India on Wednesday asked multilateral lending institutions like the Asian Development Bank (ADB) to extend support to developing countries to prevent the COVID-induced health crisis from turning into a full-blown economic catastrophe.
Addressing the 54th annual meeting of the board of governors of the ADB, Finance Minister Nirmala Sitharaman also underlined the need for a “coordinated and inclusive” global strategy to avoid the long-term debilitating impact of the pandemic on the developing economies.
“Amidst this crisis, multilateral institutions, such as the ADB, are needed more than ever to support DMCs and prevent the health crisis from cascading into a full-blown economic crisis.
“The green shoots of recovery that can be seen in all the economies in our constituency have to be carefully nurtured to ensure that there are no adverse shocks due to the recent increase in the rates of infections,” Sitharaman said.
She urged the advanced and non-borrowing member nations of ADB to stand with the Developing Member Countries (DMCs) in this hour of crisis which would demonstrate their commitment for the collective global economic prosperity.
Observing that poverty has been reduced over the years but in 2020 an estimated 78 million people were pushed back into extreme poverty, and inequality aggravated, she said ADB rose to the occasion by delivering early and rapid support to the region, first through a comprehensive COVID response programme to help counter the severe macroeconomic and health impacts, and later coming up with a vaccine support package.
“We face an unprecedented global crisis today. The world economy contracted last year, threatening a severe development setback and hindering DMCs progress towards achieving 2030 Sustainable Development Goals,” she said at the annual meeting held virtually.
She thanked the ADB for being with India in providing timely financial support for COVID and non-COVID projects.
Post-COVID economies may not be the same as the pre-COVID economies and to avoid any long-term debilitating impact, coordinated and inclusive global strategy is needed today, the finance minister said.
India had started 2021 on an optimistic note with IMF predicting a strong economic growth of 12.5 per cent in FY22, the highest for a major economy.
“The country is currently going through the second wave of COVID. The resurgence of the pandemic has caused sufferings for very large number of persons, put the healthcare system under huge strain, and adversely impacted the nascent economic recovery process. We are thankful to the international community for their support in this hour of need,” she said.
With focus of the government being on robust public health measures, timely treatment of the infected persons, sound macro-economic management, visionary developmental policies and strong macro fundamentals, she said, India will sail through the storm.
Observing that vaccine production capacity in the country is being ramped up and more vaccine candidates are on verge of entering the commercial chain, she said “we are confident that with expected adequate access to critical raw materials, we would not only be able to meet our domestic needs but also soon be back to meet critical vaccine needs of the world.”
On the ADB’s capital position, the finance minister said the work program of the bank has projected real growth rates from 2019 to 2035 in sovereign lending of 0.5 per cent and in non-sovereign lending of negative 0.4 per cent.
This will hinder ADB’s capacity to help DMCs, especially in the present context of the severe social and economic reversals, she said.
Some of the shareholders suggest an organic capital growth but also support a net income transfer of almost 43 per cent annually out of the bank’s ordinary capital reserves (OCR), she said, adding, it would be challenging for ADB to balance the goals without compromising on the much-needed lending to OCR countries.
On pricing of sovereign loans, she said the bank has already introduced differentiated pricing beginning 2021.
However, ADB’s favourable sovereign loan pricing should not be further raised just because it happens to be lower than those of other multilateral development banks (MDBs). Sovereign loan pricing is based on cost recovery principle and the if the bank is able to recover its costs, there is no case for tinkering with it, she suggested.
ADB is a key player in sovereign lending and in this has been one of India’s largest multilateral development partners.
To attract private sector participation, she said the bank would need to develop more affordable and innovative financing instruments.
She also urged ADB to open a Private Sector Operations Branch Office in Mumbai for more committed operational activities in the private sector.
Noting that the Asian Development Fund (ADF) remains quite critical to support the needs of Asia’s poorest and most fragile low-income countries, Sitharaman said the demand on it today is way beyond what was estimated at the time of 2017 merger.
“Notwithstanding our domestic concerns, India pledged an amount of USD 51.4 million to the ADF-13, an increase of 28.5 per cent over our ADF-12 replenishment.
“As a donor, India remains committed to delivering beyond what is expected from it, and I would urge other donors to not shy away from realising their responsibilities,” she said.
Given the global economic challenges and growing complexities of the financial development architecture, ADB must position itself to cooperate and collaborate with other development partners, she noted.
The bank’s efforts to speed up procedures and eliminate bureaucratic steps, including through use of technology and third-party consultants, as witnessed during 2020, must continue, she added.
“I also urge ADB to work on harmonising its safeguards and other compliance norms with those of other MDBs. This would bring down compliance costs and smoothen the cofinancing by MDBs. As far as possible, the use of national laws and procedures should be adopted, and ADB may like to facilitate the DMCs build the requisite capacity,” she suggested.
With regard to Regional Cooperation Integration, she said it is an important building block for a strong global economy and India has a vital role to play in the South Asia Sub-regional Economic Cooperation (SASEC) initiative.
“We appreciate the close engagement of ADB with SASEC member countries to take this process forward. In this context, establishing a regular SASEC Finance Ministers Meeting as an apex guidance and oversight body would be a welcome step. India would be happy to host the first meeting of this platform in 2021,” she said.
The finance minister invited ADB to set up the SASEC Secretariat in India.
This is the second year in a row when the ADB’s board of governors meeting was held virtually due to the COVID-19 pandemic.