Not too long ago, the economic invincibility of the developed world seemed immovable. But then BRIC (Brazil, Russia, India, and China) and now with the addition of South Africa becoming BRICS, are on the world stage as serious contenders.
Today, the BRICS countries, with a third of the world’s land mass, more than 43% of the world’s population, 18% of the global trade, and 20% of the world’s Gross Domestic Product (GDP), have now attained a level of economic importance since 2006 that may see no turning back. And those BRICS countries are now a political reality (Mielniczuk, 2013).
While the international financial meltdown in 2008 produced economic crises in the developed world, BRICS demonstrated steady development and even outperformed some developed countries. For instance, when in 2009, the economies of Japan and Germany declined by 6%, Brazil sustained its growth, India’s economy showed a 5.9% growth and China 8.1%; Russia’s economy declined by 7% (Biggemann and Fam, 2011).
When in 2012, the GDP growth for the USA was 2.2%, Japan 1.9%, Canada 1.7%, Germany 0.7%, and the United Kingdom 0.3%, BRICS largely outperformed the developed nations with GDP growth for Brazil at 0.9%, Russia 3.4%, India 3.2%, China 7.8%, and South Africa 2.5% ( http://data.worldbank.org/indicator/NY.GDP.MKTP.KD.ZG).
Reviewing the 2009 real GDP statistics, the World Bank noted that Brazil took the spot as the world’s 10th largest economy, Russia 13th, India 11th, and China 3rd; in 2009, the BRICS economies together were equivalent to 50% of the world’s largest economy, the U.S. economy.
But 10 years back in 1999, Brazil was the world’s 10th largest economy, Russia 15th, India 16th, and China 7th; and together they were equivalent to 30% of the U.S. economy. The World Bank further noted that between 1999 and 2009, the U.S. economy grew by 20%, Brazil’s growth was 36%, with Russia 69%, India 92%, and China was 2.5 times richer.
BRICS countries are now key players in the emerging economies’ world dominance; and with this emerging dominance of BRICS, some economies in the developed world are now on the defensive. BRICS countries continue to transform Wallerstein’s world system theory, among others, where for decades, if not centuries, under different ideological labels, there have been unequal economic and political relationships between the developed and the developing world.
BRICS countries persisted in the knowledge and applications that they will not allow themselves to remain in a state of permanent dependence. And they have moved on by removing the foundations of permanent dependence vis-à-vis making a dent on export dependency, the debt trap, and multinational corporations, as these remain poor nations’ predators.
The author presents a comparative focus on India in relation to the BRICS countries, as India debatably is the least formidable of the BRICS countries in terms of economic dominance. And using India, and perhaps any of the other BRICS country, may demonstrate that poverty is not a permanent condition, and many small, poor economies could strive for betterment vis-à-vis applying the BRICS model, where appropriate. Of course, you would need far more than the BRICS model to transform poverty into surplus.
Drawing mainly from the IMF World Economic Outlook, India carried a 3.5% economic growth rate from the 1950s through the 1970s, sporting a stagnant economy for almost three decades. But in the period 2000-2005, India experienced just over 6% average GDP growth rate, less than 5% inflation, and all BRICS countries had about 10% unemployment; and in 2005, India’s GDP volume was about US$800 billion and its GDP per capita tottered around US$1,000. Among BRICS countries in terms of GDP composition in 2004, India had the largest agricultural sector with a growing service sector; India had no current account surplus in 2005, when the other BRICS countries did; and in the same year had a small amount of foreign reserves, approximating US$150 billion.
Extracting data from the IMF World Economic Outlook (2011 and 2012), here are some selected statistics for India and the other BRICS countries (Brazil, Russia, China, and South Africa) in 2010: India’s real GDP was 10.6% (Brazil 7.5%, Russia 4.3%, China 10.4%, and South Africa 2.9%). In 2011, India’s real GDP was 7.2% with the other BRICS countries as follows: Brazil 2.7%, Russia 4.3%, China 9.2%, and South Africa 3.1%). In 2011, India’s balance on current account was -2.8% of GDP (Brazil -2.1%, Russia 5.5%, China 2.8%, and South Africa -3.3% ) and projected to be -3.2% in 2012; India’s consumer prices were 5.4% (Brazil 6.6%, Russia 8.4%, China 8.6%, and South Africa 5.0%) and projected to be 8.2% in 2012.
