JAKARTA (TheInsiderStories) — Developing Asian countries need to invest more than 5 percent of their gross domestic product (GDP) over the next decade to be able to meet the infrastructure needs of their fast-growing economies, says the Asian Development Bank (ADB) in the latest report release on Oct. 29.
According to ADB vice president Bambang Susantono, most of the countries in the Asia and Pacific region are currently investing less than the proposed 5 percent of GDP for infrastructure development. At this rate, financing infrastructure to maintain and sustain economic growth and development will be a tough challenge.
ADB has estimated that infrastructure needs in developing Asia and the Pacific will exceed US$22.6 trillion through 2030, or $1.5 trillion per year. The estimates rise to over $26 trillion, or $1.7 trillion per year, when climate change mitigation and adaptation costs are incorporated.
The report explores alternative financing methods to unlock long-term funding from institutional investors and offers mechanisms to deepen the region’s bond markets.
For an example, ADB dives into the efforts of countries under ASEAN+3 (Brunei Darussalam, Cambodia, China, Indonesia, Japan, Republic of Korea, Laos, Malaysia, Myanmar, the Philippines, Singapore, Thailand, and Viet Nam) 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,” Susantono said in a written statement.
Recently, the agency sees the growth in developing East Asian and Pacific economies is expected slowing down from 6.3 percent in 2018 to 5.8 percent in 2019 and 5.6 – 5.7 percent in 2020 and 2021, reflecting a broad-based decline in export growth and manufacturing activity.
Weakening global demand, including from China, and heightened uncertainty around ongoing United States (US) – China trade tensions has led to a decline in exports and investment growth, testing the resilience of the region.
In the region excluding China, consumption growth remained steady, though slightly lower than the same period last year, supported by monetary and fiscal policies. Growth in the smaller economies of the region, however, remained robust, reflecting country-specific circumstances including steady growth in the tourism, real estate, and extractive sectors.
“As growth slows, so does the rate of poverty reduction,” said Victoria Kwakwa, World Bank Vice President for East Asia and the Pacific. “We now estimate that almost a quarter of the population of developing East Asia and the Pacific lives below the upper-middle-income poverty line of US$5.50 a day. This includes nearly 7 million more people than we projected in April, when regional growth was looking more robust.”
The report makes clear that increasing trade tensions pose a long-term threat to regional growth. While some countries have hoped to benefit from a reconfiguration of the global trade landscape, the inflexibility of global value chains limits the upside for countries in the region in the near term.
“While companies are searching for ways to avoid tariffs, it will be difficult for countries in developing East Asia and the Pacific to replace China’ role in global value chains in the short-term due to inadequate infrastructure and small scales of production,” adds by Andrew Mason, World Bank Lead Economist for East Asia and the Pacific.
The report warns that downside risks to the region’ growth prospects have intensified. Prolonged trade tensions between China and the United States would continue to hurt investment growth, given high levels of uncertainty. A faster-than-expected slowdown in China, the Euro Area and the United States, as well as a disorderly Brexit, could further weaken the external demand for the region’s exports.
High and rising debt levels in some countries are also putting limits on their abilities to use fiscal and monetary policies to ease the impacts of the slowdown. In addition, any abrupt changes in global financial conditions could translate into higher borrowing costs for the region, dampening credit growth and further weighing on private investment and economic growth in the region.
To weather growing risks, the report recommends that countries with sufficient policy space use fiscal and/or monetary measures to help stimulate their economies, while guarding fiscal and debt sustainability. Countries in the region will also benefit from staying the course on trade openness and by deepening regional trade integration.
The ongoing US – China trade dispute, along with slowing global growth, also increase the need for countries in the region to undertake reforms to improve their productivity and boost growth. This includes regulatory reforms that improve the trade and investment climate to attract investment and facilitate the movement of goods, technology, and know-how.
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