Infrastructure Financing in Asian Landlocked Developing Countries: Challenges, Opportunities and Modalities

Infrastructure Financing in Asian Landlocked Developing Countries: Challenges, Opportunities and Modalities

Date: 
Thursday, March 19, 2020
Type: 
Public information and advocacy materials
Abstract

As one of the main goals of the 2030 Agenda for Sustainable Development, the development of reliable and resilient infrastructure (Goal 9), it is imperative that infrastructure financing be given its due importance. Infrastructure development also leads to positive spillover effects such as the promotion of sustainable economic growth and employment (Goal 8) as well as poverty reduction (Goal 1). Infrastructure development directly influences over 80 per cent of the Sustainable Development Goals targets.

The Landlocked Developing Countries (LLDCs) in Asia is defined by the United Nations as a group of developing economies with specific geographical features. The LLDCs in Asia comprises 12 countries with varying total and per capita GDP, land areas, and population density as well as differing levels of infrastructure development and infrastructure financing capacity. Based on their overall development and historical disposition, LLDCs in Asia can be categorised into two distinct groups such as: 1) the countries with transition economies (the former Soviet LLDCs and Mongolia); 2) Least Developed Countries (LDCs).

Comparatively, the geographical conditions of the LLDCs are unique to the region and LLDCs have to overcome significant infrastructure, transport and infrastructure financing constraints. All of which often hinder economic growth by limiting access to regional and global markets as well as negatively affecting export competitiveness and inflow of foreign investment. The lack of infrastructure inadvertently increases product costs by 30-60 percent as higher transport costs are incurred. The LLDCs are also geographically dependent on neighbouring transit countries, particularly, on their transit neighbours’ infrastructure, peace and stability, policies and administrative practices, as well as cross-border political relations. While some have better indirect access to maritime services and international markets, others, such as those in Central Asia, depend more on land access to reach their major trading partners. Most discussions on the economic difficulties of LLDCs seem to be dominated by the assumption that the solution for their situation lies in the development of adequate transport infrastructure that would facilitate access to global markets.

The scale of funding that the Asian LLDCs require to cover their infrastructure gap and bring it to a comparable global standard is significant. The reliance on infrastructure financing ranges from roads and bridges to dry ports and power generation and transmission lines, and access to Internet and other telecommunications networks. Investment in efficient infrastructure such as transport, energy, information and communication technologies (ICT) as well as water supply and sanitation (WSS), is paramount to future prosperity, especially for the LLDCs in Asia. Based on a study by the International Monetary Fund (IMF), an increase of one percentage point of GDP in investment spending raises the level of output by about 0.4 per cent in the same year and by 1.5 per cent four years after the increase.

In this context, increasing targeted investments and accelerating infrastructure development has become an important policy agenda for achieving inclusive and sustainable development in many LLDCs. Infrastructure investment in the LLDCs is also essential in order to promote closer economic ties and deeper economic integration with Asia and the Pacific and other regions. The ongoing expansion of trade, people-to-people exchange and capital flows among neighbouring countries and regions increasingly requires greater infrastructure capacity, but huge infrastructure investment deficits are hindering regional connectivity and integration.

Besides the aforementioned issues, the LLDCs have also been facing challenges in terms of infrastructure financing, such as relatively small domestic financial systems and narrow capital markets, constrained public resources, small domestic markets, climate related investment issues and limited capacity to mobilize domestic sources of financing coupled with high infrastructure maintenance costs and infrastructure demand.

Against this background, the main objectives of this paper are to present policymakers an insight on infrastructure financing challenges, opportunities and modalities in Asian LLDCs as well as to make specific policy recommendations to address the aforementioned challenges. The paper will also benefit, among others, international development partners, foreign investors, private sector, and academic communities in these countries.

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