Key Note Address by ADB Sri Lanka Resident Mission Country Director Rita O'Sullivan on 11 June 2012 at the University of Colombo, Sri Lanka
We have an internal news page for things happening in ADB. This morning there were 3 interesting stories…one covered President Kuroda in Washington, D.C., receiving the award for Excellence in Fragile States Engagement for the Afghanistan Telecom Development Project. The second story was about ADB Institute holding an expert meeting to support equitable economic development in the ASEAN region while the 3rd story is about a presentation to be held on fiscal and health impacts of tobacco taxes.
The range of topics gives you some idea of what you are about to embark on, either with your study for a Masters in Development Studies, a Postgraduate Diploma in Development Studies, or a Postgraduate Diploma in Public Administration/Management.
With 15 years working at the Asian Development Bank(ADB); and now as country director for the Sri Lanka Resident Mission, -one of ADB’s 30 field offices- I would like to share with you some of ADB’s development activities and why I am still working at the same institution after all this time.
Any overview of the ADB must begin with mention of those we serve: the people of Asia and the Pacific. Reducing poverty is the region’s greatest development challenge and ADB’s highest strategic priority. Despite impressive growth, the world’s most dynamic region is still home to two-thirds of the world’s poor, with approximately 1.8 billion people living on less than $2 a day and 903 million people living on less than $1.25 a day. So there is plenty of work for you!
ADB’s Mission focuses our work on reducing poverty and improving the living conditions and quality of life of people in our developing member countries. Founded in 1966, ADB is a multilateral public, non-profit institution, with 67 member country shareholders, of whom 48 are from Asia and the Pacific. We have 41 borrowing members. Japan and the United States are the two largest members.
As the only development finance bank headquartered and working exclusively in this region, ADB is uniquely placed to respond to ongoing development, diverse needs, and urgent crises in our neighborhood. ADB is very much an Asian bank. The majority of our members come from the region. We provide funding with a local Asian character. And we have a special concern for the welfare of small countries as prescribed by our Charter. We play a unique role in fostering regional and sub regional cooperation. Prime examples are our pioneering role in the Greater Mekong Subregion since the early nineties, and our role as the secretariat for the CAREC regional grouping in Central Asia. To date, we have developed regional cooperation plans for all of our operational areas, including SAARC.
In addition, ADB has been active in developing domestic bond markets in the region since 1970, when we were the debut foreign issuer in Japanese yen. Since then, ADB has been a regular issuer of local currency bonds in Asian capital markets. For instance, we aim to draw on Asia’s great savings and capital reserves to accelerate the development of the regional bond market under the Asian Bond Market Initiative (ABMI) by promoting issuance of local currency-dominated bonds, facilitating the demand of local currency-denominated bonds, improving regulatory frameworks, and improving related infrastructure for bond markets.
Headquartered in Manila, ADB has 30 field offices—with resident missions throughout the region and representative offices in Frankfurt, Tokyo, and Washington, D.C. We also operate a Pacific Liaison and Coordination Office in Sydney, Australia. Since the adoption of our Resident Mission Policy in 2000, ADB has been transferring more of our operations to field offices. In terms of specific functions, country programming has now been almost entirely delegated to resident missions. And approximately 40% of ADB’s total project portfolio is under administration by resident missions. Resident missions play a lead role in policy dialogue with our developing member countries.
Our Core Business is providing finance and advice for development solutions. We provide loans, technical assistance, grants, guarantees, equity investments, and policy dialogue to support sustainable and equitable growth. Of course, efforts are under way to offer ADB’s borrowing clients a wider menu of financing instruments.
ADB has always borrowed most of the money we need to make loans. We issue long-term bonds in the world’s capital markets, and have a triple-A credit rating, so we can borrow money more cheaply than most of our client countries and we lend the monies we borrow at rates that cover our administrative costs.
In 2011, ADB raised funds totaling $14 billion through a combination of public bond issues and private placements. ADB also issued thematic bonds in 2011, raising $40 million in Water Bonds. Other funding sources come from capital paid in by members, retained earnings from our lending operations, and the repayment of loans. These funds comprise what we call our ordinary capital resources—a pool of funds available for ADB lending operations offered at near-market terms to lower- to middle-income countries.