As stated earlier, in 2012, GDP growth for Brazil was 0.9%, Russia 3.4%, India 3.2%, China 7.8%, and South Africa 2.5% ( http://data.worldbank.org/indicator/NY.GDP.MKTP.KD.ZG).
On the basis of these selected data, India continues to be the weakling among the BRICS countries on average growth rate, consumer prices, and balance on current account. And its faltering growth rate may be gradually regressing toward the average GDP growth of 6% it had between 2000 and 2005. A high growth rate is necessary for a growing population and a growing workforce, and also a critical economic indicator to maintain its status within BRICS.
In addition, India would need an active Knowledge Economy (KE) to sustain a high growth rate that has a relationship with total factor productivity (TFP); TFP is the nation’s capability to create and use knowledge. And the World Bank projected that India’s TFP will grow by more than 50% in 2020 than what it was in 1991/92.
Nevertheless, in light of the IMF World Economic Outlook 2011 and 2012 statistics on India, it may be worth revisiting the concerns raised in the following: Das et al. (2010) found that in the 1980-2004 period productivity was moderate with pointed fluctuations; and productivity increases arose largely out of technical change, as there was little efficiency over the last 30 years (Alejandro, Yu, & Fan, 2009).
The World Bank (2005) noted that India would need to develop policies concentrating on effectively utilizing knowledge to increase productivity and the nation’s welfare. And, invariably, some people refer to this knowledge economy as ICT industries.
The World Bank suggests that KE is broader; KE refers to how an economy channels and applies new and existing knowledge to raise productivity and total welfare; for this reason, KE will make a difference between poverty and wealth.
India is forging ahead at a brisk pace with its KE. And perhaps, small, poor countries around the world, in order to rid themselves of their poverty, would have to show more than keen interest in KE, and start intensively building KE to spur economic growth; and to ensure that that economic growth reaches the poor and vulnerable population.
What is challenging for India is that its real GDP declined from 10.6% in 2010 to 3.2% in 2012, and its current account balance is now negative (where domestic investments are funded through foreigners’ savings) and way behind Russia and China. Only a few days ago, the IMF reduced its growth forecast from 5.6% to 3.8% for this fiscal year, and the rupee (India’s local currency) fell in the wake of this IMF’s forecast. And so India’s quest to becoming a robust knowledge economy remains a formidable challenge, as a consistently high growth rate requires a KE. And would India be able to sustain its status as a constituent of BRICS?
Bangladesh-Myanmar Economic Ties: Addressing the Next Generation Challenges
Bangladesh-Myanmar relations have developed through phases of cooperation and conflict. Conflict in this case is not meant in the sense of confrontation, but only in the sense of conflict of interests and resultant diplomatic face-offs. Myanmar is the only other neighbor that Bangladesh has on its border besides India. It is the potential gateway for an alternative land route opening towards China and South-East Asia other than the sea. Historically, these two countries have geographic and cultural linkages. These two bordering countries, located in separate geopolitical regions, have huge possibilities in developing their bilateral economic relations. At the initial phase of their statehood, both countries undertook numerous constructive initiatives to improve their relations. Nevertheless, different bilateral disputes and challenges troubled entire range of cooperation. Subsequent to these challenges, Bangladesh and Myanmar have started negotiation process on key dubious issues. The economic rationales over political tensions in Bangladesh-Myanmar relations prevail with new prospects and opportunities.
Bangladesh-Myanmar relations officially began from 13 January 1972, the date on which Myanmar, as the sixth state, recognized Bangladesh as a sovereign nation. They signed several agreements on trade and business such as general trade agreement in 1973. The two countries later initiated formal trade relations on 05 September 1995. To increase demand for Bangladeshi products in Myanmar, Bangladesh opened trade exhibitions from 1995 to 1996 in Yangon, former capital of Myanmar. However, that pleasant bilateral economic relations did not last for long, rather was soon interrupted mainly by Myanmar’s long term authoritarian rule and isolationist economic policy. In the twenty-first century, Bangladesh-Myanmar relations are expected to move towards greater economic cooperation facilitated by two significant factors. First, the victory of Myanmar’s pro-democratic leader, Aung San Suu Kyi, in 2011 has considerably brought new dimensions in the relations. Although this relation is now at stake since the state power has been taken over by military. Second, the peaceful settlement of Bangladesh-Myanmar maritime dispute in 2012 added new dimension in their economic relations.
