WASHINGTON — The Asian Infrastructure Investment Bank recently awarded its first health infrastructure investment in response to COVID-19 as it seeks to create a $5 billion crisis recovery facility that will offer financing to public and private entities suffering as a result of the pandemic.
“We need to really think long term and draw the right long-term lessons.”— Jang Ping Thia, economics unit manager, AIIB
The facility is designed to be flexible and adaptable as the situation changes and will provide financing over the next 18 months, the bank said in a statement. AIIB may increase the amount of money in the fund, depending on demand. AIIB is also exploring how it can use its Project Preparation Special Fund to help especially low-income members impacted by COVID-19.
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The facility can be used to finance emergency public health needs such as health infrastructure, support infrastructure investments impacted by the pandemic, or provide funding to manufacturing to preserve capacity in a sector.
The first project approved is a $355 million deal to support public health emergency response in the Chinese cities of Chongqing and Beijing. The bank is also considering a $250 million project to support the Indonesian government’s COVID-19 response and a $500 million project to support India’s response and health system preparedness, both of which would be co-financed with other donors.
Supporting health projects is new for AIIB, though social infrastructure investments have always been within its mandate. In the past, the bank has focused on energy or transportation infrastructure because it was a young organization and it was better to have a narrow focus, Jang Ping Thia, manager of AIIB’s economics unit, told Devex.
While the agency had considered a shift toward more social infrastructure projects, “the crisis accelerated the thinking,” he said, adding that megatrends in Asia, including urbanization and aging, point to health care, water, and sanitation being critical investments.
“A well-managed and robust development institution must be nimble enough to deal with external shocks and responsive enough to adapt to the changing needs of its clients while also adhering to our mission of promoting economic and social development in Asia,” said Jin Liqun, AIIB’s president and chairman of its board of directors, in a statement. “The international community needs to come together to pool our resources to help the world navigate the current pandemic and economic upheaval. AIIB is committed to playing its full part.”
Countries that want funding can approach the bank, and it is looking to scale up financing quickly, including through co-financing with other established multilateral development banks, Thia told Devex.
AIIB will start by supporting emergency needs such as building hospitals and financing supplies for the COVID-19 response, he said. But in 2021, after the emergency phase, it will look to plan and put in place “long-term infrastructure to prevent and mitigate the impact of future epidemics,” Thia added.
“We need to really think long term and draw the right long-term lessons. Without clean water, you cannot even wash your hands. With high urbanization, you cannot even do segregation or quarantine if you do not have good social infrastructure or public health infrastructure. So, Asia has a large gap in all these areas,” he said.
Future AIIB health investments will also likely focus on information and communications technology, which can assist with contact tracing, medical records, and telemedicine, as well as mitigating supply chain and economic disruption, Thia said.
While wealthier countries are able to essentially do whatever it takes in terms of fiscal and monetary policy to stabilize their economies, lower-income countries don’t have that same ability to put aside debt concerns and have fewer tools to stabilize economies. Lower-income countries are more vulnerable and need the support of international financial institutions and multilateral development banks, which can provide long-term capital, Thia said.
It is better for countries to put financing toward “productive capital,” such as infrastructure, through loans with long payback cycles rather than portfolio financing, he said, adding that it is AIIB’s role to help provide that type of funding.
If MDBs can work together to supply long-term financing at lower costs, countries will be able to manage debt more effectively, Thia said.
“While debts will rise for developing economies [as they borrow] to tide [them] through crisis, the debts do not need to threaten short-term macro stability and can be sustained over longer term,” he said.
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