ADB also has access to a variety of special funds. Largest is the Asian Development Fund (ADF)—a pool of funds available for ADB lending operations offered at concessional terms to our least-income members. ADB concluded its 10th replenishment of the ADF in early May this year to the tune of $12.4 billion. Our Technical Assistance Special Fund is also funded by some of ADB’s better-off members on a periodic basis and is used to provide grants to borrowing members to help prepare projects and undertake special technical or policy studies.
ADB also administers 34 active trust funds─including 21 single-partner and 13 multipartner trust funds─up from just 11 funds in 2000. Initially, trust funds were established through single-donor channel financing agreements targeting numbers of specific sectors. Over time, ADB has been increasingly switching to multidonor trust funds covering thematic issues. A more recent development is the establishment of trust funds under theme-focused umbrella initiatives called financing partnership facilities, which support priority areas in ADB’s Strategy 2020, such as water, clean energy, regional cooperation and integration, and urban sector financing.
ADB’s Board of Directors approved our Long-Term Strategic Framework—Strategy 2020—in May 2008. As ADB’s overarching strategic document to guide our operations from 2008 to 2020, Strategy 2020 defines how we can help shape the region’s future.
At the heart of Strategy 2020 are 3 strategic agendas:
Strategy 2020 identifies drivers of change that are stressed in all ADB operations - developing the private sector, encouraging good governance, supporting gender equity, helping developing countries gain knowledge, and expanding partnerships with other development institutions, the private sector, and with civil society organizations.
To achieve our three agendas, Strategy 2020 focuses ADB’s operations in 5 core areas:
ADB also continues to operate, on a limited scale, in other areas where its presence is needed. For example:
ADB approved $21.72 billion in financing operations in 2011. $14.02 billion came from ADB and its Special Funds, of which $12.61 billion was for 114 loans, $239 million for 6 equity investments, $614 million for 23 grant projects, $417 million for 4 guarantees and $148 million for 212 technical assistance projects. Cofinancing partners provided an additional $7.69 billion in financing, more than double that of the previous year. In addition, ADB’s ongoing Trade Finance Program, which provides guarantees and loans through banks, supported $2.381 billion in trade.
In 2011, ADB approved $12.61 billion for 114 loans. This was roughly the same as our loan approvals in 2010. In order of magnitude, ADB’s top 5 borrowing members in 2011, including cofinancing, were Viet Nam, India, Pakistan, Bangladesh, and the People’s Republic of China.
Traditionally, 50–60% of our total lending has been devoted to basic infrastructure. 2011 was a typical year in that regard, with about 60% being allocated to transport and ICT, energy, and water supply and other municipal infrastructure services.
Beyond traditional loan financing, we deliver development solutions through advisory work, with the largest amount in the form of Technical Assistance Projects. In 2011, a typical year, ADB made 212 Technical Assistance grants, outlaying about $148 million. The top three sectors in the Technical Assistance portfolio in 2011 were Public Sector Management (32.4%) and Multisector (28.8%) and Energy (20.9%). Technical Assistance funds are mostly used to hire consultants. Often, they help to prepare loan projects or to provide policy or advisory assistance for financing sector-,policy, and issues-oriented studies or for undertaking institutional and organizational capacity development. When the Technical Assistance leads to a project loan, some of the funds may be recovered. Technical Assistance grants are also used for research and development purposes, usually for studies that can bring benefits to many countries.
A priority area earmarked for growth is our nonsovereign operations, which includes our private sector operations, as well as lending and guarantees to nonsovereign public entities. One key difference with ADB and, the World Bank, is that ADB undertakes both public and private sector operations, whereas the World Bank’s private sector operations are principally carried out through the International Financial Corporation (IFC). We consider this a significant advantage because it allows us to leverage our public sector partnerships to bring in more private sector financiers.
Total assistance for nonsovereign operations in 2011 came to $6.32 billion representing a 53% increase over 2010. Of the $6.32 billion nonsovereign approvals, $5.62 billion or 89% went to the private sector in the form of loans, guarantees, equity investments, technical assistance, syndications and commercial loans. The remaining $700 million went to loans and B Loans for the nonsovereign public sector. Two main objectives of private sector operations are to create projects that can be replicated in different settings and to catalyze additional private investment.
