ADB pitches diaspora financing for infra developement

MANILA, Philippines — Developing countries in Asia should consider diaspora financing as a source for funding the region’s massive infrastructure requirements given tight fiscal space, according to the Asian Development Bank (ADB).

In the multilateral lender’s latest blog, ADB principal economist Guntur Sugiyarto and economic analyst and development practitioner Dewan Anas Mushtaq said tapping the vast global diaspora could be the solution to funding the necessary investments for infrastructure in the region.

“Asia’s vast global diaspora – which includes many skilled, highly educated and prosperous people – is a strong potential source of financing for the region’s infrastructure and other development needs,” the experts said.

This, as governments have very limited budget to finance the massive infrastructure investments needed by developing countries in the region.

`The experts said developing countries in Asia would need $1.2 trillion for infrastructure investments annually, with the requirement at a higher $2.1 trillion, if other factors needed to make the economies more competitive and resilient to achieve higher and more inclusive growth are considered.

In the case of the Philippines, the experts said the tax revenue was only 14 percent of the country’s gross domestic product last year.

The experts also said governments cannot rely on international, bilateral and multilateral donors to fill the financing gaps given limited resources and competing needs.

Based on available information on people from Asia living outside their home countries, especially those in the US, United Kingdom, and the Middle East, the experts said much of the population is skilled and well-educated and earning a good income.

“This strongly suggests that they can provide talent and capital to help infrastructure development in their home countries,” the experts said.

Experts said migrant-sending countries like India, Israel, Sri Lanka and Kenya have successfully developed financial instruments to tap into the wealth of their respective diaspora through the issuance of diaspora bonds.

“Diaspora financing is an innovative market-based financing mechanism to finance income-generating projects in some countries. This can be done through public and private sector investments and other methods in line with the nature of the infrastructure investment,” the experts said.

In tapping diaspora financing, governments in Asia’s developing countries would need to put the right policies in place.

The experts said the governments need to invest more in infrastructure while strengthening their fiscal position.

“They must also bring along trustworthy intermediaries, such as multilateral development banks, to overcome the problems of the diaspora’s lack of trust in institutions, and regulatory challenges. The diaspora financing scheme will facilitate more productive engagement with the private sector to improve the much-needed human and financial capital and expand access to the global market and overall production capacity,” the experts said.