Blog poll: Infrastructure should be ADB’s top priority for 2017

Published on Tuesday, 10 January 2017

Published by Satinder Bindra on Tuesday, 10 January 2017

Construction work on a bridge in Viet Nam.
Construction work on a bridge in Viet Nam.

In our December blog poll, we asked readers what ADB’s funding priority should be in 2017: climate finance, food security, access to credit for small and medium-sized enterprises (SMEs), or infrastructure.

Over a third (37%) of respondents picked infrastructure as the top investment need for Asia and the Pacific. This comes as no surprise, given that ADB estimated in 2010 that the region needed to invest at least $800 billion a year until 2020 to close the region’s infrastructure gap. ADB recognizes that the best way to achieve this goal is to support private sector-led infrastructure projects. Infrastructure investment currently accounts for about 70% of ADB’s non-sovereign lending, compared to 65% for sovereign lending.

By the end of the year, ADB received 5 new transaction advisory mandates to prepare and structure public-private partnership infrastructure projects. In April, we kicked off the next phase of the flagship TAPI project to export up natural gas from Turkmenistan through a 1,800-km pipeline to Afghanistan, Pakistan, and India. Two months later, ADB approved its first cofinancing project with the Asian Infrastructure Investment Bank to build a highway in Pakistan, and followed up in November with a second cofinancing deal to boost natural gas output in Bangladesh. In October, ADB signed a landmark agreement with the Japan International Cooperation Agency to fund $6 billion worth of private sector infrastructure projects, including a geothermal power project in Indonesia and a wind and solar power project in India.

For 26% of our blog readers, the most important area for ADB lending in 2017 should be climate finance. ADB announced in September 2015 that it would double its annual climate financing to $6 billion by 2020, taking our assistance  for tackling climate change to around 30% of overall financing by the end of this decade. Some of this money will come from innovative financing schemes like green bonds, which in just one year helped ADB raise $1.3 billion to help fund climate change mitigation and adaptation projects in Asia and the Pacific—the region most vulnerable to the impacts of climate change.

Likewise, a key element of ADB’s climate finance portfolio is promoting low-carbon economic growth. The Asian Development Outlook 2016 Update released in September included a special chapter on Asia's transition to low-carbon growth that highlighted the region’s potential to become an essential player in the global effort to contain climate change.

22% of survey participants chose food security as the priority sector for scaled up ADB assistance. Asia and the Pacific is home to about two-thirds of the world’s food-insecure people. Food shortages and under-nutrition are growing concerns affecting both the rural and urban poor, who spend more than half their income on food. The situation is arguably more dire for the rapidly increasing number of poor people living in Asia’s megacities, where ensuring food security will require massive investments in food distribution, storage, and access to market facilities for small farmers.

To address these issues and other pressing concerns such as climate-related risks to food security, ADB in 2015 shifted its strategic focus on food security from exclusively supporting agriculture projects to multi-sector engagement to curb food insecurity particularly among the poor and most vulnerable.

Finally, 15% of our blog readers think it’s time for ADB to focus on expanding access to credit for the region’s SMEs, which account for almost 90% of total businesses and employ over half the workforce. Asian SMEs however face major challenges in finding affordable financing, and high rejection rates compared to larger firms force many of the region’s small businesses to rely on costly and inefficient informal credit.

One way for Asian SMEs to borrow more money from both bank and non-bank financial institutions would be to scale up financial technology or fintech. But awareness of how fintech can provide access to credit remains low among small businesses.

ADB lending in 2016 reached an all-time high of $31.5 billion in 2016, a 17% increase from $26.9 billion in 2015, according to preliminary figures released this week. In 2017, ADB expects to continue growing its lending to help meet its mission of eradicating poverty in Asia and the Pacific.