Connect with us

Reports

South Asia Firms Up Its Growth Lead, Despite Budget Woes

Published

on

With growth topping 6.9 percent in 2018 and set to accelerate to 7.1 percent next year, South Asia is firming up its position as the world’s fastest-growing region, further extending its lead over East Asia and the Pacific, says the World Bank in its twice-a-year regional economic update.

The latest edition of the South Asia Economic Focus, Budget Crunch, finds however that the region’s growth performance is uneven across countries—with Afghanistan notably bucking the upward trend—and mainly driven by domestic demand.

Further, the report warns that a more turbulent external environment, manifested by trade wars and capital outflows from emerging markets, calls for prudent economic policy and fiscal discipline. Instead, most South Asian countries generate low tax revenue and run large budget deficits, often made worse by economic shocks and election cycles. At 4.4 percent of its gross domestic product (GDP), South Asia’s fiscal deficit is projected to be the second largest in the world this year after the Middle East and North Africa region. The average fiscal deficit over the last three years has been around 5.5 percent in Pakistan and above 6 percent in Maldives, India, and Sri Lanka.

“Budget deficits in South Asia are among the highest in the world, and this could be storing up trouble for the future,” said Hartwig Schafer, World Bank Vice President for the South Asia Region. “South Asia’s fiscal weaknesses reduce its ability to address external shocks or economic slowdowns. It would be wise to use these good economic times for countries to get their budgets in better shape.”

While fiscal challenges vary across the region, the report notes that tax revenue is consistently low across most South Asian countries and at rates below that of other developing countries with a similar income per capita, sometimes by a vast margin. Although some countries have expanded their tax bases and curbed tax exemptions and fraud, revenue remains lower than government expenditures, creating large fiscal deficits that need to be financed through public borrowing.

South Asian countries have also favored procyclical approaches to spending—with expenditures going up fast as their economies expand—that amplifies boom-and-bust cycles.

Together with public debt, hidden liabilities, arising from non-viable borrowing by state-owned enterprises, the failure of infrastructure projects involving the private sector, and non-performing loans in commercial banks, should be closely monitored.

While fiscal outcomes vary across the region, the fiscal situation in each country reveals more profound development challenges, which range from large security expenditures in conflict-affected countries, weak discipline by sub-national governments in federal states, to the high cost of service delivery in island nations.

“Substantial government spending is understandable, even beneficial if well-invested, given South Asia’s enormous development needs,” said Martin Rama, World Bank Chief Economist for the South Asia Region. “But South Asian economies need to address their fiscal challenges to give themselves room to maneuver and sustain their journey toward greater prosperity.”

Afghanistan. Growth is projected to pick up, but only to 3.2 percent by 2020. Importantly, this projection presumes a recovery of confidence after a temporary weakening due to security challenges and political uncertainty in the context of the upcoming parliamentary and presidential elections.

Bangladesh. Growth will be strong, driven by consumption and public investment, but it is projected to slow to an average of 6.9 percent over the forecast horizon. This is due to a projected slowdown of private investment and an increase of imports.

Bhutan. Growth will accelerate with the commissioning of two major hydropower projects, Mangdechhu and Punatsangchhu-II. The growth rate is projected to jump from 4.6 percent in this fiscal year to 7.6 percent in FY 2019/20, before moderating again to 6.4 percent in FY 2020/21.

India. Prompted by the adoption of the Goods and Services Tax and the recapitalization of banks, growth in India is firming up and it is projected to accelerate further. Growth is projected to rise to 7.3 percent in FY 2018/19, and to 7.5 percent in the following two years, with stronger private spending and export growth as the key drivers.

Maldives. Growth is projected at a strong 8.0 percent this year, based on the dynamism of the construction and tourism sectors. But is projected to decelerate in the next two years as new capital investment projects gradually begin to taper off.

Nepal. Economic activity is set to grow on average 6 percent over the medium term. However, performance could be less impressive if the challenging transition to a federalist system affects infrastructure provision and service delivery.

