President Ranil Wickremesinghe will participate in the 55th Asian Development Bank (ADB) Annual Meeting of the Board of Governors, in Manila, Philippines and Sri Lanka will receive the Chair of the ADB Board of Governors this year. It will be held by President Wickremesinghe, in his capacity as the Finance Minister, in the next two years.
Meanwhile in a curtain raiser interview yesterday ADB President Masatsugu Asakawa said that not only the energy crisis but also the food crisis and COVID 19 threat still existed.
“ ADB has tried to respond to these new challenges through various measures and we will continue to provide ordinary project financing, policy-based loans, budget financing for private sector and quite recently we have enhanced one of our existing financial instrument called CSF which would provide emergency financing to support DMCs to expand their countercyclical fiscal expenditure to mitigate the shocks coming from external events like food security and so on. Those are the short term measures but in the long term we are reviewing our projects in our pipeline for DMCs to see how we can support our DMCs to build very strong, robust and sustainable food systems through climate – smart agriculture, digitalization of the food value chains and nature based solutions, he said.
Developing Asia experienced a negative economic growth rate of negative 0.8% in 2020 due to the COVID 19 pandemic and it was the first economic contraction which happened in this area for the last 60 years. In 2021 it rebounded to 6.9% and this year 2022, ADB projects 4.3%. The reason for the rebound last year includes a couple of things. First the very mild health impact of the Omicron variant, second, progress in vaccination in this area and third very robust, strong performance of exports throughout this region. However, the space to recover varies among economies and remains very uneven among economies.
“So we have to bear in mind four possible downside risks to the economic outlook of this region. First, the slowing down of China’s economy due to the very stringent zero-COVID policy and second, there is still a possibility of emergence of a more lethal COVID 19 variant. Thirdly, the economic negative impact caused by the Russian invasion of Ukraine. And fourthly, instability in the financial market due to the very aggressive rapid monetary policy normalization by some advanced economies. The Omicron outbreaks have been very short-lived in general and milder than the previous waves. Actually the number of COVID 19 in this region has dramatically dropped, declined. ADB also responded very quickly to this pandemic. In April 2020, we announced a US$ 20 billion COVID 19 comprehensive assistance package. Also in December the same year 2020 we announced an additional financial instrument for procurement of vaccines by developing member countries with the amount of USD 9 billion. So far we have committed USD 33 billion to support our DMCs to fight against the COVID 19 pandemic. Out of this USD 33 billion, USD 10 billion was for very quick disbursing budget financing called CPRO and USD 8 billion was for private sector financing, including very short-term trade financing. And USD 4 bn was for vaccine financing.
“We are not completely out of the woods so we will continue providing those budget financing and private sector financing and also vaccine financing in addition to the ordinary project financing as necessary. The Russian invasion of Ukraine has posed a very serious risk to the economic outlook to this region. There are two kinds of risks; one is direct impact and indirect impact. Direct impact through trade, capital transactions with Russia and also remittance coming from Russia has been relatively limited to developing Asia as a whole except for a couple of countries in Central Asia, Caucasus and Mongolia who have traditionally maintained a very close trade and economic linkage with the Russian Federation.
On the other hand, the indirect impact and indirect risk has been locked through a very steep price increase in food and energy. I am quite sure importers, import countries of food and energy will see this year’s import bills. Much more expensive than last year’s, which means adding inflationary pressure on the economy.”
Asakawa said that a number of central banks in this region have already started increasing policy interest rates to quell the inflation pressure which would add additional constraints on economic growth prospects of this region. Also indirect impact includes the deterioration of market sentiment which would depress consumers’, producers’, and investor confidence. So fighting for safety and tighter financial conditions globally might spur some sort of capital outflow movement from this region.
Together with the steep increase in food prices, the possible reduction of fertilizer supply by Russia would have a significant impact on the agriculture production of this region as well.
This has become a serious concern in terms of food security so this is exacerbating the already challenging situation due to the economic fallout of COVID 19 some political unrest notably in Afghanistan and Myanmar and droughts and other adverse weather events linked to climate change. He said the fight against climate change in this region will be won or lost and they have made important decisions on climate financing.
ADB has elevated their ambition from USD 80 billion to USD 100 billion of cumulative climate financing from 2019 to 2030. The commitment of USD 100 billion over 12 years is a big challenge for the ADB. “We revised ADBs so-called energy policy which was very old. Under the new energy policy we officially decided to withdraw our financing for any new coal-fired power plants.
He also said they would use Energy Transition Mechanism (ETM) to retire already existing coal plants and unlock investment in renewable energy so that they can promote the smooth transition from coal to renewable energy in each country. Due to the long lasting and low interest rate environment and also fiscal expansion to deal with the COVID 19 pandemic in almost every country the fiscal situation got worse. The time would thereby come for every country to change gear from fiscal expansion to fiscal consolidation. In that sense domestic resource mobilization (DRM) is very important. This means how to raise domestic tax revenue.
He said that globalization will come back and regional cooperation needs to be tightened up in trade and investment and despite the border closure and travel restraints introduced during the COVID period countries in the region have reopened and reconnected already. Another good example is the signing of the RCEP in November 2020 which has come into effect from January 2022. That was a strong signal and commitment by this region for open and free trade and investment systems.
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ADB Annual Meeting begins
The 55th ADB Annual Meeting began yesterday with curtain raiser event discussion with President Masatsugu Asakawa covering the energy crisis, food security, climate change, COVID-19 recovery, and the Russian invasion of Ukraine, President Asakawa offered his vision and ideas for change towards a better, greener, more sustainable, and resilient Asia and the Pacific.
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