SAARC Development Fund: Fueling innovation, trade, and sustainable growth

With a population of more than 1.9 billion, South Asia is a melting pot of rich cultures, heritage, and unutilised potential. And yet, behind this vibrant veneer lies a harsh reality: millions are trapped in poverty, injustice, and the curse of climate change. These, combined with poorly developed infrastructure and broken economies, have for so long kept the region from realising its full potential.

Established in 2010, the SAARC Development Fund (SDF) was a ray of hope, a financial mechanism to enhance regional cooperation and tackle such vital issues. With its specific mission of promoting well-being, encouraging economic development, and poverty alleviation, the SDF is at the core of unleashing the potential of South Asia.

SDF was established with a common goal of improving living conditions in South Asia and boosting economic growth through regional cooperation. It aims to promote sustainable development by bringing together resources and expertise from member countries to tackle shared challenges.

The fund operates on three distinct areas, each addressing an essential element of development. The Social Window is focusing on poverty alleviation, health, education, and gender equity. 

The Economic Window is promoting trade, investment, and small and medium enterprise growth, and the Infrastructure Window focuses on energy, transport, and telecommunication projects. 

The Economic Window has increased trade and investment, with initiatives like the SAARC Trade Facilitation Fund lowering non-tariff barriers and intensifying intra-regional trade. These projects are not solely focused on economic development; they are to bring opportunity to millions in a bid to have better lives.

Under the Infrastructure Window, the SDF has supported pioneering projects in the region enhancing regional connectivity and facilitating economic integration. The fund has supported renewable energy projects, tapping into the country's hydropower potential to provide clean energy to millions.

The SDF's three windows are closely aligned with the United Nations' Sustainable Development Goals (SDGs), rendering it an essential tool for achieving regional and global developmental objectives. Projects under the Social Window contribute directly to SDG 1 (No Poverty), SDG 3 (Good Health and Well-being), and SDG 4 (Quality Education). 

For example, SDF-funded healthcare projects in the SAARC region enhance access to vital services. Similarly, skill development initiatives empower underprivileged communities, helping to reduce poverty and inequality.

The Economic Window advocates for SDG 8 (Decent Work and Economic Growth) and SDG 9 (Industry, Innovation, and Infrastructure). By funding trade facilitation initiatives and SME clusters, the SDF amplifies economic possibilities and nurtures innovation. 

For instance, the proposed SAARC Digital Trade Platform could enhance intra-regional trade, which is currently a mere 5% of total trade, by simplifying customs processes and lowering non-tariff obstacles. 

The Infrastructure Window is by SDG 7 (Affordable and Clean Energy), SDG 11 (Sustainable Cities and Communities), and SDG 13 (Climate Action). The SAARC Solar Corridor, a cross-border renewable energy project, illustrates how the SDF can facilitate clean energy and climate resilience. 

Likewise, investments in transportation networks improve connectivity and economic integration. 

South Asia is among the most climate-vulnerable regions, necessitating urgent funding for adaptation and resilience. Nonetheless, financing for such initiatives continues to be inadequate. The SDF should implement a strategic, action-driven strategy to unleash its full potential. Member states are required to increase their contributions and attract co-financing from multilateral entities like the World Bank and Asian Development Bank (ADB). 

Initiating SAARC Infrastructure Bonds could mobilise funding from international markets. Simplifying approval protocols and creating a SAARC Investment Ombudsman to tackle disputes would improve governance. 

Utilising public-private partnerships (PPPs) to draw private capital and expertise while providing viability gap funding (VGF) and risk assurances would alleviate investment risks. Creating a SAARC Green Fund to finance renewable energy and disaster-resistant infrastructure, along with collaborating with the Green Climate Fund (GCF) to secure additional resources, would address climate vulnerability. 

Focusing on cross-border projects like the SAARC Solar Corridor and Digital Trade Platform to build trust and traction, coupled with standardising regulatory frameworks to minimise investor friction, would improve regional integration. 

By aligning its three windows with the SDGs, the SDF can spark transformative changes in sectors like poverty eradication, economic development, and climate resilience.

To unleash South Asia's possibilities, the SDF needs to navigate political, financial, and institutional obstacles. Enhancing governance, obtaining funding, and utilising innovative financing methods such as PPPs and green bonds are essential. Joint efforts at this moment will promote sustainable development, nurturing a resilient, cohesive, and thriving future for the region.

Dr Md Touhidul Alam Khan is an experienced banking professional. He can be contacted at touhid1969@gmail.com.

Disclaimer: The views and opinions expressed in this article are those of the author and do not necessarily reflect the opinions and views of The Business Standard.