ADB has supported the Government’s significant investments in many infrastructure activities ranging from transport, energy, water, sanitation and irrigation, including the Southern Expressway linking Colombo and Galle, which was financed by ADB and JICA.
Road and water supply, two sectors which have traditionally been developed by the Government, are now being opened up for private sector participation. With the recent legislative amendments it is possible to have fee levying roads in Sri Lanka. The proposed expressways are expected to be fee levying roads. To increase access to clean and safe water PPP projects in the area of water production are to be implemented.
The Colombo South Port Development Project is one of the recent examples of a PPP model in Sri Lanka which ADB has involved. The major elements of the projects are construction of a breakwater and dredging the approach channel of the inner harbor basin sufficient to accommodate three new terminals. The terminals are to be constructed by operators chosen through open competitive bidding under Build-Operate-Transfer (BOT) concession agreements. The project cost is estimated at $1.4 billion including the construction of three terminals. ADB finances $300 million of the public component, which had stipulated that the terminal construction and operation carried out as PPP.
In the power sector, the Government target of generating 10% of electricity through renewable sources by 2015 requires substantial private sector investments in renewable energy, especially in wind power generation. Private sector participation in future electricity generation will largely also be in the arena of renewable energy.
In less than 10 years, ADB's annual clean energy investment has increased tenfold, from $225 million in 2003 to nearly $2.2 billion in 2011. These efforts will need to continue and intensify. As a crucial part of our climate efforts, we will seek to mobilize significant funding to help close regional gaps in knowledge, capacity, and finance. The green economy itself can become an engine of growth and the driver for a new generation of green jobs—bringing a higher quality of life. Pursuing green growth lies at the core of achieving the three dimensions of sustainable development, namely environmental, social and economic.
ADB’s Board of Directors has approved loans of US$150 million for the Clean Energy and Access Improvement Project (Sri Lanka). The funds will be used to support energy efficiency improvements, to develop the use of renewable energy, and to increase connections and services to rural households.
With the end of the civil conflict and restoration of political and economic stability, Sri Lanka faces good prospects for rapid economic growth and development. Sustaining this level of economic growth would require an improved business climate and initiation of sector policy reforms, rapid development of infrastructure, fiscal consolidation, financial sector reforms, and prudent monetary and exchange rate management.
One of the key ways that ADB operationalizes its partnerships at the country level is through what we call the Country Partnership Strategy, or CPS. The 5 year CPS defines ADB’s strategy and program, and is responsive to a country’s long-term development objectives and priorities. The pipeline of lending and non-lending assistance is updated annually in the Country Operations Business Plan (COBP), which you can find posted on ADB’s Sri Lanka country website.
The Country Partnership Strategy (CPS) for Sri Lanka aligned with the Government’s development policy framework (Mahinda Chintana—Vision for the Future), and focusing on three pillars: (i) inclusive and sustainable economic growth, (ii) catalyzing private investment and enhancing the effectiveness of public investment, and (iii) human resource and knowledge development. Given the relatively small resource envelope, ADB’s interventions in Sri Lanka are strategically focused on a few sectors, such as transport, energy, water supply and sanitation, urban, education, and public resource management.
Development theory (Solow’s growth model), notes that capital accumulation, human resource inputs and technology development are sources of economic growth. Our CPS covers these three factors and, within each factors, identified what action are needed. Development studies form the basis of our thinking.
Under pillar 1, ADB will support infrastructure development that improves connectivity and service delivery to lagging regions of the country. Support will also be provided to nationally important strategic projects to promote long-term sustainable growth. These interventions will reduce regional disparities and expand employment opportunities, thereby promoting inclusive growth. The government’s development policy framework identifies that substantial infrastructure investments are required in the transport, energy, water supply and sanitation, and urban development to promote inclusive and sustainable growth. ADB has been helping Sri Lanka in these sectors and has gained considerable experience in the design and implementation of projects. These sectors would be the focus of ADB’s assistance.
ADB’s assistance in the transport sector will focus on key arterial national road links, and improve provincial and rural roads, especially in the lagging areas. ADB will also assist in pursuing a more environmentally sustainable integrated strategy by developing viable multimodal transport systems. Over the 2012-2014, ADB will support five transport projects. Two energy projects are included in the 3-year pipeline, with a focus on clean energy. ADB interventions in water supply and sanitation will focus on improving access to drinking water and sanitation, reducing water pollution, and building resilience to climate change impacts. In line with this, one project is included in the pipeline for water supply service improvement and one project in the area of industrial sewerage. Under the first pillar, ADB will also support urban infrastructure development through the Environmentally Sustainable Urban Development Project.
