ADB faces funding crunch, warns India

The Asian Development Bank (ADB) headquarters in Manila. (AFP/Romeo Gacad)

NEW DELHI: The Asian Development Bank is facing a funding crunch as the lending agency struggles to reduce widespread poverty in emerging market nations and improve ramshackle infrastructure, India warned Saturday.

The Asia-Pacific region, despite boasting the world's fastest-growing economies, is still home to around two-thirds of the world's poor, with some 1.5 billion people living on less than $2 a day.

Member countries of the Manila-based development bank need to consider ways to increase its resources to meet Asia's massive needs for infrastructure, economic growth and to combat poverty, India's Finance Minister P Chidambaram said.

"The support that the ADB can deliver for economic development and poverty reduction in the region will be seriously constrained by the lack of adequate capital," he told the annual two-day meeting of the ADB's board of governors.

"We may hit the wall (in funding) in about three years," Chidambaram added, noting the amount of lending by Asia's main development bank is expected to decline to $8 billion annually from $10.1 billion.

Some 5,000 delegates were at the two-day annual meeting, being held on the outskirts of New Delhi, of the board of governors of the lending agency that offers low-interest loans, grants and other support to fight poverty in Asia.

The ADB's support is also critically important to improve the quality of the region's infrastructure, Chidambaram said, noting Asia needs a "humongous sum" of US$8 trillion to $10 trillion over the next decade to upgrade its ports, roads and other infrastructure in order to fuel growth.

"The ADB has its work cut out," said Chidambaram, who was speaking in his role as chairman of theADB board of governors.

The 67 members from the ADB are made up of 48 from the Asian region and 19 from elsewhere, mainly North America and Europe. Japan and the United States are its largest shareholders.

If the ADB is to keep up its important regional role, "its resource base has to expand considerably", Chidambaram said. India has a strong interest in seeing the ADB's resource base strengthened as it is one of its biggest borrowers.

The ADB's income from surplus resources invested in developed nations has fallen due to softening global interest rates aimed at spurring sluggish growth, the new president of the lending agency, Takehiko Nakao explained.

"Our income from surplus resources is lower than ever due to diminishing interest rates in advanced countries," said Nakao, Japan's former vice finance minister for international affairs.

He was attending his first meeting as ADB head after being elected in April.

Japan has headed the ADB since its 1966 launch while an American is at the helm of the World Bank and a European leads the IMF, despite calls from some emerging nations for advanced countries to take more of a leadership backseat in global institutions.