Pakistan. Macroeconomic stabilization policies will take a toll on growth this fiscal year. GDP growth is expected to fall to 4.8 percent in FY 2018/19, reflecting a tighter fiscal and monetary policy. However, with improved macroeconomic conditions, growth could reach 5.2 percent in FY 2019/20, provided that there is a firming of exports and continued implementation of CPEC.

Sri Lanka. Economic growth is projected to recover from the effects of last year’s weather disruptions, which negatively affected agriculture, and to remain around 4 percent in the next two years.

Continue Reading
Comments

Reports

India’s Opportunity to Become a Global Manufacturing Hub

Published

on

Beyond the unprecedented health impact, the COVID‑19 pandemic has been catastrophic for the global economy and businesses and is disrupting manufacturing and Global Value Chains (GVCs), disturbing different stages of the production in different locations around the world. Furthermore, the pandemic has accelerated the already ongoing fundamental shifts in GVCs, driven by the aggregation of three megatrends: emerging technologies; the environmental sustainability imperative; and the reconfiguration of globalization.

In this fast-evolving context, as global companies adapt their manufacturing and supply chain strategies to build resilience, India has a unique opportunity to become a global manufacturing hub. It has three primary assets to capitalize on this unique opportunity: the potential for significant domestic demand, the Indian Government’s drive to encourage manufacturing, and with a distinct demographic edge, including considerable proportion of young workforce.

These factors will position India well for a larger role in GVCs. A thriving manufacturing sector will also generate additional benefits and help India deliver on the imperatives to create economic opportunities for nearly 100 million people likely to enter its workforce in the coming decade, to distribute wealth more equitably and to contain its burgeoning trade deficit.

The World Economic Forum’s new White Paper entitled Shifting Global Value Chains: The India Opportunity, produced in collaboration with Kearney, found India’s role in reshaping GVCs and its potential to contribute more than $500 billion in annual economic impact to the global economy by 2030. The White Paper presents five possible paths forward for India to realize its manufacturing potential.

The insights presented in the White Paper reflect the perspectives of leaders from multiple industries in the region. The five possible solutions include:

· Coordinated action between the government and the private sector to help create globally competitive manufacturing companies

· Shifting focus from cost advantage to building capabilities through workforce skilling, innovation, quality, and sustainability

· Accelerating integration in global value chains by reducing trade barriers and enabling competitive global market access for Indian manufacturers

· Focusing on reducing the cost of compliance and establishing manufacturing capacities faster

· Focusing infrastructure development on cost savings, speed, and flexibility

“For India to become a global manufacturing hub, business and government leaders need to work together to understand ongoing disruptions and opportunities, and develop new strategies and approaches aimed at generating greater economic and social value”, said Francisco Betti, Head of Shaping the Future of Advanced Manufacturing and Production, World Economic Forum.

“A thriving manufacturing sector could potentially be the most critical building block for India’s economic growth and prosperity in the coming decade. The ongoing post-COVID rebalancing of Global Value Chains offers India’s government and business leaders a unique opportunity to transform and accelerate the trajectory of manufacturing sector”, said Viswanathan Rajendran, Partner, Kearney.

This White Paper aims to serve as an initial framework for deliberation and action in the manufacturing ecosystem. The World Economic Forum, in collaboration with Kearney, will continue to develop this agenda by working closely with the manufacturing community in India to generate new insights, help inform discussions and strategy decisions, facilitate new partnerships, and provide a platform for exchanges with the global community.

Continue Reading

Reports

New Skills Development Key to Further Improving Students’ Learning Outcomes

Published

on

business-upskilling

Learning outcomes in Russia would benefit significantly from a focus on teaching new skills that are tailored to the modern labor market, says a new World Bank report, New Skills for a New Century: Informing Regional Policy.

Russia’s education system has traditionally been well-performing and efficient, with Russian students appearing among the top performers globally. However, today’s labor market requires “21st century skills” – a combination of skills, knowledge, and expertise that students need to succeed in the modern world.

“Russia’s education system could achieve better teaching and learning outcomes if it focused more on developing 21st-century skills,” says Tigran Shmis, World Bank Senior Education Specialist. “There is a strong relationship between the quality of the school environment, innovative teaching practices, students’ perception of school, and students’ learning outcomes.”

