Financing Sustainable Infrastructure Development in South Asia: The Case of AIIB
| Author | Ojasvee Arora,Nagesh Kumar |
| Date | 01 November 2019 |
| DOI | http://doi.org/10.1111/1758-5899.12732 |
| Published date | 01 November 2019 |
Financing Sustainable Infrastructure
Development in South Asia: The Case of AIIB
Nagesh Kumar and Ojasvee Arora
UNESCAP-SSWA Office
Abstract
As a subregion with huge unmet needs for physical infrastructure, South Asian countries welcomed the establishment of the
Asian Infrastructure Investment Bank (AIIB) as a new multilateral development bank (MDB) to help close some of their financ-
ing gaps. Not only were the South Asian countries among the founding members of the new bank, they have also emerged
as its important borrowers. Starting operations in January 2016, AIIB has had only three years of operations. Three years is not
a long time for evolution of an MDB from scratch, but it can give an indication of the shape of things to come. This note
briefly reviews AIIB’s operations in South Asia, a subregion facing some of the widest gaps in providing sustainable and resili-
ent infrastructure to all its people as enunciated in the 2030 Agenda on Sustainable Development.
Given their huge unmet needs for physical infrastructure,
South Asian countries welcomed the establishment of the
Asian Infrastructure Investment Bank (AIIB) as a new multi-
lateral development bank (MDB) to help close some of their
financing gaps, complementing the World Bank, Asian
Development Bank (ADB) and the Islamic Development
Bank. South Asian countries have been among the founding
members of the new bank, and they have also emerged as
its important borrowers. Having started operations in Jan-
uary 2016, AIIB has had only three years of operations.
Although three years is not a long time for evolution of an
MDB from scratch, it can give an indication of the shape of
things to come. This note briefly reviews AIIB’s operations in
South Asia, a subregion facing some of the widest gaps in
providing sustainable and resilient infrastructure to all its
people as enunciated in the 2030 Agenda on Sustainable
Development.
Infrastructure gaps, financing challenges and
MDBs in South Asia
Physical infrastructure such as transport, communication,
and energy, is a key driver of economic activity and an
empowerment tool. The 2030 Agenda has put heavy
emphasis on ‘development of quality, reliable, sustainable
and resilient infrastructure, including regional and transbor-
der infrastructure, to support economic development and
human well-being, with a focus on affordable and equitable
access for all (SDG 9.1)’, also ‘universal access to affordable,
reliable and modern energy services (SDG 7.1)’, and ‘univer-
sal access to safe and affordable drinking water’and ‘sanita-
tion and hygiene for all’(SDG 6.1, 6.2).
South Asian countries continue to suffer from significant
infrastructure gaps not only compared to global averages
but also with respect to their other Asian neighbors (Table 1).
As per the latest available numbers, only 45 per cent of the
population in South Asia has access to improved sanitation,
for instance, and 27 per cent of the subregion’s population
lack access to electricity compared with just 2 per cent in
East Asia (also see Kumar 2016).
Wide infrastructure gaps explain the rather poor ranks
obtained by South Asian countries in the infrastructure rank-
ings of South Asian countries in the Global Competitiveness
Index 2018. India was ranked at 63 among 140 countries in
terms of infrastructure, followed by Sri Lanka at 65 with
Nepal occupying 117th rank (World Economic Forum 2018).
The infrastructure gaps cost the subregion dearly. An esti-
mated one-third of businesses in India and three quarters of
those in Bangladesh, Nepal and Pakistan have been con-
strained by poor electricity supplies. Infrastructure deficits
result in GDP losses of 3–4 per cent in the subregion (UNES-
CAP 2018a).
South Asia is often described as one of the least inte-
grated regions in the world with poorly developed surface
transport networks and inadequate transport facilitation
measures. As a result, costs of intraregional trade are much
higher than trade with distant regions like North America,
thereby denying the benefits of geographical proximity and
contiguity to locally produced goods. UNESCAP’s research
has shown that actual intra-regional trade of South Asia is
less than one-third of its potential, resulting in lost opportu-
nities of more than US$50 billion in trade each year, and
with commensurate loss of jobs and poverty reduction
potential (UNESCAP 2018b). Building cross-border transport
infrastructure and facilitation at the borders is, therefore, a
pressing priority for South Asian countries.
Closing the infrastructure gaps requires a staggering and
rising requirement of resources over the years. The consul-
tancy companies including BCG and E&Y have estimated
that South Asia needs around US$5 trillion by 2030 in
Global Policy (2019) 10:4 doi: 10.1111/1758-5899.12732 ©2019 University of Durham and John Wiley & Sons, Ltd.
Global Policy Volume 10 . Issue 4 . November 2019 619
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