Introduction

The costs of building and upgrading the Asia-Pacific region's infrastructure to meet the basic needs of its citizens and industries and raise standards and quantity levels to those comparable to advanced countries are huge. During 2010–2020, it is estimated that Asia will need to invest approximately US$8 trillion in overall national infrastructure for energy, transport, telecommunications, water, and sanitation. In addition, the region will need to spend approximately US$300 billion on regional pipeline infrastructure projects² in transport, energy, and telecommunications. This amounts to an overall infrastructure investment need of about US$750 billion per year during this 11-year period (for details see ADB/ADBI 2009 and Bhattacharyay 2010). Financially, the demand for cross-border and regional infrastructure funding will often directly compete with funding for improved national infrastructure³, which will be primarily financed by the home country (national and local) authorities. These financial requirements are huge and the result is a very large financing gap, or the difference between total financial requirements and the likely available financing through direct public resources. However, it simultaneously offers considerable benefits and vast investment opportunities for the large savings and international reserves in Asia and the Pacific (hereafter referred to simply as Asia).

Asia has an abundance of resources that can be utilized to meet these financing needs. Table 1 [ PDF 53.9KB | 1 page ] shows how the total annual savings of the eleven Asian economies were a massive US$4 trillion in 2007 and US$3.6 trillion in 2006. Moreover, the stock of total official international reserves reached US$3.7 trillion in 2007 (US$3.1 trillion in 2006). This huge pool of Asian savings is sufficient to finance Asia's infrastructure development if means can be found to direct it to that purpose.

There can be no single path to mobilizing sufficient funding for infrastructure in Asia. The funding requirements are too large, widespread, and diverse and will require multiple sources of funding. Different forms of financing will be appropriate for different types of projects belonging to various sectors and social, legal, or institutional settings. Multilateral developments banks, such as the Asian Development Bank (ADB) and the World Bank, and bilateral development banks (BDBs) or agencies, like the Japan International Cooperation Agency (JICA) and the Japan Bank for International Cooperation (JBIC), can provide funds and facilitate co-financing. However, their ability is quite limited compared with the vast needs. Public, private, and mixed funding—such as public-private partnerships (PPP)—will all be needed within and beyond Asia.

Why have Asian economies not been able to fill the financing gaps? Incentives must be found to increase the total funding of infrastructure. It is equally important to direct funds to where they could be most beneficial, including finding methods for dispersing funds to smaller or low income countries that might normally be missed.

This paper will review various options for financing national and regional infrastructure development in Asia to create a pan-Asian infrastructure network that supports basic human needs, enhances regional connectivity, promotes intraregional trade and economic development, and provides public safety and welfare. Particularly, it will discuss the role of financial integration in financing infrastructure with the examination of experiences in Asia and other regions, such as the European Union (EU) and Latin America. This paper also focuses on steps that could be taken to raise the needed funds based on the lessons learned and prior experiences.

The remainder of this paper is organized as follows: Section 2 examines the role of financial market integration in mobilizing infrastructure funds. It also sets out general steps that can support the building of strong and effective integrated financial markets in Asia. Section 3 reviews the experiences in Asia and other parts of the world, particularly the European Union (EU). Section 4 recommends ways, means, and specific changes to institutions and programs to address the infrastructure financing gap. This includes the role of major financing institutions such as ADB, World Bank, and the Asian Bond Market Initiative (ABMI). The last section concludes with final thoughts and recommendations.

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