Asian Development Bank president Masatsugu Asakawa is in India to attend the G20 Summit. Responding to a questionnaire from TOI, he said India is on a promising growth path and strong domestic demand will act as a buffer against external slowdown. He also elaborated on how ADB is seeking to revamp operations to meet new challenges, a key agenda item for the summit. Excerpts:
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What is your expectation of the global economy? Do you expect inflation to moderate and the growth rate to pick up?
Global demand will be weaker this year than in 2022, though economic activity in advanced economies has slowed less sharply than we expected. First-half growth in the US and Japan has surprised on the upside, and the euro area avoided a technical recession. Global growth will continue to slow this year and into 2024, as the aggressive hikes by the US Fed and European Central Bank feed into these economies and into global financial conditions. High interest rates and slowing demand also mean that global inflation should continue moderating this year and the next. In our region, we expect developing Asia and the Pacific’s growth to be close to 5% this year and the next. But downside risks to the regional outlook have intensified, including due to weakness in the People’s Republic of China’s property market.
How do you see developments in China impacting growth in Asia and the world?
The momentum from China’s reopening in the first half is waning, and headwinds from weaker global demand and domestic real estate are gaining strength. Some moderation is expected. China‘s growth has been slowing for several years and could continue for reasons including ageing, rebalancing from investment to consumption, and shifting to a new growth phase driven less by low-cost labour and more by innovation. Chinese authorities seek “high quality” growth that could fend off financial risks, foster environmentally sustainable growth, and reduce rural-urban inequalities. Countries that export final goods and services to China, and those that export inputs used for domestic production, especially construction, will be most susceptible to a property-induced slowdown.
What is your outlook on India, which many believe will be among the fastest growing major economies over the next few years?
Indian economy is clearly on a promising growth trajectory. The government’s strong emphasis on physical infrastructure development and ease of doing business should significantly enhance competitiveness. Rapid advancements in digital infrastructure are laying the groundwork for innovative breakthroughs across various sectors. India’s long-term economic growth is underpinned by the steady expansion of working population and the middle class. Nevertheless, uncertainties due to Russian invasion of Ukraine and cautious growth prospects in advanced economies could impact the Indian economy, especially if there is volatility in global commodity markets.
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However, domestic demand should act as a buffer against external demand slowdowns. To maintain India’s growth trajectory, robust private investments would be crucial. It is important that growth is more job-intensive, less carbon-intensive, and climate resilient.
There is a lot of discussion around the reform of multilateral development banks. How do you view the report of the Independent Expert Group, and do you see countries ready to infuse more capital?
It’s clear that the challenges we face both in Asia Pacific and globally are immense. Multilateral development banks (MDBs) must take bold action to help address these challenges. ADB welcomes efforts by all parties to ensure MDBs are well equipped to play this role, and the Independent Expert Group is an important contributor to this conversation. Mobilising adequate resources is an important goal – that’s why ADB has been optimising its balance sheet through a capital adequacy framework review, which has the potential to mobilise billions of extra dollars of support for our member countries annually.
What reforms is ADB undertaking to adjust to new global challenges?
ADB has embarked on a range of reforms to respond to new challenges, including to help deliver global public goods. Financial innovations and balance sheet optimisation will be crucial. ADB has nearly completed a review of its capital adequacy framework to explore how adjustments such as redefining risk tolerance and optimising balance sheets can create more headroom for increased lending. This will help to mobilise billions of additional resources to finance critical global and regional public goods. We are also conducting a major review of our Strategy 2030, to ensure that new development challenges and public goods are fully reflected in our corporate priorities, alongside strategies for bold impact.
This year, we introduced our New Operating Model, a major reorganisation which enables ADB to increase its capacity as the region’s climate bank, strengthen its work to develop the private sector and mobilise private investments in the region.
One of the issues flagged by the Independent Expert Group is leveraging more private capital and coordinating with other MDBs. Is the bank doing enough?
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The balance sheets of all MDBs combined will still fall massively short compared to the huge financing needs of our region. MDBs bring billions of dollars to the table, however, trillions are needed to meet investment needs for adaptation and mitigation, disaster resilience, and broader sustainable development goals. Private capital mobilisation is the key to moving from billions to trillions. This is why a private sector shift was explicitly targeted in ADB’s New Operating Model – to improve our ability to integrate private sector solutions at every level of our operations.