Bangladesh and Myanmar don’t share a substantial volume of trade and neither is in the list of largest trading partners. Bangladesh’s total export and import with Myanmar is trifling compared to the total export and import and so do Myanmar’s. But gradually the trades between the countries are increasing and the trend is for the last 5 to 6 year is upward especially for Bangladesh; although Bangladesh is facing a negative trend in Balance of Payment. In 2018-2019 fiscal year, Bangladesh’s total export to Myanmar was $25.11 million which is more than double from that of the export in 2011-12. Bangladesh imported $90.91 million worth goods and services from Myanmar resulting in $65 Million deficit in Balance of Payment in 2018-2019 fiscal year. For the last six or seven years, Bangladesh’s Balance of Payment was continuously in deficit in case of trade with Myanmar. The outbreak of COVID-19, closure of border for eight months and recent coup in Myanmar have a negative impact on the trade between the countries.
Bangladesh mainly imports livestock, vegetable products including onion, prepared foodstuffs, beverages, tobacco, plastics, raw hides and skin, leather, wood and articles of woods, footwear, textiles and artificial human hair from Myanmar. Recently, due to India’s ban on cattle export, Myanmar has emerged as a new exporter of live animals to Bangladesh especially during the Eid ul-Adha with a cheaper rate than India. On the hand, Bangladesh exports frozen foods, chemicals, leather, agro-products, jute products, knitwear, fish, timber and woven garments to Myanmar.
Unresolved Rohingya crisis, Myanmar’s highly unpredictable political landscape, lack of bilateral connectivity, shadow economy created from illegal activities, distrust created due to different insurgent groups, maritime boundary dispute, illegal drugs and arms smuggling in border areas, skeptic mindset of the people in both fronts and alleged cross border movement of insurgents are acting as stumbling block in bolstering economic relations between Bangladesh and Myanmar.
Bangladesh-Myanmar relations are yet to blossom in full swing. The agreement signed by Sheikh Hasina in 2011 to establish a Joint Commission for Bilateral Cooperation is definitely a proactive step for enhancing trade. People to people contact can be increased for building mutual confidence and trust. Frequent visit by business, civil society, military and civil administration delegates may be organized for better understanding and communication. Both countries may explore economic potential and address common interest for enhancing economic co-operation. In order to augment trade, both countries may ease visa restrictions, deregulate currency restrictions and establish smooth channel of financial transactions. Coastal shipping (especially cargo vessels between Chittagong and Sittwe), air and road connectivity may be developed to inflate trade and tourism. Bangladesh and Myanmar may establish “Point of Contact” to facilitate first-hand information exchange for greater openness. Initiative may be taken to sign Preferential Trade Agreement (PTA) within the ambit of which potential export items from both countries would be allowed to enter duty free. In recent year, Bangladesh was badly affected by many unilateral decisions of India such as onion crisis. Myanmar can serve as an alternative import source of crops and animals for Bangladesh to lessen dependence upon India.
Myanmar’s currency is highly devaluated for a long time due to its political turmoil and sanctions by the west. Myanmar can strengthen its currency value by escalating trade volume with Bangladesh. These two countries can fortify their local economy in boarder areas by establishing border haats. Cooperation between these two countries on “Blue Economy” may be source of strategic advantages mainly by exporting marine goods and service. Last but not the least, the peaceful settlement of maritime boundary disputes between Bangladesh and Myanmar in 2012 may be capitalized to add new dimension in their bilateral economic relations. Both nations can expand trade and investment by utilizing the Memorandum of Understanding on the establishment of a Joint Business Council (JBC) between the Republic of the Union of Myanmar Federation of Chambers of Commerce and Industry (UMFCCI) and the Federation of Bangladesh Chambers of Commerce and Industry (FBCCI).
With the start of a new phase in Bangladesh-Myanmar relations, which has put the bilateral relations on an upswing, it is only natural that both sides should try to give a boost to bilateral trade. Bilateral trade is not challenge free but the issue is far easier to resolve than others. At the same time, closer economic ties could also help in resolving other bilateral disputes. For Myanmar, as it is facing currency devaluation and losing market, increased trade volume will make their economy vibrant. For Bangladesh, it is a good opportunity to use the momentum to minimize trade deficits and reduce dependency on any specific country.