Under pillar 2, ADB’s support for private sector development focuses three areas; (i) creating an enabling environment for business, (ii) generating business opportunities in ADB financed public sector projects and (iii) catalyzing private investments through direct financing, credit enhancements and risk mitigation instruments. ADB through its Private Sector Development Program has worked towards elimination of impediments to, and developing opportunities for, greater private sector involvement in Sri Lanka.
In the area of PPP, ADB made much headway on development of ports—for example, ADB policy dialogue with the Government has led to government accepting to adopt the PPP approach for the Colombo Port Expansion Project. The Government signed a 30-year concession agreement with South Asia Gateway Terminal (SAGT) for the development of country’s first modern private container terminal—but achieved limited success in other sectors such as agriculture, power and education. ADB will ensure the involvement of the Ministry of Finance and Planning in identifying, planning and designing PPP arrangements in particular from the beginning. Ultimately it is this Ministry that will determine the overall feasibility and acceptability of the provision and contributions of public finance to the PPP modes of investments and operations which include considerations of the costs and terms of financing from both public and private sources.
ADB will assist in implementing capital market reforms to promote the development of equity and debt markets and induce higher savings and investment. Capital market interventions are expected to materialize in subsequent country operations business plans. The current 3-year pipeline has one fiscal management project to build on the earlier interventions in public resource management to improve fiscal management efficiency and fiscal consolidation and induce higher savings and private sector participation.
Human resources are likely to be a critical constraint, with growing demands for an educated and skilled labor force, and pillar 3 focuses on addressing this constraint. Interventions in education and skills development planned over 2012-2014 include one technical education project, which will be a multi-tranche financing facility, two education sector development projects, and one project to develop a science and technology park through a public–private partnership approach.
RCI can play a critical role in achieving the long term development objectives of South Asia. Through expanding RCI, South Asia will be able to harness the economies of scale, and cost advantages stemming from the huge regional market. This would also contribute to faster economic growth and rapid reduction in poverty. RCI can also help address the large infrastructure deficits in South Asia that have held back the region's more rapid progress through developing cross-border infrastructure e.g. trade facilitation and transport connectivity, and power exchange. RCI can also be helpful to common social and environmental concerns through enhancing provision of regional public goods such as efficient rivers system management, environmental safeguards, reducing air and water pollution, responding to the effects of climate change and managing disaster risks, and controlling communicable diseases.
Over the next 3 years (2012–2014), Sri Lanka’s total resource envelope will be about $900 million, an annual average of about $300 million ($100 million from ADF and $200 million from OCR). ADB will attempt to catalyze additional private resources to complement its projects through PPPs and credit enhancement products. ADB will also seek cofinancing opportunities from bilateral sources to expand the scope of proposed projects, especially in the urban and education sectors, and in climate change initiatives.
Knowledge is a powerful catalyst for propelling development forward and enhancing its effects. ADB will continue to play a significant role in putting the potential of knowledge solutions to work in the Asia and Pacific region.
ADB’s unique abilities to contribute and apply development knowledge are rooted in its central position in identifying trends within and across the region, interdisciplinary and integrated assistance approach, and capacity to apply insight and knowledge through large, attractive financing. It will employ these advantages to support the more robust body of empirical knowledge needed to resolve current and emerging obstacles to development, utilizing its multidisciplinary staff. ADB’s knowledge services address its clients’ immediate knowledge needs, while determining and passing on best practices.
ADB also supports pilot projects from which it distills and disseminates lessons. ADB distributes knowledge in ways that have both an immediate impact and catalytic force—for example, the knowledge of how a country can approach public–private partnerships to provide social services and to achieve benefits for the poor.
Its knowledge is continuously enriched through (i) internal learning from operational experience and communities of practice; and (ii) external learning from long-term strategic partnerships with other international finance institutions and world-class research institutions, including ADB’s own regional knowledge hubs. We are very much interested in working with universities in this regard.
Finally I wish you all the very best for a successful academic experience.