ADB to support SAARC countries with $11.7 b financing in 2018

The Asian Development Bank (ADB) hopes to support SAARC countries with $ 11.7 billion financing this year, its Vice President Wencai Zhang said recently. Speaking at the 12th Informal Meeting of the South Asian Association for Regional Cooperation Finance Ministers during the 51st ADB Annual Meeting in Manila, he said SAARC is the fastest growing sub-region in Asia and ADB was committed to continue its support. Following are excerpts of Zhang’s speech:

Last year, the meeting focused on a retrospective of 50 years of ADB operations, and a preview of ADB Strategy 2030. This year, I will take up how ADB can enhance its assistance to SAARC countries to realise a more prosperous South Asian region in line with Strategy 2030 to be endorsed within the year.

As the fastest growing subregion in Asia, South Asian economies expanded by an average of 6.7% and 6.4% percent in 2016 and 2017, respectively, while keeping inflation in check. These emanated from positive factors, such as better crop harvests and increased infrastructure spending. The outlook remains bright in 2018 and 2019. Average GDP growth is expected to reach 7.0% and 7.2%, with an average inflation rate of 4.7% and 5.1%, respectively.

ADB assistance to SAARC countries

ADB operations in SAARC countries have performed very well. In 2016 and 2017, it committed a total of $4.8 billion and $8.3 billion, respectively, for sovereign operations in SAARC countries. In addition, ADB’s nonsovereign commitments reached $584.1 million and $979.6 million in 2016 and 2017, respectively. 

SAARC countries accounted for 40.3% and 46.2% of ADB’s combined sovereign and non-sovereign commitments in 2016 and 2017, respectively. In 2018, ADB is expected to approve projects in SAARC countries with expected total financing of $11.7 billion.

SAARC countries have made better use of ADB’s development assistance compared to other sub-regions, as reflected in their contract awards and disbursement ratios. In 2016–2017, among the top ten project portfolios, Bangladesh, Nepal, India, and Pakistan had the highest contract award ratios, all averaging over 28%. Disbursement ratios of most SAARC members were at 22% or higher in 2017.

Two ADB-supported programs promote regional cooperation and integration in South Asia: (i) the South Asia Sub-regional Economic Cooperation (SASEC) program which covers six SAARC members, namely Bangladesh, Bhutan, India, Maldives, Nepal, and Sri Lanka; and (ii) the Central Asia Regional Economic Cooperation (CAREC) program, which covers Afghanistan and Pakistan along with nine other countries.

Both programs are project-based partnerships which effectively improved cross-border connectivity, and enabled faster and more efficient trade among the SAARC countries. Recently ADB has also focused on promoting inter-subregional connectivity to realise more benefits from highly connected markets and to more effectively address environmental and other vulnerabilities.

Coping with economic challenges facing SAARC countries

The bright outlook for SAARC is based on solid economic fundamentals, characterised by strong consumption and investment and sound macroeconomic policy and market-oriented reforms. However, there are various challenges. 

These include rising protectionism and trade tensions; possible faster-than-expected US interest rate hikes which could diminish capital inflow; poverty, vulnerability, and increasing inequality; low investments from private sector and infrastructure deficits; human capital gap; climate change and natural disasters; growing environmental pressure; demographic changes; mounting debt; systemic financial sector issues; and negative impact of technological innovation, particularly on employment—a key issue in a region with a fast growing labor force.

History teaches us to be more welcoming of new technology, as their labor-displacing effect has been quite limited based on experience. Most jobs include a “bundle of tasks” that cannot be automated. In OECD countries, only 9% of jobs have been found to be at risk. 

Macro-level aggregate effects on GDP and productivity of new technology outweigh micro-level job and income effects. In Asia, new technologies have helped create from two to five times more new jobs than those that have been displaced. ADB’s presentation later will elaborate more on this topic.

Implications of ADB’s strategy 2030 to SAARC countries

ADB’s 2030 strategy is being crafted to better respond to the changing and diversified needs of its developing member states by using a country-focused approach. ADB support will combine finance, knowledge, and partnership to maximise development impact for its clients.

Under the planned Strategy 2030, developing member countries serve as the driver for their own development with ADB as a partner that provides customised and integrated solutions. For example, to increase jobs and investments, and raise productivity, which is a common challenge among SAARC countries, ADB will adopt multi-dimensional approaches, engaging both public and private sectors, and other development partners, and utilising their knowhow and resources to help people adjust to rapid innovation. Systems for technical/vocational and college education will be made more attuned to market needs, ready for the tasks of upskilling or shifting skills for industry.

To bring lagging regions up to speed, ADB will continue its infrastructure support, particularly in low-income and lower middle-income countries, but with more emphasis on green and inclusive infrastructure. We will do this by more proactively seeking ways to promote the use of innovative and advanced technologies, which reduce life-cycle costs and increase durability, improve the efficiency and quality of services, and minimise negative environmental and social impacts. 

Based on the needs of SAARC countries and our comparative advantage and capacity, ADB could recommend policies to improve the regulatory environment for the digital economy, expand internet connectivity, and invest in hardware and software.

Regional cooperation and integration or RCI will remain a strategic business area. This is in recognition of the inevitability of further integration—in terms of connectivity in infrastructure, trade, and finance—in Asia’s and the global development landscape. 

ADB’s role as RCI coordinator will be further sharpened to address various RCI constraints. Collective actions will be increasingly employed to address climate, environmental, health, and other vulnerabilities with more focus on regional public goods operations. With your support, ADB will facilitate knowledge sharing and collaboration among different sub-regions, and will work with emerging regional and international initiatives to further promote cooperation in the Asian and the Pacific region.

The development horizon for the SAARC region is definitely looking bright. CAREC and SASEC recently adopted CAREC 2030 and SASEC Vision respectively, to provide the long-term strategic framework to unleash both sub-regions’ economic potentials.

ADB is committed to provide funds and knowledge solutions to respond to South Asia’s various development challenges. We will continue to work with the SAARC countries and help your economies to become even better connected, more competitive, and more capable to take collective actions in harnessing the technology revolution and in achieving a prosperous, inclusive, resilient, sustainable, and integrated SAARC region.