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AIIB to Expand Spending

AIIB says it has enough capital to back the projects and does not need fresh funding. The bank has $20 billion in cash and $80 billion worth of guarantees from member countries
Piyush Goyal (L) and Jiu Liqun meet prior to the AIIB seminar in Mumbai on Monday. Piyush Goyal (L) and Jiu Liqun meet prior to the AIIB seminar in Mumbai on Monday.

China-led Asian Infrastructure Investment Bank said Monday it will invest in or lend $3.5 billion this year to India, Bangladesh, Turkey and Egypt for projects aimed at strategically connecting Asia and Africa.

Since its launch in 2016, AIIB has approved around $4.4 billion in loans. The body, which comprises 86 member-countries, revealed the new plan at the start of its two-day annual meeting in Mumbai, India, on Monday. India is AIIB’s second largest shareholder after China, Nikkei reported.

“India is the largest borrower, we are working in Bangladesh, Turkey ... Country is not a limitation,” said AIIB Vice President and Chief Investment Officer D.J. Pandian, adding that the decision still needs approval by the bank’s board of directors.

India has already borrowed $1.21 billion from AIIB. On Sunday, Indian Economic Affairs Secretary Subhash Chandra Garg, told reporters India has sought project financing of around $2.40 billion from the bank. Of that, $200 million will be invested in India’s National Investment and Infrastructure Fund, which funds commercially viable infrastructure projects.

Six projects in India have been approved by the AIIB, while another six are in the pipeline. The new projects include a Mumbai subway line, irrigation and flood management projects in West Bengal, and rural roads and city development for Amravati, the new state capital of Telangana in the south. Bangladesh has proposed a water supply and sanitation project while Turkey has sought funds for a gas storage expansion project in the middle of the country.

 Enough Capital Available

AIIB said it has enough capital to back the projects and does not need fresh funding. Pandian said that the bank has $20 billion in cash and $80 billion worth of guarantees from member countries.

Pandian also stressed that AIIB, which has faced questions about Chinese influence on its decision-making, is “an apolitical organization”. Some have said that Beijing-based AIIB had hoped to change the idea that it’s an arm of the Chinese government by holding the annual meeting in India, China’s biggest regional rival.

Speaking at a separate session, AIIB President Jin Liqun said the bank’s vision is to collaborate closely with all governments that it works for, especially on behalf of private sector companies that are working on infrastructure projects.

“We try to give you feedback ... I hope the government will be listening to and do something practical to help them (private players) out. I think in this regard the private sector will be willing to pour in money,” he said.

 $4.5t Infra Investment, a Challenge

Creating infrastructure will need $4.5 trillion investments over the next decade and the cost of the money will be a challenge, India’s interim finance minister Piyush Goyal said.

The minister, however, said finding the required finance will not be a “deterrence” for the country. “Infrastructure creation requires $4.5 trillion in investments over the next 10 years, Goyal said at a panel of governors at the summit.

He further said the required funds will be available and raising it will not be a “deterrence” for infra creation. However, in the comments that come amid rising interest rates globally, led by hardening of rates in the US, as also domestically, Goyal flagged the cost of finance as an “important challenge”.

Capacity building to handle big infra projects is also a challenge, he added and hoped that the multilateral institutions like the AIIB will help in both the challenges.

However, Singaporean lender DBS chief executive Piyush Gupta said finding finance for infrastructure is not easy as banks, which have traditionally financed infra, have a limited capacity, making bond markets the go to platform for raising the resources.

But the bond markets too have their own challenges in supporting greenfield projects and tend to keep away in the initial years, which is critical for a project, Gupta pointed out.

 Co-Financing

Co-financing with the World Bank and other peers accounts for two-thirds of the AIIB’s 25 approved projects so far, worth $4.4 billion in total. Its lending has grown in line with expectations, rising to $2.5 billion last year from $1.7 billion in 2016.

Contrary to some predictions, the list of AIIB loan recipients has not been skewed toward countries that enjoy close relations with China, such as Pakistan. Besides India, Indonesia, the Philippines and Central Asian and Middle Eastern nations are also among the names.

Its membership has grown steadily, with Kenya and Papua New Guinea joining in May, bringing the total to 86. France, Italy, Germany and Britain have been members since the outset. Of the Group of Seven leading industrialized economies, only Japan and the US do not belong to the AIIB.

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