According to the report, 38 percent of Russian schools today are not equipped with workshops and 46 percent do not have scientific laboratories. And, 77 percent of educational institutions do not have dedicated places for integrated lessons that stimulate the development of new skills and team interaction.

The way teaching is delivered, the physical characteristics of the learning environment, and the school’s psychological climate all affect students’ learning results. The study provides an insight into how these factors impact the development of students’ skills, including 21st century and digital skills. Along with data analytics, the study includes a qualitative perspective of modern teaching and learning in Russia, as well as the impacts of the COVID-19 pandemic on teaching and learning.

“Developing the ability of students to master 21st century skills is critical to ensuring their future employment and career success,” says Renaud Seligmann, World Bank Country Director for Russia. “Studies in Russia have shown that businesses having access to workers with these skills will also be critical for growth and productivity. In turn, high-quality human capital is a cornerstone of the resilience and sustainability of the national economy.”

The report provides recommendations for how schools in Russia can better help students excel. For example, teachers who practice innovative teaching are more likely to drive higher achievement. Modern teaching practices can be supported by expanding the use of technology and enhancing the learning environment in classrooms. Technology should be made available in schools on an equitable basis to improve student learning and enhance teachers’ professional development. Education policymakers should prioritize the prevention of bullying and the development of supporting measures to ensure a positive school climate.

Despite the physical return of students to schools, the COVID-19 pandemic is causing continued learning losses. Therefore, new equipment, ICT, and innovative teaching methods are needed to enable teachers to improve their practices and compensate such learning losses.

Continue Reading

Reports

Post-COVID-19, regaining citizen’s trust should be a priority for governments

Published

on

coronavirus people

The COVID-19 crisis has demonstrated governments’ ability to respond to a major global crisis with extraordinary flexibility, innovation and determination. However, emerging evidence suggests that much more could have been done in advance to bolster resilience and many actions may have undermined trust and transparency between governments and their citizens, according to a new OECD report.

Government at a Glance 2021 says that one of the biggest lessons of the pandemic is that governments will need to respond to future crises at speed and scale while safeguarding trust and transparency. “Looking forward, we must focus simultaneously on promoting the economic recovery and avoiding democratic decline” said OECD Director of Public Governance Elsa Pilichowski. “Reinforcing democracy should be one of our highest priorities.”

 Countries have introduced thousands of emergency regulations, often on a fast track. Some alleviation of standards is inevitable in an emergency, but must be limited in scope and time to avoid damaging citizen perceptions of the competence, openness, transparency, and fairness of government.

 Governments should step up their efforts in three areas to boost trust and transparency and reinforce democracy:

 Tackling misinformation is key. Even with a boost in trust in government sparked by the pandemic in 2020, on average only 51% of people in OECD countries for which data is available trusted their government. There is a risk that some people and groups may be dissociating themselves from traditional democratic processes.

 It is crucial to enhance representation and participation in a fair and transparent manner. Governments must seek to promote inclusion and diversity, support the representation of young people, women and other under-represented groups in public life and policy consultation. Fine-tuning consultation and engagement practices could improve transparency and trust in public institutions, says the report. Governments must also level the playing field in lobbying. Less than half of countries have transparency requirements covering most of the actors that regularly engage in lobbying.

 Strengthening governance must be prioritised to tackle global challenges while harnessing the potential of new technologies. In 2018, only half of OECD countries had a specific government institution tasked with identifying novel, unforeseen or complex crises. To be fit for the future, and secure the foundations of democracy, governments must be ready to act at speed and scale while safeguarding trust and transparency.

 Governments must also learn to spend better, according to Government at a Glance 2021. OECD countries are providing large amounts of support to citizens and businesses during this crisis: measures ongoing or announced as of March 2021 represented, roughly, 16.4% of GDP in additional spending or foregone revenues, and up to 10.5% of GDP via other means. Governments will need to review public spending to increase efficiency, ensure that spending priorities match people’s needs, and improve the quality of public services.

Continue Reading

Publications

Latest

Trending