Policy paper

Asian Development Bank 57th annual meeting: statement by the UK Governor, Deputy Foreign Secretary and Minister for Development and Africa Andrew Mitchell

Published 5 May 2024

1. The United Kingdom thanks the Asian Development Bank (ADB) and the Republic of Georgia for hosting this year’s Annual Meetings.

2. The Asia Pacific region is of great importance to the UK, as a driver of global economic growth, as a trade and investment partner and as a source of innovation necessary to tackle the challenges posed by climate change. The UK’s 2023 refresh of our Integrated Review of foreign policy reaffirms our commitment to the region, and we will continue to strengthen our regional relationships working alongside our partners, including the ADB, to support a free and open Indo-Pacific.

3. The region’s most vulnerable people have faced multiple crises over the last few years, including climate change, coronavirus and Russia’s invasion of Ukraine. Conflict is driving rising poverty, particularly in Afghanistan and Myanmar. Almost 130 million people in the region were living on less than $2.15 a day last year, and 40 million were affected by extreme weather events. Amid all this, the Bank is playing a critical role in supporting vulnerable clients, with predictable and substantial long-term financing and technical support.

4. Last November, we set out our approach in our International Development White Paper. Our efforts to build a bigger, better and fairer international financial system are at the heart of our vision – a system that delivers for low – and middle-income countries, particularly those affected by conflict and fragility. The UK is committed to working with partners to end extreme poverty, tackle climate change and biodiversity loss, and empower women and girls.

5. We thank President Asakawa and the Bank’s dedicated staff for the strong leadership and progress made on MDB reform over the past year, notably through releasing $10bn per year via its Capital Adequacy Framework (CAF) review, reassignment of around 1,000 personnel to meet its New Operating Model vision and working towards its $100 billion climate finance goal by the end of the decade. We recognising the efforts taken to strengthen transparency, with the ADB ranking first in 2023 DFI Transparency Index for sovereign lending.

6. The Annual Meeting is an excellent opportunity to reflect on this progress and set direction for the year ahead. The Strategy 2030 midterm review will allow us to continue this conversation beyond the Annual Meeting. We are keen to see the following priorities addressed as part of this process:

   A. strengthening focus on tackling poverty and inequality and addressing global food security, especially in the most vulnerable countries

   B. implementing CAF measures to unleash further funding, while exploring further CAF measures including more systematic recognition of callable capital

   C. demonstrating how the ADB will become ‘the climate bank of Asia’ through stronger climate finance targets, creating incentives to generate an ambitious pipeline of innovative projects, and deploying additional lending capacity generated both by the CAF measures and the Innovative Finance Facility for Climate in Asia and the Pacific

   D. Mobilising more private finance through innovative approaches especially those focused on more difficult ‘frontier’ markets.

7. The New Operating Model and implementation of ADB evolution will set the Bank up to build on this leadership over the remainder of the Strategy 2030 period. The Bank should expand support for countries to benefit from digital technology, while mitigating the risks, and ensure ADB staff enhance their skills.

Vulnerability and fragility

8. We recognise the Asian Development Fund’s critical role in supporting the region’s most vulnerable and poorest members. We were glad to announce the UK’s pledge to ADF14 earlier this week, after a successful set of negotiations. We particularly welcome the increased contribution from net income transfers and hope the Bank will remain open to increasing these in years following a windfall net income increase. We look forward to seeing disaggregated reporting and a revised paper on the approach to small island developing states (SIDS), both of which will be essential in demonstrating the impact of ADF14.

9. The UK has pioneered Climate Resilient Debt Clauses (CRDCs) and we look forward to the Bank making progress on its own pilot. We welcome the ADB’s participation in the SIDS4 event on CRDCs in Antigua and Barbuda in May 2024, which we are hosting along with France, Canada, Barbados, Tonga and Vanuatu. This will help to spur innovation by creditors and support uptake and engagement from borrower countries, especially SIDS.

10. We encourage ADB, under the New Operating Model, further to strengthen delivery in fragile states. We hope to see progress accelerate towards decentralised staffing, with more specialist staff hired and based in fragile countries, including through the reopening of the office in Afghanistan alongside the World Bank. We recognise the increasing emphasis on gender, including in development of the new safeguards policy, but there is more to do on promoting diversity among ADB staff. It is good to see a record number of women on the Executive Board. This progress must be sustained.

