ADB

Banking Frontiers - - Housing Hihglights - Me­hul@bank­ingfron­tiers.com

Should raise in­vest­ment from 0.5% of GDP to 2-3%

Asian De­vel­op­ment Bank (ADB), es­tab­lished in 1966 in Manila, is ded­i­cated to re­duc­ing poverty in the Asia-Pa­cific re­gion through in­clu­sive eco­nomic growth, en­vi­ron­men­tally sus­tain­able de­vel­op­ment and re­gional in­te­gra­tion. ADB is owned by 67 mem­bers - 48 from the re­gion. It as­sists its mem­bers and part­ners by pro­vid­ing loans, tech­ni­cal as­sis­tance, grants, and eq­uity in­vest­ments to pro­mote so­cial and eco­nomic de­vel­op­ment. In 2017, ADB fi­nanc­ing to­taled $32.2 bil­lion, in­clud­ing $11.9 bil­lion in co-fi­nanc­ing.

IN­DIA NEEDS $230 BN

Al­though In­dia has im­proved its global rank­ing in the qual­ity of in­fra­struc­ture in­dex from 87 to 68 dur­ing 2014-16, in­fra­struc­ture con­tin­ues to be a ma­jor bot­tle­neck for the coun­try. Ur­ban ar­eas are the growth en­gines for the coun­try’s econ­omy and con­trib­ute about 63% of the coun­try’s GDP, which will po­ten­tially rise to 75% by 2030. How­ever, In­dia’s fast ex­pand­ing towns and cities face in­fra­struc­ture de­fi­cien­cies, weak ser­vice de­liv­ery mech­a­nisms, in­ad­e­quate fi­nances and poor lo­cal gov­er­nance.

It is es­ti­mated that In­dia would need to in­vest 2-3% of its GDP an­nu­ally to strengthen its ur­ban in­fra­struc­ture to meet the re­quire­ments of its grow­ing ur­ban pop­u­la­tion, while the cur­rent in­vest­ment level re­mains at 0.5%. Kenichi Yokoyama, coun­try direc­tor in In­dia for ADB points out to an ADB study, ‘Meet­ing Asia’s In­fra­struc­ture Needs’ and says In­dia re­quires $230 bil­lion per year to ad­dress its in­fra­struc­ture deficit. Yokoyama quotes from the study: “Some of these chal­lenges per­tain to lack of ca­pac­ity at lower lev­els of govern­ment in­sti­tu­tions to im­ple­ment and sus­tain qual­ity in­fra­struc­ture in a timely and ef­fi­cient man­ner; and de­lays in statu­tory ap­provals such as en­vi­ron­ment, forestry and land ac­qui­si­tion. These in­vest­ments would be needed to im­prove wa­ter sup­ply, san­i­ta­tion, hous­ing and ur­ban trans­port as well as to strengthen ser­vice de­liv­ery. Also, ur­ban lo­cal bod­ies would need to ul­ti­mately be­come self-sus­tain­ing and not merely be de­pen­dent on grants to fi­nance projects, and to en­sure qual­ity ser­vice de­liv­ery.”

IN­DIA LARGEST BOR­ROWER

In­dia is a found­ing mem­ber of ADB. It is ADB’s 4th largest share­holder and has been the largest bor­rower of sov­er­eign lend­ing since 2010. Says Yokoyama: “Since com­menc­ing op­er­a­tions in In­dia in 1986, up to the end of 2017, ADB has com­mit­ted 209 sov­er­eign loans to­tal­ing $35.9 bil­lion. This port­fo­lio in­cludes 79 sov­er­eign loans amount­ing to $13.1 bil­lion, of which $10 bil­lion has been awarded and $5.9 bil­lion dis­bursed.”

ADB’s coun­try part­ner­ship strat­egy 2018-22 for In­dia, ap­proved in 2017, aims to sup­port the coun­try’s ef­forts to ac­cel­er­ate in­clu­sive eco­nomic trans­for­ma­tion. It fo­cuses on boost­ing eco­nomic com­pet­i­tive­ness and cre­at­ing good jobs, build­ing in­clu­sive in­fra­struc­ture and ser­vices in low-in­come states, and ad­dress­ing chal­lenges re­lated to cli­mate change and en­vi­ron­men­tal degra­da­tion.

Says Yokoyama: “In this con­text, ADB also fos­ters re­gional co­op­er­a­tion and in­te­gra­tion, pri­vate sec­tor de­vel­op­ment, and so­cial and gen­der in­clu­sion. In­sti­tu­tional ca­pac­ity build­ing and knowl­edge shar­ing such as of best prac­tices are also em­bed­ded in ADB op­er­a­tions.”

CLI­MATE FI­NANCE

ADB was the first mul­ti­lat­eral de­vel­op­ment bank in 2015 to com­mit to ex­pand­ing its own an­nual cli­mate fi­nance to $6 bil­lion by 2020. It has reached a mile­stone high of $4.5 bil­lion in cli­mate in­vest­ments for 2017 ($3.6 bil­lion in mit­i­ga­tion and $930 mil­lion in adap­ta­tion), a 21% in­crease from the $3.7 bil­lion reached in 2016. ADB’s cli­mate fi­nance reached a record $5.2 bil­lion in 2017. Yokoyama says about 85% of ADB’s lend­ing pro­gram in In­dia is de­voted to trans­port, en­ergy, and ur­ban in­fra­struc­ture and ser­vices. For APAC as a whole, com­mit­ments for en­ergy projects in 2017 reached $6.2 bil­lion in 2017 (31% of op­er­a­tions), com­pared to $2.9 bil­lion in 2016 and $3.2 bil­lion in 2015, he adds.

