Developing Asia needs over 5% of GDP investments into infra — ADB

MANILA,Philippines — Countries in Developing Asia need to invest more than five percent of their gross domestic product (GDP) over the next decade to build infrastructure for their rapidly growing economies, according to a new book co-published by the Asian Development Bank.

The book, titled “Infrastructure Financing in Asia,” said many countries in Asia Pacific are still investing less than five percent of GDP for infrastructure development.

The bank said at this rate, sustaining the momentum for financing infrastructure as well as boosting economic growth and development would be more difficult.

ADB estimated that the infrastructure needs of Developing Asia and the Pacific will exceed $22.6 trillion through 2030, or around $1.5 trillion per year. Factoring in the costs of climate change mitigation and adaptation, the estimates rise to over $26 trillion per year, or $1.7 trillion per year.

The book, co-published by World Scientific, documents the evolution of Asia and the Pacific’s infrastructure over the past 50 years and reviews the pivotal role of infrastructure in supporting the region’s robust growth and social development. It is co-edited by ADB principal economist Donghyun Park and economist Shu Tian.

To address these challenges, the authors urge countries in Developing Asia to consider a variety of policy approaches, such as wide-ranging public finance and institutional reforms to create a stronger enabling environment for public–private partnerships (PPP).

It also puts forward out-of-the box solutions in the form of tax financing, mass transit investments, and smart energy grids investments to help meet the infrastructure financing gap.

Park said that as rapid economic growth is seen in Developing Asia, quality of growth must also be promoted to uplift the standards of living.

“We need to keep it going, not only in terms of narrow GDP growth but also on what it means in human terms, environmental concerns and inclusiveness of growth,” he said during the book launch in Quezon City yesterday.

Projects like smart grids and smart infrastructure would go a long way in improving the quality of lives for people in the region, said Park.

As the financing for these projects are now more daunting, Park said private capital would have to “play a visibly larger role than in the past.”

As such, governments in the region will have to create and maintain a conducive environment for the private sector.

“To increase private sector participation in infrastructure investment, governments must make it worthwhile for them to jump in. Uncertainties must be mitigated and the bankability of projects must be increased,” said Park.

The use of PPP, he said, could be effectively used to mobilize financing for infrastructure used for social services like schools and hospitals.

The book also explores alternative financing methods to unlock long-term funding from institutional investors and offers mechanisms to deepen the region’s bond markets.

For example, it dives into the efforts of countries under ASEAN+3—Brunei Darussalam, Cambodia, People’s Republic of China, Indonesia, Japan, Republic of Korea, Lao People’s Democratic Republic, Malaysia, Myanmar, the Philippines, Singapore, Thailand and Vietnam—in developing local currency bond markets to provide long-term local financing. It also examines the use of green bonds to finance sustainable growth in Asia.

“Developing Asia must strive to find new, innovative, outside-the-box financing solutions to meet its huge infrastructure investment needs.

I am confident that this rich collective volume prepared by experts from inside and outside ADB will set forth some concrete and specific directions for infrastructure financing, as well as provide food for thought,” said ADB vice-president for knowledge management and sustainable development Bambang Susantono.