The Monetary Policy of Pakistan: SBP Maintains the Policy Rate
The State Bank of Pakistan (SBP) announced its bi-monthly monetary policy yesterday, 27th July 2021. Pakistan’s Central bank retained the benchmark interest rate at 7% after reviewing the national economy in midst of a fourth wave of the coronavirus surging throughout the country. The policy rate is a huge factor that relents the growth and inflationary pressures in an economy. The rate was majorly retained due to the growing consumer and business confidence as the global economy rebounds from the coronavirus. The State Bank had slashed the interest rate by 625 basis points to 7% back in the March-June 2020 in the wake of the covid pandemic wreaking havoc on the struggling industries of Pakistan. In a poll conducted earlier, about 89% of the participants expected this outcome of the session. It was a leap of confidence from the last poll conducted in May when 73% of the participants expected the State Bank to hold the discount rate at this level.
The State Bank Governor, Dr. Raza Baqir, emphasized that the Monetary Policy Committee (MPC) has resorted to holding the 7% discount rate to allow the economy to recover properly. He added that the central bank would not hike the interest rate until the demand shows noticeable growth and becomes sustainable. He echoed the sage economists by reminding them that the State Bank wants to relay a breather to Pakistan’s economy before pushing the brakes. The MPC further asserted that the Real Discount Rate (adjusted for inflation) currently stands at -3% which has significantly cushioned the economy and encouraged smaller industries to grow despite the throes of the pandemic.
Dr. Raza Baqir further went on to discuss the current account deficit staged last month. He added that the 11-month streak of the current account surplus was cut short largely due to the loan payments made in June. The MPC further explained that multiple factors including an impending expiration of the federal budget, concurrent payments due to lenders, and import of vaccines, weighed heavily down on the national exchequer. He further iterated that the State Bank expects a rise in exports along with a sustained recovery in the remittance flow till the end of 2021 to once again upend the current account into surplus. Dr. Raza Baqir assured that the current level of the current account deficit (standing at 3% of the GDP) is stable. The MPC reminded that majority of the developing countries stand with a current account deficit due to growth prospects and import dependency. The claims were backed as Dr. Raza Baqir voiced his optimism regarding the GDP growth extending from 3.9% to 5% by the end of FY21-22.
Regarding currency depreciation, Dr. Baqir added that the downfall is largely associated with the strengthening greenback in the global market coupled with high volatility in the oil market which disgruntled almost every oil-importing country, including Pakistan. He further remarked, however, that as the global economy is vying stability, the situation would brighten up in the forthcoming months. Mr. Baqir emphasized that the current account deficit stands at the lowest level in the last decade while the remittances have grown by 25% relative to yesteryear. Combined with proceeds from the recently floated Eurobonds and financial assistance from international lenders including the IMF and the World Bank, both the currency and the deficit would eventually recover as the global market corrects in the following months.
Lastly, the Governor State Bank addressed the rampant inflation in the economy. He stated that despite a hyperinflation scenario that clocked 8.9% inflation last month, the discount rates are deliberately kept below. Mr. Baqir added that the inflation rate was largely within the limits of 7-9% inflation gauged by the State Bank earlier this year. However, he further added that the State Bank is making efforts to curb the unrelenting inflation. He remarked that as the peak summer demand is closing with July, the one-way pressure on the rupee would subsequently plummet and would allow relief in prices.
The MPC has retained the discount rate at 7% for the fifth consecutive time. The policy shows that despite a rebound in growth and prosperity, the threat of the delta variant still looms. Karachi, Pakistan’s busiest metropolis and commercial hub, has recently witnessed a considerable surge in infections. The positivity ratio clocked 26% in Karachi as the national figure inched towards 7% positivity. The worrisome situation warrants the decision of the State Bank of Pakistan. Dr. Raza Baqir concluded the session by assuring that despite raging inflation, the State Bank would not resort to a rate hike until the economy fully returns to the pre-pandemic levels of employment and production. He further assuaged the concerns by signifying the future hike in the policy rate would be gradual in nature, contrast to the 2019 hike that shuffled the markets beyond expectation.
Reforms Key to Romania’s Resilient Recovery
Over the past decade, Romania has achieved a remarkable track record of high economic growth, sustained poverty reduction, and rising household incomes. An EU member since 2007, the country’s economic growth was one of the highest in the EU during the period 2010-2020.
