Asia Faces Slower Growth on Europe Crisis, Oil, ADB Says

Asian economies may expand at a weaker pace than originally forecast this year as they face the effects of Europe’s debt crisis and rising oil prices, Rajat Nag, Asian Development Bank managing director-general said.

“Growth in Asia will be a bit muted,” Nag said in an interview in his office in Manila today. “The health of the euro zone will remain quite fragile for quite some time. What happens there, plus the high oil prices, will have an effect on Asia,” he said, adding that ADB is revisiting its economic projections.

Expansion in Asia from China to India is easing as Europe’s sovereign debt-crisis imperils the region’s exports, prompting policy makers to cut interest rates or refrain from raising them to boost domestic demand. Weaker growth will exacerbate poverty in the region, putting more pressure on governments and multilateral agencies to boost spending on the poor, Nag said.

The ADB will meet with donor countries next week in Manila to negotiate raising at least $12 billion for the Asian Development Fund for loans and grants to poor countries from 2013 to 2016, Nag said. Asian nations are expected to contribute more to as the debt crisis limits European nations, he said.

“Under the current difficult economic environment, raising funds for the Asian Development Fund is a big challenge,” Nag said. “There’s a lot of work Asia needs to do, and we are asking our donors to support us.”

At Risk

Failure to meet the financing requirements will put at risk infrastructure and welfare projects funded by the ADB in the poorest countries in the region, including Cambodia, Laos and Nepal, Nag said.

“Under tight resources, we’ve got to prioritize,” he said.

Members made up $4.2 billion of the current $11.3 billion Asian Development Fund, according to the 2008 donor’s report. Countries outside the Asia-Pacific region accounted for more than 40 percent of contributions, with the U.S. giving about 10 percent, and the U.K. and Germany making up 4.8 percent each.

The ADB is looking for new donors and is asking India and countries in Central Asia to contribute, Nag said. The fund is also seeking higher contributions from China, Australia and South Korea. Aside from that, the ADB is also asking nations to accelerate repayment of loans, he said.

The ADB is reviewing its growth forecasts for Asia, which are scheduled to be released in April, he said.

The lender forecast in September that Asia excluding Japan will expand at the same pace this year as its 7.5 percent estimate for 2011. India’s economy expanded at the weakest pace in more than two years last quarter, a report showed today.

To contact the reporter on this story: Karl Lester M. Yap in Manila at kyap5@bloomberg.net

To contact the editor responsible for this story: Stephanie Phang at sphang@bloomberg.net

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