREC and be­yond.

Tra­di­tional wis­dom teaches that de­pen­dence of a coun­try on loans is caused by three im­bal­ances: (i) sav­ing-in­vest­ment im­bal­ance (ii) trade im­bal­ance (iii) fis­cal im­bal­ance. An anal­y­sis of the macro-eco­nomic in­di­ca­tors of South Asian coun­tries shows that, ex­cept for In­dia to some ex­tent, they have not suc­ceeded in over­com­ing these im­bal­ances over the years. This sce­nario sug­gests that these coun­tries will con­tinue to re­main debt­driven economies.

South Asia oc­cu­pies a sig­nif­i­cant po­si­tion in the ADB as ev­i­dent from the fact that In­dia, Bangladesh and Pak­istan have been among the top five bor­row­ers.

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