No.40 Policy Challenges for Infrastructure Development in Asian LICs: Lessons from the Region
This paper discusses policy issues pertaining to infrastructure development in low income countries (LICs) in Asia. Infrastructure challenges in Asian LICs have not been adequately highlighted to date mainly because the international focus has often been on African LICs and because large countries such as China, India, and Indonesia attracted more interest among the developing Asian countries. While Asian LICs have sought to improve their infrastructure over the years, the quality and quantity is generally insufficient although significant variations exist between countries and sectors. Since their fiscal space and governmental capacities are limited despite large investment needs, each possible infrastructure investment must be placed in order of priority. In Asian LICs, spatially connective infrastructure (including logistics, telecommunications, and electricity) should be given priority to generate benefits from economies of agglomeration, fragmentation of production activities, and better connectivity to fast-growing large markets, although the trade-off between economic efficiency and spatially balanced growth is a difficult issue. Particularly, some large Asian LICs have great potential to become part of sophisticated regional production networks through effective infrastructure. Climate change, both the adaptation of infrastructure and mitigation through green development, also needs to be sufficiently taken into account or mainstreamed. The fact that the investment in public private partnerships (PPP) projects in infrastructure has recently been increasing in Asian LICs is encouraging. To scale up PPP, Asian LIC governments should clarify the contributions of the private sector (in such aspects as capital investment and operational efficiency), continue to improve the investment climate, policies, and regulations, and prepare bankable projects in which the roles of the public and private sectors are defined. The public sector will continue to be the main provider and regulator of infrastructure in Asian LICs. Although public sector performance should improve, there has been no single blueprint for it, and therefore country-specific approaches are called for. Donors should continue to support Asian LICs in scaling up infrastructure investment through project-financing, technical assistance, and capacity development.