Tackling the Challenges

of the Infrastructure Gap

in South Asia

John H. Stein

Director

Sustainable Development Department

South Asia Region

Outline

South Asia Background

Infrastructure Gap by Sector

Investment Needs

A Portfolio / Pipeline of

Transformative Actions (Dora)

Concluding Remarks

South Asia Background: A Region of Paradoxes

Macroeconomic Paradox: Traditionally large budget deficits (almost 9% of GDP) and inflation is a concern in some countries, yet 7% average GDP Growth in 2000-2007; India - 9%, Afghanistan - 12%. Second-highest GDP growth behind East Asia & Pacific (EAP).

Result with the crisis: Fiscal space for infrastructure investments is limited in many countries.

Spatial Paradox: Mainly rural but with mega cities and highest urban densities in the world. Both rural and urban space threatened by climate change due to increased disaster frequency and intensity.

Result: Infrastructure service delivery both in rural and urban areas highly deficient. Main urban centers score lowest in livability index. The poor suffers the most since neither areas are able to cope and provide minimum services.

Development Paradox: Most urbanized country in SAR – Pakistan (urbanization rate almost like China) is among the most dependent on agriculture (almost 21 % of GDP). One of the most rural countries in SAR – Sri Lanka – is highly service oriented (almost 58% of GDP).

Result: Urbanization is likely to increase in the future, demanding more infrastructure investments.

Institutional Paradox: Ancient history, diverse ethnicities, vibrant private sector in some areas, yet young countries plagued by conflict with state dependent economies.

Result: Diffuse accountability (tribe / cast rather than nation state); 1st class services in IT for example but little basic infrastructure; decentralization is complex and highly political.

South Asia Background: Urbanization + Growth =

Increased Infrastructure Demand

Least urbanized region in the world.

Two decades ago, SAR (25%) and EAP (29%)

Now, SAR (29%) and EAP (43%)

Urbanization is expected to quickly accelerate.

50 % of Pakistanis will be urban dwellers

Over 40 % of Indians will live in cities

In 2050, India will have more cars than the U.S.

Rural urban transformation will likely be a major development issue in the region’s near future

Yet currently there is already significant lag in access to infrastructure behind EAP and LAC. Comparable only to Sub Sahara Africa.

Infrastructure Gap: Access to WSS Access to Improved Water is similar to other regions (87% ),

however, quality is a problem (31 water shortages per month in SAR followed by SSA with only 8)

SAR ranks second to last in access to improved sanitation, close with SSA

SAR = 33%, SSA = 31%

Comparatively, third to last region, EAP has 66% access.

Electricity is subpar SAR (50%) behind

World (76%) and EAP (88%)

By far, the most power outages in the World.

Infrastructure Gap: Electricity

The large number of

power outages have

been harmful to

businesses and

growth.

Infrastructure Gap: Transport

Transport is lacking, like most developing countries.

Variable Quality - Paved Road

Bangladesh (10%), India (47%), Sri Lanka (81%).

Quantity may be similar but quality is different, e.g.

China has 80% paved roads.

Infrastructure Gap: Telecom

Access in EAP in 1990 = SAR in 1990, but EAP quickly accelerated.

Even Private Sector growth areas, SAR is lagging behind.

Investment Needs Despite the global economic recession, large public and private investment

are required in the short and medium run. Climate change is likely to aggravate the already dire situation.

Given forecasted GDP growth, how much infrastructure investment is required to compensate for this growth plus depreciation?

Energy and Roads account for 2/3 of required investment.

Current Private Investment are low.

Bhutan, Afghanistan: 2% of GDP per year in private investment commitments.

India (1%), China (0.5%), Brazil (2%)

Ironically, global recession may alleviate the investment needs but only minimally since the infrastructure service gap is already enormous.

Concluding Remarks: Partnering to assist

South Asia SAR countries face formidable challenges to address the infrastructure gap

Governance

Accountability

Decentralization and Democracy

Weak Capacity in most countries

Regional Integration may play a major role, but countries need to increase trust on each other.

Global Economic Recession is likely to reduce private financial resources to fill the infrastructure gap.

Filling the gap is not a matter of just investing in physical infrastructure. Policy lending and dialogue may play a major role.

Knowledge Management plays a major role, increasing transparency and accountability, preparing the region to a middle income status.

SAR portfolio and pipeline is being geared towards a cross-sectoral agenda of transformative actions: Regional / Spatial development, Decentralization, Coping with Climate Change and Improving Water Management, Boosting Efficiency of Service Provision, and Holistically Tackling the Infrastructure Gap.

Thank you

Special Thanks to Fernanda Ruiz

Nunez, Dora Nsuwa Cudjoe and Dan

Biller