The rising number of middle-income countries in Asia and the Pacific — 37 in 2015 compared with 24 in 2006 — will require increased financial support from the Asian Development Bank (ADB) and other multilateral donors working in the region to help sustain growth and deal with rapidly unraveling challenges, says an ADB independent evaluation report.
The swift transition to middle-income status — a measure of development based on income per capita — reflects the region’s continued economic dynamism. Even so, more poor people live in middle-income countries than poor countries and many governments in middle-income countries are finding it difficult to reduce rising income inequality and regional disparities.
“Becoming a middle-income country doesn’t mean that less donor support is needed; in fact, quite the opposite,” says Marvin Taylor-Dormond, director general of Independent Evaluation at ADB. “Investments from public, multilateral, and private sources running into trillions of dollars will be needed for a new wave of structural reforms and modernization programs to enable Asia’s middle-income economies sustain strong growth.”
“But the support from multilateral agencies must also go beyond financial assistance. ADB and other donors need to provide a much more knowledge-intensive engagement with the region’s middle-income countries that can be translated into workable policies and investment.”
The report, The Asian Development Bank’s Engagement with Middle-Income Countries, examines the economic and development challenges faced by middle-income countries such as unplanned urbanization, low productivity and competitiveness, stark regional disparities, a lack of economic diversification, and achieving environmentally sustainable growth amid climate change. It also looks at how ADB can intensify its operations in these areas.
All but three of 40 countries where ADB has operations are now middle-income. The sharp increase in ADB lending to middle-income countries — $3.5 billion in 2006 rising to $15.8 billion in 2015 — reflects their continued need for ADB support.
Just as remarkable is the transition to upper-middle-income status, defined gross national income per capita of $4,035–$12,475, from four countries to 13 in the same period. Countries making this transition include the People’s Republic of China, Thailand, and several Central Asia and Pacific countries.
Despite facing many common challenges, Asia’s middle-income economies are highly diverse. East Asia’s main challenge is the result of decades of fast growth that, among other things, degraded the environment. South Asia’s is to reduce inequality and bridge the urban-rural divide. Meanwhile, Southeast Asia’s challenge is to build on progress made in strengthening regional economic cooperation.
The report’s main author, KapilThukral, says, “ADB’s member countries are telling us they need to remove a slew of constraints jeopardizing growth, and that they want to learn from best international practices and the experiences of other countries and the private sector.”
A greater orientation toward knowledge support and sharing would enhance ADB’s influence and impact in Asia and the Pacific where the growing economic muscle of middle-income countries is leading to stronger regional integration, and the mobilization of more international resources for development with the recent entry of two new multilateral lenders. Both the Asian Infrastructure Investment Bank and the New Development Bank of BRICS countries were set up by middle-income countries.
Against this backdrop, the study recommends that ADB scale up its operations in middle-income countries, prioritizing urbanization, particularly in the replication of successful city modernization experiences; environmental management and climate change mitigation; and boosting productivity, competitiveness, and innovation by focusing on human capital and making labor markets work more efficiently. The evaluation notes that stakeholders in middle-income countries expect ADB to increase its engagement with local and regional governments, and to decisively support private sector and public-private partnerships.
“Countries are demanding a lot more from their development partners as they try to sustain growth and, crucially, for many middle-income countries to tap new sources of growth,” says Taylor-Dormond. “To remain highly relevant, ADB should deepen its engagement with the region’s middle-income countries, and position itself to be the first choice for their knowledge needs.”