ISLAMABAD: Calling for regional cooperation to mobilise climate finance and ease political tension and restrictions to foreign direct investment, the Asian Development Bank has advised Pakistan to go for full merchant adoption and digital payment systems.

In its ‘Asian Economic Integration Report 2025’ released on Monday, the Manila-based lending agency noted that the Asian region had a greater potential for regional cooperation than the EU and the United Kingdom but had been held back by regional tensions and a lack of cooperation. It said the Asian regional cooperation was critical to mobilise climate finance, particularly from the private sector.

The Asian region required around $1.1 trillion annual to address climate change but only $300bn was currently available. “Regional cooperation is essential to monitor and mitigate macro-financial risks from climate change. The regional financial safety net requires an upgrading of its policy frameworks to manage climate-related crises,” it said.

The report said the regional economies need to continually work toward improving the overall business climate along with easing restrictions to FDI. “Reinvigorating regional cooperation can help realise the full potential of regional financial integration”, it said reminding that financial integration in Asia had decelerated over the past decade, both relative to other regions and other integration dimensions such as trade.

It is vital to harness the potential of regional cooperation to boost integration and maximize its benefits while minimising costs due to vulnerabilities from negative regional spillovers. Primarily, this includes strengthening regional financial safety nets in addition to prudent domestic macroeconomic and financial management. This should be done by increasing the pool of emergency funding, broadening the scope of lending instruments like the new Rapid Financing Facility, improving governance of regional financing arrangements and continuously improving regional surveillance.

In addition, regional cooperation must live up to new policy challenges, such as geoeconomic fragmentation, technological innovations, public health emergencies, climate change, and biodiversity loss. These new frontiers require improved macroeconomic surveillance, smooth cross-border payments, and innovative financing to help cope with structural challenges.

Highlighting that economic integration has been pivotal in Asia and the Pacific’s remarkable economic growth and rapidly rising global clout over the past two decades, the ADB said degree of Asia’s trade integration is now comparable to that of the European Union plus the United Kingdom.

It pointed out that mobile money offered huge potential to improve lives by enabling low-cost, fast, safe, and easy transactions as it addressed access barriers by eliminating the need to go to physical bank branches. In 2022, Pakistan had only 10.8 commercial bank branches per 100,000 adults — one of the lowest ratios in the region.

Over the past 15 years, financial services in Pakistan have evolved rapidly and financial institution accounts grew by about 127pc between FY19 and FY24. Of Pakistan’s 241m people, 60pc are adults. With 91m unique financial institution accounts, two-fifths of the adult population still lack access to formal financial services.

Mobile and online transactions rose from 17pc in early 2020 to 75pc by September 2024.

Published in Dawn, March 25th, 2025