Asian governments must create a more conducive environment to encourage private sector participation in infrastructure financing, experts said, calling for a more innovative financing mechanism.
Innovative financing mechanism requires further collaboration between the public and private sectors to enhance partnerships, said Sithanonxay Suvannaphakdy, former lead researcher in economic affairs at the ASEAN Studies Centre of Singapore’s ISEAS-Yusof Ishak Institute.
“Greater public-private partnerships should reduce pressures on public finances for regional governments, which experienced severe budget deficits due to large pandemic-related expenditures in the last three years,” said Sithanonxay, adding that regional governments should create a more conducive business and investment climate.
On May 2, the Asian Development Bank (ADB), in partnership with the Association of Southeast Asian Nations Plus Three (ASEAN+3) finance ministers and central bank governors, launched a report titled “Reinvigorating Financing Approaches for Sustainable and Resilient Infrastructure in ASEAN+3”.
ASEAN+3 refers to the 10-member Southeast Asian nations’ bloc plus China, Japan and South Korea.
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According to the report, while developing Asia will need to invest $13.8 trillion in infrastructure from 2023 to 2030 to sustain economic growth, reduce poverty, and respond to climate change, the total infrastructure investment need for ASEAN economies is estimated to be at least $2.8 trillion for the same period.
As private sector participation is key to helping narrow the infrastructure financing gap, the bank said innovative finance mechanisms are needed to catalyze private and institutional finance for infrastructure, and to scale them up to meet the growing needs of the region as ASEAN+3 economies bounce back from the pandemic.
To ramp up support for emerging markets in the region in the battle against climate change, the ADB also launched the Innovative Finance Facility for Climate in Asia and the Pacific, or IF-CAP, which could create up to $15 billion in new loans.
As it comes to the end of the Master Plan on ASEAN Connectivity 2025, there is some sort of realization that things have not gone according to the plan, and the call for more private sector participation is nothing new, said Ruth Banomyong, professor of international business, logistics and transport at Thammasat University in Thailand.
Adopted by ASEAN leaders in 2016, the Master Plan on ASEAN Connectivity 2025 aims to achieve a seamlessly and comprehensively connected and integrated ASEAN
Adopted by ASEAN leaders in 2016, the Master Plan on ASEAN Connectivity 2025 aims to achieve a seamlessly and comprehensively connected and integrated ASEAN through five strategic areas, namely sustainable infrastructure, digital innovation, seamless logistics, regulatory excellence, and people mobility.
“The biggest challenge is really what type of private sector (to be involved) because … when we talk about infrastructure investment it is a very long period and the private sector would prefer to see return that comes a lot quicker,” said Ruth, noting that profitability will be key to engaging the private sector in infrastructure projects.
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Echoing Ruth’s view, Watcharas Leelawath, honorary advisor at Bolliger and Company, a public policy and strategic consulting firm in Thailand, said there should be a clear method to provide private entities with necessary information that they need when investing in relevant projects, including those related to future returns.
“Asymmetric information will lead to higher risk,” said Watcharas, a former executive director of intergovernmental organization Mekong Institute.
“Private sector has increasingly played an important role as an engine of economic growth and job creation,” said Thong Mengdavid, a research fellow at the Phnom Penh-based Asian Vision Institute.
Noting that Cambodia has been supporting regional development initiatives such as the Belt and Road Initiative, Mengdavid said it is important for regional countries to take these initiatives to a higher level for deepened win-win cooperation, maintaining trade and investment liberalization and facilitation, and make positive efforts to promote regional and world peace, stability, development and prosperity.
Ky Sereyvath, director-general of the Institute of China Studies at the Royal Academy of Cambodia, a Phnom Penh-based public academic and research institution, said it is important for regional governments to ensure funding transparency and accountability when it comes to infrastructure projects.
In the case of the BRI, Sereyvath said the focus on quality, financial accountability and transparency can make the China-led program “the best”.
“China has made a significant contribution to regional infrastructure development in ASEAN, especially in countries with limited fiscal space,” said economist Sithanonxay.
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For example, the China-Laos railway, which opened in December 2021, shortened the journey from Vientiane to Laos-China border to three hours from two days, he said.
Noting existing economic corridors such as the East-West Corridor that links Laos and Vietnam, Sithanonxay said such benefits would be larger if these corridors are connected with China-led infrastructure development in the region.
kelly@chinadailyapac.com