Developing Asia-Pacific countries spent $881bn on infrastructure development in 2015, but require a boost to reach the $1340bn needed to accommodate their fast-growing economies by 2020, says the Asian Development Bank. Jacopo Dettoni reports. 

Countries in the Asia-Pacific region will needs extra investment of about $459bn per year until 2020 to meet their infrastructure needs, according to an Asian Development Bank (ADB) report.

The 25 developing countries surveyed in the report, which comprise 96% of the region’s population, spent $881bn in infrastructure development, or 5.5% of gross domestic product (GDP) in 2015. This falls short of the annual $1340bn the ADB estimates they would need between 2016 and 2020 to bridge the infrastructure gap in their fast-growing economies.

That annual investment gap accounts for 2.4% of their combined GDP. However, without including China, which invested up to $686bn upgrading its infrastructure in 2016, the investment gap rises to 5% of the combined GDP of the other 24 countries surveyed.

“Fiscal reforms could generate additional revenues equivalent to 2% of GDP to bridge around 40% of the gap for these economies,” said the report. 

East Asia in particular has significant potential to generate extra fiscal revenues for up to 5% of GDP to redirect into infrastructure. At the other end of the spectrum, the Pacific region has little room to manage its fiscal levels because of a narrow taxpayer base, so any increase in infrastructure spending would have to come through budget reorientation and fresh capital collected through debt issuance.

“For the private sector to fill the remaining 60% of the gap, or 3% of GDP, it would have to increase investments from about $63bn today to as high as $250bn a year over 2016–20,” the report said.

Multilateral development banks (MDBs) support both public and private infrastructure developments through concessional and non-concessional loans. In 2015, MDBs together supported about 2.5% of developing Asia’s infrastructure investment.

With two new MDBs active in the region – the Asian Infrastructure Investment Bank (AIIB) and the New Development Bank – there is more scope for MDB-sourced infrastructure investment.

“Even if we combine our resources, we don’t come even close to the great financing needs of the region,” ADB vice president Stephen Groff told fDi. “This is why the more MDBs active in Asia, the better. We have already co-finanaced a number of operations with the AIIB, and we are committed to working together with our peers to meet the region’s needs.”

The ADB alone is planning to scale up loan and grant approvals to $20bn in 2020, from $17.5bn in 2016. 

This article is sourced from fDi Magazine
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