Regional: Program to Enhance Capabilities of Sovereign Institutions in the Central and West Asia Region to Introduce Innovative Financing Modalities

Public sector management / Reforms of state owned enterprises

Limited fiscal resources of developing member countries of ADB's Central and West Asia region for financing the Sustainable Development Goals. To achieve the operational priorities of ADB's Strategy 2030, sovereign institutions in Central and West Asia DMCs must accelerate the mobilization of resources for SDG financing. The impact of the coronavirus disease (COVID-19) pandemic has been felt most acutely by some of the most vulnerable populations, and may delay the achievement of the SDGs in these DMCs by several years. The immediate consequences of COVID-19 have been rising public debt, increased sovereign risk, rating downgrades, capital outflow, reduced tax revenues, a marked drop in overseas remittances, and the reversal of social policy mandates. For women and girls, COVID 19 has further exacerbated gender inequalities. Developing economies in Central and West Asia have been further strained by the invasion of Ukraine. Pakistan's economic growth is expected to be slow in FY2023 (ending 30 June 2023) amid ongoing policy tightening, devastating floods, and a high inflation rate. Furthermore, because of the global investment and remittances, economic growth in Tajikistan and Uzbekistan is projected to be slower in FY2022 than in FY2021.

Weak sovereign institutional mechanisms. The COVID-19 pandemic has further exacerbated the challenges of mobilizing private sector funds for SDG-related investments. The challenges for sovereign institutions in operationalizing or scaling innovative financing modalities in public-private partnership for SDG-related sectors that are public service in nature, such as health care and education, include (i) ineffective cooperation modalities between private and public institutions, (ii) diverse organizational set-ups and management techniques, (iii) varied incentive mechanisms and risk return metrics, (iv) diverse legal provisions and governance mechanisms, and (v) inadequate oversight from public sources.

Insufficient links to private sector resources to address financing gaps. Although there is tremendous appetite and potential among private sector investors, the supply-side barriers include high initial transaction costs in developing a concept; lengthy design development stages; low risk-adjusted returns; disparate performance metrics; unfavorable contracting terms; and a lack of standardization for program design and delivery for key SDG sectors such as health care, education, and climate change adaptation.

Lack of sovereign incubators or sandboxes to nurture novel ideas. Globally, innovative financing modalities, such as impact bonds, guarantees, leasing, and impact investments, have shown that they can unlock new sources of capital and address development challenges. Although there is tremendous interest among sovereign institutions in Central and West Asia DMCs to evaluate various innovative financing modalities to address specific market failures, overcome institutional limitations, build suitable capacity for engaging with the private sector, and implement such novel concepts following internationally acceptable standards and practices, there is also a lack of understanding of innovative financing and global practices being implemented by governments. The sovereign institutions are further constrained by a significant degree of uncertainty, the longtime horizon for developing such modalities, and the substantial financial resources needed to explore such novel concepts.

Institutional capacity of Central and West Asia DMCs enhanced and financial resources for development mobilized.

Capacity of Central and West Asia DMCs to facilitate the mobilization of capital for financing the SDGs improved

Institutional capability of sovereign institutions for adopting innovative financing modalities for the SDGs enhanced.

Knowledge support to sovereign institutions on innovative financing modalities provided