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.
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.