Meeting of Governors of Pacific Developing Member Countries with ADB Management 2021 - Masatsugu Asakawa
Speech | 5 May 2021
Opening speech by Masatsugu Asakawa, President, Asian Development Bank, at the Meeting of Governors of Pacific Developing Member Countries with ADB Management at the 54th Annual Meeting, 5 May 2021
Governors, Alternate Governors, Members of the ADB Board,
Ladies and Gentlemen
Welcome and thank you for making time to join this meeting of Governors of Pacific developing member countries with the Management of the Asian Development Bank.
II. Impact of COVID-19 on SIDS
Since we met last September at the 2020 virtual Annual Meeting, coronavirus disease (COVID-19) has continued to play havoc with our lives, health, and economies.
ADB’s economic impact analysis shows that small tourism-dependent economies, including many countries in the Pacific, have been particularly hard hit. While considerable effort has gone into preparing travel corridors or travel bubbles, such as those by the Cook Islands and Palau, there is no end in sight to the global tourism collapse.
Expectations for 2021 are still sluggish, with annual growth across the Pacific forecast to be just 1.4%, despite coming from the significantly lower base last year. Many countries are still expected to experience contractions before the region moves forward more strongly in 2022.
III. Our support to the Pacific so far
Amid such an adverse context, ADB has made utmost efforts in helping countries in the Pacific to mitigate the impact of the pandemic. Last year, our financing commitments to the Pacific reached an all-time high of $1.15 billion. More than half, $671 million, was targeted to COVID-19 response, mainly delivered through the COVID-19 Pandemic Response Option (CPRO), which provides quick disbursing support to help governments finance their fiscal stimulus packages.
Eight CPROs [Cook Islands, Federated States of Micronesia, Marshall Islands, Palau, Papua New Guinea, Samoa, Solomon Islands, Vanuatu] have been disbursed. They have enabled businesses to survive and retain some workers, supported those who have lost jobs, and provided alternate income and livelihood opportunities.
ADB has also provided direct support targeting critical businesses over the past year. In January 2021 the ADB Board approved a $65 million COVID-19 Liquidity Support Facility for Fiji Airways, ADB’s first private sector lending to an airline. Fiji Airways provides essential transport for Fiji and other small island developing states in the South Pacific, linking Fiji across the region and the outside world. I believe the loan will help fund Fiji Airways through the international travel downturn and support its return to profitable operation.
In addition, last December, ADB launched a $9 billion vaccine initiative – Asia Pacific Vaccine Access Facility (APVAX) – to help developing member countries (DMCs) access safe and effective COVID-19 vaccines and distribute them equitably and efficiently. The first APVAX grant project for the Pacific covering Samoa, Tonga, Tuvalu, and Vanuatu was approved by the Board in late April. ADB stands ready to assist more Pacific DMCs with COVID-19 vaccine procurement and rollout.
Let me assure you that ADB will keep providing robust support with concessional terms to vulnerable Pacific DMCs. Successful replenishment of ADF 13, together with the introduction of a vulnerability premium will provide more grant resources to 10 Pacific countries from 2021 to 2024, compared with ADF 12. I believe ADB’s support with ADF resources will help you overcome the crisis and move steadily toward recovery.
IV. Key messages
Now, let me highlight three key areas of ADB’s support to the Pacific to promote a green, resilient, and inclusive recovery.
1. Supporting climate change adaptation
The first area is supporting countries to adapt to the impact of climate change. Asia and the Pacific’s economic growth has come at the high cost of increased greenhouse gas emissions, and the climate impacts are now undermining development gains. Climate change is the greatest long-term threat to the Pacific region.
To address this challenge, we can no longer take a business-as-usual approach—we need to put ambitious climate actions at the center of development.
ADF 13 has adopted explicit climate targets for the first time. Over the period 2021-2024, we aim to support climate mitigation and adaptation in at least 35% of our ADF 13 operations by volume, and 65% of the total number of projects. ADF 13 has established a thematic pool to support adaptation projects, and already funds have been allocated to flood protection work in Samoa and for water and sanitation investments in Vanuatu. The targets and investment focus will ensure spending on climate actions is not compromised in current times.
ADB is enhancing support for adaptation and resilience through a holistic approach that promotes strong integration of the ecological, social, institutional, and financial aspects of resilience into ADB’s investments. For example, in Tonga we are undertaking multi-hazard risk assessment as a starting point for identifying downstream investments in different sectors.
ADB is also strengthening financial preparedness to disasters. We are scaling up our support in disaster risk financing through Contingent Disaster Financing that provides support for early recovery and reconstruction as well as strengthening policy and institutions for resilience building.
2. Private sector
The second key issue is to catalyze investments by the private sector. The private sector plays a critical role in driving economic growth – yet in the Pacific, the capacity to do so is constrained by factors such as the small size of companies, limited connection to the global market, and difficulty in accessing finance. Through a OneADB approach, we are bringing technical expertise, and resources from across ADB to increase ADB’s private sector investments in the Pacific.
As part of ADF 13, a $67 million Private Sector Window was created to promote private sector growth and investment.
The grant nature of this financing is a first for ADB’s private sector operations. We are also seeking opportunities in less traditional sectors for ADB’s private sector operations – agribusiness, social sector, health, education, tourism, and infrastructure investments beyond energy, such as in water, urban sanitation, information communication and technology, and transport. This should create strong demand to access the financing window.
3. Debt sustainability
Last, let me draw your attention to the issue of debt sustainability. Debt levels are a significant concern to ADB. While the debt to GDP ratio has grown across the region, debt levels require close attention in small countries that are tourism dependent, where fiscal space is limited and tax revenue has significantly decreased, despite sound macroeconomic management before COVID-19.
The Debt Sustainability Analyses produced by the IMF generally point to limited room for the Pacific to absorb significantly more debt. Seven countries are already judged to be at a high risk of debt distress.
Here ADB’s technical support to prioritize expenditures and strengthen debt management has been instrumental. In alignment with IDA’s Sustainable Development Financing Policy, ADB is supporting governments to identify and implement policy actions to maintain debt sustainability.
ADB also supports DMCs to grow their own revenue sources. For example, the recently approved policy-based lending in Palau will support government implementation of a taxation reform package. Let me also highlight that, a regional tax hub on domestic resource mobilization and international tax cooperation was officially launched on Monday during this Annual Meeting. This hub, with a strong secretariat hosted in ADB, will provide an open, inclusive, and pan-regional platform for strategic dialogue, institutional and capacity development, and knowledge sharing. The knowledge shared and accumulated in the hub will help ADB and DMCs better design our lending for growing revenue sources and to enhance capacity of public financial management. I urge you all to make the most of this valuable resource.
Let me conclude by assuring you that ADB remains a steadfast partner to the Pacific region. We will support you to recover lost ground and come back stronger after the challenges of COVID-19, and be better prepared to take on future challenges.
ADB has been refining its partnership strategy with the Pacific, and the new Pacific Approach 2021-2025 will be considered by the Board next month. The new Approach would better respond to the region’s development needs through tailored or differentiated approaches, including taking a country-wide approach to our climate change work, expanding our work on capacity building, and by paying greater attention to project implementation in the Pacific context with available procurement flexibilities.
I trust today’s discussion – with a focus on driving the economic recovery from COVID-19 and considering means to strengthen effective regional cooperation – will give you the opportunity to share your future plans and learn from each other.