The Asian Development Bank (ADB), Asian Infrastructure Investment Bank and the World Bank have committed to eliminate the infrastructure financing gap worth trillions of dollars to help countries meet the Sustainable Development Goals by 2030.
In an outcome statement after the Global Infrastructure Forum 2018 in Bali, Indonesia, the multilateral development banks (MDBs) committed to increase technical assistance and advisory services for knowledge creation and knowledge transfer.
They also committed to mobilize sustainable finance for various infrastructure projects; support sustainable public procurement; and identify infrastructure and capacity gaps, particularly in least-developed countries, landlocked developing countries, and small island developing states and African countries, among others.
“The MDBs will continue to develop their role as a bridge between the public and private sectors and address the challenges of achieving comprehensive infrastructure solutions and proactively and positively engage with the public and private sectors to provide advisory services and financial support,” the outcome statement read.
“The MDBs will also seek, in a coordinated manner, to minimize the ‘information gaps’ that inhibit efforts to narrow the global infrastructure financing gap,” it added.
In an Asian Development Blog, ADB Bangladesh Resident Mission Social Sector Specialist Li Zhigang and South Asia Regional Department Director Human and Social Development Division Sungsup Ra said the total financing gap for infrastructure in Asia is $2 trillion.
Zhigang and Ra said that in 2017, the ADB estimated that 45 developing countries in Asia and the Pacific would need to invest $26 trillion over the next 15 years to keep their growth momentum by 2030.
However, these investment requirements only include roads, bridges, ports and telecommunications. They said less attention was paid on social infrastructure such as health and education services.
They said the financing gap for health and education infrastructure reach roughly $459 billion a year for physical infrastructure through 2020 and almost as much, $448 billion, for social infrastructure.
As of December 2016, Zhigang and Ra said Asia invested $6.2 trillion in the rest of the world, while the rest of the world invested only $4.4 trillion in Asia.
“If only one quarter of the net outflow of the region’s famously large savings pile were invested in infrastructure in the region, the financing gap would be filled,” the authors said.
“This nearly $2-trillion gap is at the heart of a conundrum that, if solved, could make up the shortfall for physical and soft infrastructure and unlock Asia’s now obvious vast economic potential,” they added. Zhigang and Ra said there is a need to improve Asia-Pacific’s financing products as solving the financing gap requires the help of the private sector. The lack of innovative financing products hinders the growth of private investment in infrastructure and makes projects more expensive.
They also said there is a need to improve project designs that will make infrastructure projects more attractive to private investors. The authors said governments in developing Asia continue to struggle in the preparation of strong and bankable projects.
Zhigang and Ra said there is a need to address political and financial risks that can dampen the interest of institutional investors for certain projects.
“Solving these problems will require innovative measures. Multilateral development banks can introduce schemes such as wholesale banking through financial intermediaries, or B-loan syndications that commercial banks and other eligible financial institutions can fund, acting as lender of record,” the authors said.
“Closing Asia’s infrastructure gap will require a sustained effort involving innovation and partnership among government, development organizations, and the private sector. Multilateral development banks such as the ADB have an indispensable role to play in alleviating government financial constraints and risk sharing,” they concluded.
A joint report by 13 development banks released in June noted that in 2017, MDBs and development finance institutions mobilized $73.3 billion of long-term private and institutional investor cofinancing for infrastructure such as power, water, transportation and telecoms. This compared with $68.7 billion mobilized in 2016.