Capital Adequacy Framework review measures

11. Last year, the Bank agreed changes to its capital adequacy framework that will enable $10 billion per year in additional financing capacity to advance regional growth. Further billions will be unlocked by both the Innovative Finance Facility for Climate in Asia and the Pacific (IFCAP) and the International Finance Facility for Education (IFFEd). The UK was pleased to commit up a guarantee of up to $300 million to IFCAP, unlocking $1.2 to $1.8 billion in additional climate financing over the next 5 years, and up to £180m to IFFEd, which will unlock $1 billion in affordable education finance. We welcome the Bank’s response to the G20 CAF Review so far and expect the Bank to continue ambitious engagement on the longer-term more challenging measures, including callable capital,  in coordination with other MDBs.

Climate

12. Climate change must be at the heart of ADB’s operations and ethos. Climate change threatens progress on development and poses a vast threat to lives and livelihoods across the region. It is vital to step up action on both mitigation and adaptation.

13. The UK supports the Bank’s intention to become ‘the Climate Bank for Asia’. It has demonstrated progress by reaching its highest-ever annual financing for climate action at $9.8 billion, including investments in adaptation, totalling $4.3 billion. We will be following closely implementation of the Climate Change Action Plan.

14. With further capital unlocked through IFCAP coming on top of CAF reforms, ADB should have capacity to increase climate finance beyond the $100bn target. On mitigation, the Bank must continue its excellent work on the Just Energy Transition Partnerships and the Energy Transition Mechanism. The ETM’s success should prompt its expansion scheme to help further countries transition away from fossil fuels. More mitigation financing should come from domestically mobilised resource and policy reform, for example renewable energy auctions.

15. The UK would like to see a greater focus on adaptation and we are supporting the Bank through 2 innovative adaptation initiatives, the Community Resilience and the Urban Resilience partnership programmes. The Bank can provide further support to client countries in creating national adaptation plans to help generate more projects with real impact.

16. ADB has made impressive progress in supporting developing member countries to improve disaster preparedness, including through disaster risk finance such as contingent credit and insurance. As the Global Shield against Climate Risks gathers pace, we look to the Bank to play its full part, with support for innovative cover such as against extreme heat, as well as supporting both the Pacific and Southeast Asia risk pools.  The Bank can boost the resilience of the infrastructure and other investments it funds by strengthening the upfront physical climate risk assessment process and by including provision for both maintenance and insurance in project budgets.

Support for the private sector

17. Tackling climate change and meeting the SDGs means addressing the estimated $13.8 trillion required by 2030 to fill the infrastructure financing gap in Asia, which will only be achieved by further leveraging private finance. The UK partners with a range of private sector instruments, including British International Investment, Private Infrastructure Development Group and MOBILIST. These have the potential to unlock critical finance for the region, including in infrastructure, and to mobilise more private capital to support economic development. For example, in February of this year MOBILIST advanced local capital market development in Thailand by supporting Thai Credit Bank get listed on Thailand’s stock exchange. These are illustrative of the kind of partnerships ADB will need to develop. We want the Bank to scale up operations in fragile countries including small island developing states, with greater non-sovereign operations.

18. Given the sheer size of their lending capacity, commercial banks will need to play a far larger role than multilateral development banks and development finance institutions. The Bank can stimulate this with increased risk transfer to the private sector, through further support for Initial Public Offerings and green bond issuances.

19. We welcome the recent Global Emerging Markets Risk Database (GEMs) publication of recovery rates and urge ADB – alongside other MDBs – to publish its own disaggregated data, by sector and country or country group, as soon as possible. This includes data across all private, sub-sovereign, sovereign and sovereign-guaranteed lending. As well as its work to build financial infrastructure through local markets, local currency and shifting risk perceptions, we also want the ADB to work upstream to support countries in strengthening their investment climate and to build strong pipelines to attract private sector investment.

Conclusion

20. To conclude, the ADB has demonstrated excellent leadership in unlocking capital through its CAF review and disaster preparedness. The UK hugely values our partnership with the bank as, together, we continue striving to build a bigger, better and fairer international financial system – one that delivers for everyone.