ADB is of the view that to meet the ac­ces­si­bil­ity and mo­bil­ity re­quire­ments of the grow­ing econ­omy, the road in­fra­struc­ture needs mas­sive in­vest­ments - to widen roads, pave sur­faces, im­prove road safety, and main­tain as­sets. Power gen­er­a­tion ca­pac­ity needs to keep pace with rapid eco­nomic growth, but it is con­strained by fi­nan­cial dif­fi­cul­ties of power util­i­ties. About 25% of house­holds

re­main un­elec­tri­fied, and many more suf­fer from in­ter­mit­tent power sup­ply.

Says Yokoyama: “ADB will as­sist the govern­ment in im­ple­ment­ing its In­tended Na­tion­ally De­ter­mined Con­tri­bu­tions com­mit­ment to in­crease the pro­por­tion of re­new­able en­ergy con­sump­tion. The as­sis­tance will cover so­lar pho­to­voltaic and wind power gen­er­a­tion.”

ADB will also fo­cus on green cor­ri­dors or high volt­age trans­mis­sion lines to evac­u­ate re­new­able power to load cen­ters through sov­er­eign and non-sov­er­eign lend­ing modal­i­ties, in­clud­ing fi­nan­cial in­ter­me­di­a­tion. It will sup­port en­ergy stor­age solutions such as pump stor­age hy­dropower to im­prove the de­mand-sup­ply bal­ance. ADB will also sup­port meth­ane cap­ture from waste­water and solid waste man­age­ment fa­cil­i­ties, as well as the de­vel­op­ment of non-mo­tor­ized and low­car­bon mass tran­sit in cities.

TECH EX­PER­TISE TO PPP

Ac­cord­ing to the study quoted ear­lier, in­fra­struc­ture needs in de­vel­op­ing APAC coun­tries ex­ceed $26 tril­lion, or $1.7 tril­lion per year, when cli­mate change mit­i­ga­tion and adap­ta­tion costs are in­cor­po­rated. The re­gion in­vests an es­ti­mated $881 bil­lion in in­fra­struc­ture a year, demon­strat­ing a large fi­nanc­ing gap that needs to be bridged. While some Asian economies have been spend­ing 5-8% of GDP on in­fra­struc­ture, sev­eral others have been spend­ing con­sid­er­ably less.

As­sis­tance by ADB and other mul­ti­lat­eral de­vel­op­ment banks makes up a mod­est 2.5% of the to­tal in­fra­struc­ture in­vest­ment needs of de­vel­op­ing mem­ber coun­tries in the re­gion. But ex­clud­ing the Peo­ple’s Repub­lic of China and In­dia, that share rises to about 10%. Yokoyama ex­plains that in or­der to help coun­tries meet their in­fra­struc­ture needs, ADB is work­ing closely with the pri­vate sec­tor to de­liver more projects and is lend­ing its tech­ni­cal ex­per­tise to public-pri­vate part­ner­ship projects. ADB has also signed MOUs with newer players such as the Asian In­fra­struc­ture In­vest­ment Bank (AIIB) and the New De­vel­op­ment Bank to co­op­er­ate in both co-fi­nanc­ing and joint an­a­lyt­i­cal work.

MAX­IMIS­ING EF­FI­CIENCY

ADB has been mak­ing the ut­most ef­forts to max­i­mize ef­fi­ciency gains. Be­sides boost­ing bud­get ef­fi­ciency, it con­tin­ues to de­cen­tral­ize and strengthen its pres­ence in its de­vel­op­ing mem­ber coun­tries by pro­vid­ing greater author­ity and man­date to its res­i­dent mis­sions. “For ex­am­ple, the staffing op­ti­miza­tion and ef­fi­ciency gains con­trib­uted to sav­ings of 2.8% of the 2018 bud­get growth. In line with the pol­icy, there is in­creased del­e­ga­tion of projects and al­lo­ca­tion of more staff re­sources to the res­i­dent mis­sions. This has fa­cil­i­tated in­creased in­ter­ac­tion of ADB staff with the ex­e­cut­ing and im­ple­ment­ing agen­cies re­sult­ing in quick de­ci­sion-mak­ing and res­o­lu­tion of im­ple­men­ta­tion issues,” says Yokoyama.

To im­prove oper­a­tional ef­fi­cien­cies and for bet­ter project im­ple­men­ta­tion, ADB is also re­form­ing and ra­tio­nal­iz­ing its busi­ness pro­cesses. For ex­am­ple, it ap­proved a new pro­cure­ment pol­icy in 2017 that al­lows the use of al­ter­na­tive pro­cure­ment ar­range­ments, in­clud­ing the use of coun­try pro­cure­ment sys­tems. “The new pol­icy adopts a risk-based pro­cure­ment sup­port and over­sight to en­hance qual­ity and im­prove de­liv­ery sys­tems while re­duc­ing to­tal pro­cure­ment time,” says Yokoyama.

Kenichi Yokoyama high­lights ADB plans to sup­port de­vel­op­ment of non-mo­tor­ized and low-car­bon mass tran­sit sys­tems in cities

ADB has ap­proved a $375 mil­lion loan in May 2018 for a project that will con­trib­ute to dou­bling farm­ing in­comes in Mad­hya Pradesh by ex­pand­ing ir­ri­ga­tion net­works and sys­tems

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