South Asian governments are among the top borrowers of multilateral assistance and have been so for many years. They continue to seek financing and technical advice from IFIs in order to provide basic social services to their citizens. The World Bank and Asian Development Bank, in recent visits of their respective Presidents, have pledged increases in lending for sectors such as rural and urban infrastructure, water & power, communication and transport networks, education and health care. It is very likely that from 2006 onwards, World Bank lending to India will increase to $3 billion per year while ADB lending will shoot up to $2.1 billion per annum. Similarly, Pakistan's annual borrowing from the World Bank and ADB will jump almost 50% to $1.5 billion and $1.2 billion respectively. Much of this assistance will be accompanied by analytical and advisory services, which usually lead to more lending.
The renewed commitment of the Banks to large scale, high risk infrastructure and the willingness to think of ways to reduce transaction costs (through for example adopting national systems of environmental and social safeguards) could prove disastrous for locally affected communities and will need to be closely watched.
The Banks also promote the private sector as a catalyst for economic activity and trade in the region. In order to open up economies to more private sector investment, the Bank conducts research to advise governments on how to reduce transaction costs for the private sector.
The principal lenders to South Asia, led by the WB, have begun to change both the composition of their lending and also the underlying policy advice associated with such aid. The relationship between the MDBs and the borrowing countries remains the subject of considerable controversy. Critics on the left complain that the IFIs, using their conditionality clout, threaten sovereignty, while critics on the right point to persistent poverty levels as an indication that “development” hasn't worked and private markets should be given the space to bring about economic progress and poverty reduction. What is perhaps more commonly accepted is that the adjustment assistance era of the 1980s and 1990s did not prove highly productive nor have markets fared any better.
The Pressure to Lend
Both the WB and ADB are under pressure to lend more to borrowing countries. Both organizations are concerned that their portfolios are not growing and large borrowers with high absorptive capacity, like India, Brazil and China, are accessing other forms of financing. To counter this possible loss of business, the IFIs are moving towards greater flexibility and relaxation of their Safeguard Policies, decentralizing decision-making to country offices, upgrading the quality of their technical assistance, and developing new lending products and modalities.
The Privatization Agenda
The IFIs are aggressively pushing a policy of privatization in key sectors like water and health. Lending to high risk infrastructure projects is also on the rise.
Policy Lending
The IFIs have moved from investment (discrete project) lending to policy lending, institutional reform, and sector lending.
The “Knowledge Banks”
The institutions have marketed themselves as knowledge providers to national governments and in some cases have even seconded staff to governments as advisors. Plus many Bank-trained economists transition back to home countries to serve in positions of authority.
Country Systems
The IFIs are keen to promote the use of “country systems” for addressing financial management, procurement, and environmental and social safeguards
A Regional Approach
The Banks are looking for large regional initiatives to support, and the ADB in particular is focusing on regional integration through trans-boundary projects. There is a focus on the extractive sectors.
World Bank Lending Priority Areas in South Asia
- Governance and decentralization
- Poverty eradication
- Health and sanitation (HIV/AIDS)
- Education
- Water sector
- Infrastructure (urban and rural): Roads, bridges, railways, power sector, etc.
Asian Development Bank Lending Priority Areas in South Asia
- Transportation and communication
- Infrastructure including water and sanitation
- Energy and power
- Tourism
- Environment
- Trade, investment and private sector cooperation