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.