Like the rest of the world, however, Romania has been profoundly impacted by the COVID-19 pandemic. In 2020, the economy contracted by 3.9 percent and the unemployment rate reached 5.5 percent in July before dropping slightly to 5.3 percent in December. Trade and services decreased by 4.7 percent, while sectors such as tourism and hospitality were severely affected. Hard won gains in poverty reduction were temporarily reversed and social and economic inequality increased.
The Romanian government acted swiftly in response to the crisis, providing a fiscal stimulus of 4.4 percent of GDP in 2020 to help keep the economy moving. Economic activity was also supported by a resilient private sector. Today, Romania’s economy is showing good signs of recovery and is projected to grow at around 7 percent in 2021, making it one of the few EU economies expected to reach pre-pandemic growth levels this year. This is very promising.
Yet the road ahead remains highly uncertain, and Romania faces several important challenges.
The pandemic has exposed the vulnerability of Romania’s institutions to adverse shocks, exacerbated existing fiscal pressures, and widened gaps in healthcare, education, employment, and social protection.
Poverty increased significantly among the population in 2020, especially among vulnerable communities such as the Roma, and remains elevated in 2021 due to the triple-hit of the ongoing pandemic, poor agricultural yields, and declining remittance incomes.
Frontline workers, low-skilled and temporary workers, the self-employed, women, youth, and small businesses have all been disproportionately impacted by the crisis, including through lost salaries, jobs, and opportunities.
The pandemic has also highlighted deep-rooted inequalities. Jobs in the informal sector and critical income via remittances from abroad have been severely limited for communities that depend on them most, especially the Roma, the country’s most vulnerable group.
How can Romania address these challenges and ensure a green, resilient, and inclusive recovery for all?
Reforms in several key areas can pave the way forward.
First, tax policy and administration require further progress. If Romania is to spend more on pensions, education, or health, it must boost revenue collection. Currently, Romania collects less than 27 percent of GDP in budget revenue, which is the second lowest share in the EU. Measures to increase revenues and efficiency could include improving tax revenue collection, including through digitalization of tax administration and removal of tax exemptions, for example.
Second, public expenditure priorities require adjustment. With the third lowest public spending per GDP among EU countries, Romania already has limited space to cut expenditures, but could focus on making them more efficient, while addressing pressures stemming from its large public sector wage bill. Public employment and wages, for instance, would benefit from a review of wage structures and linking pay with performance.
Third, ensuring sustainability of the country’s pension fund is a high priority. The deficit of the pension fund is currently around 2 percent of GDP, which is subsidized from the state budget. The fund would therefore benefit from closer examination of the pension indexation formula, the number of years of contribution, and the role of special pensions.
Fourth is reform and restructuring of State-Owned Enterprises, which play a significant role in Romania’s economy. SOEs account for about 4.5 percent of employment and are dominant in vital sectors such as transport and energy. Immediate steps could include improving corporate governance of SOEs and careful analysis of the selection and reward of SOE executives and non-executive bodies, which must be done objectively to ensure that management acts in the best interest of companies.
Finally, enhancing social protection must be central to the government’s efforts to boost effectiveness of the public sector and deliver better services for citizens. Better targeted social assistance will be more effective in reaching and supporting vulnerable households and individuals. Strategic investments in infrastructure, people’s skills development, and public services can also help close the large gaps that exist across regions.
None of this will be possible without sustained commitment and dedicated resources. Fortunately, Romania will be able to access significant EU funds through its National Recovery and Resilience Plan, which will enable greater investment in large and important sectors such as transportation, infrastructure to support greater deployment of renewable energy, education, and healthcare.
Achieving a resilient post-pandemic recovery will also mean advancing in critical areas like green transition and digital transformation – major new opportunities to generate substantial returns on investment for Romania’s economy.
I recently returned from my first official trip to Romania where I met with country and government leaders, civil society representatives, academia, and members of the local community. We discussed a wide range of topics including reforms, fiscal consolidation, social inclusion, renewably energy, and disaster risk management. I was highly impressed by their determination to see Romania emerge even stronger from the pandemic. I believe it is possible. To this end, I reiterated the World Bank’s continued support to all Romanians for a safe, bright, and prosperous future.
First appeared in Romanian language in Digi24.ro, via World Bank
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