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Developing Asia to Contract 0.4% in 2020, Grow by 6.8% in 2021

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Economic activity in developing Asia is forecast to contract by 0.4% this year, before picking up to 6.8% in 2021 as the region moves toward recovery from the effects of the coronavirus disease (COVID-19) pandemic, according to a report released by the Asian Development Bank (ADB) today.

The new growth forecast, presented in a regular supplement to the Asian Development Outlook (ADO) 2020 Update, is an improvement from the -0.7% gross domestic product (GDP) growth forecast in September, while the outlook for 2021 remains unchanged. But prospects are diverging within the region, with East Asia set to grow this year while other subregions are contracting.

“The outlook for developing Asia is showing improvement. Growth projections have been upgraded for the People’s Republic of China (PRC) and India, the region’s two largest economies,” said ADB Chief Economist Yasuyuki Sawada. “A prolonged pandemic remains the primary risk, but recent developments on the vaccine front are tempering this. Safe, effective, and timely vaccine delivery in developing economies will be critical to support the reopening of economies and the recovery of growth in the region.”

Pandemic-induced lockdowns and restrictions have been eased in varying levels in the region, with merchandise exports rebounding quickly from substantial declines in the second quarter. Mobility is also returning to pre-COVID-19 levels in East Asia and the Pacific, where the spread of COVID-19 has largely been contained or prevented in recent months. A recovery in tourism, however, is likely to be delayed.

Most of developing Asia’s subregions are forecast to contract this year. East Asia is the exception, with an upgraded growth forecast of 1.6% for 2020 on the back of faster than expected recoveries in the PRC and Taipei,China. East Asia’s growth outlook for 2021 is maintained at 7.0%.

South Asia’s GDP is forecast to contract by 6.1% in 2020, revised up from the 6.8% contraction expected in September. Growth in South Asia is forecast to rebound to 7.2% in 2021. The growth forecast for India, the subregion’s largest economy, for fiscal year (FY) 2020 is raised to -8.0%, from the -9.0% projection in September, while outlook for FY2021 is kept at 8.0%.

Economic growth in Southeast Asia remains under pressure as COVID-19 outbreaks and containment measures continue, particularly in Indonesia, Malaysia, and the Philippines. The subregion’s growth forecast for 2020 is revised down to -4.4% from -3.8% in September. The subregion’s outlook for 2021 is also downgraded, with Southeast Asia now expected to grow 5.2% next year compared to the 5.5% growth forecast in September.

The outlook for the Pacific is unchanged for both 2020 and 2021 at -6.1% and 1.3%, respectively. Central Asia’s growth forecast for 2020 remains at -2.1%, but outlook for 2021 is slightly downgraded to 3.8% from the 3.9% growth projection in September.

Regional inflation is expected to marginally ease to 2.8% in 2020, from the 2.9% projected in September, due to depressed demand and low oil prices. Inflation for 2021 is forecast at 1.9%, down from 2.3% forecast in September. Oil prices are retained at $42.50 per barrel in 2020 before increasing to $50.00 per barrel in 2021.

ADO, ADB’s annual flagship economic publication, is published every April, with an Update published in September and brief supplements published normally in July and December. Developing Asia refers to the 46 developing members of ADB.

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Climate Finance: Climate Actions at Center of Development and Recovery

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The Asian Development Bank (ADB) called access to climate finance a key priority for Asia and the Pacific as governments design and implement a green and resilient recovery from the coronavirus disease (COVID-19) pandemic.

Speaking at the United Kingdom Climate and Development Ministerial—one of the premier events leading up to the United Nations Climate Change Conference (COP 26) in November—ADB President Masatsugu Asakawa said expanding access to finance is critical if developing economies in Asia and the Pacific are to meet their Paris Agreement goals to reduce greenhouse gas emissions and help adapt to the adverse impacts of climate change.

“We can no longer take a business-as-usual approach to climate change. We need to put ambitious climate actions at the center of development,” Mr. Asakawa said. “ADB is committed to supporting its developing member countries through finance, knowledge, and collaboration with other development partners, as they scale up climate actions and push for an ambitious outcome at COP 26 and beyond.”

ADB is using a three-pronged strategy to expand access to finance for its developing members as they step up their response to the impacts of climate change.

First, ADB has an ambitious corporate target to ensure 75% of the total number of its committed operations support climate change mitigation and adaptation by the end of the decade, with climate finance from ADB’s own resources to reach $80 billion cumulatively between 2019 and 2030. ADB has also adopted explicit climate targets under its Asian Development Fund (ADF), which provides grant financing to its poorest members. ADF 13, which covers the period of 2021–2024, will support climate mitigation and adaption in 35% of its operations by volume and 65% of its total number of projects by 2024.

Second, ADB is enhancing support for adaptation and resilience that goes beyond climate proofing physical infrastructure to promote strong integration of ecological, social, institutional, and financial aspects of resilience into ADB’s investments.

Third, ADB is increasing its focus on supporting the poorest and most vulnerable communities in its developing member countries by working with the United Kingdom, the Nordic Development Fund, and the Green Climate Fund on a community resilience program to scale up the quantity and quality of climate adaptation finance in support of local climate adaptation actions.

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Improving Transport Connectivity in Central Asia Requires a Coherent Approach

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The combination of infrastructure and logistics improvements, reduction in border delays and tariffs, and harmonized standards across countries could have a significant positive impact on Central Asian economies, said experts during an online regional briefing “Connectivity in Central Asia: Challenges and Opportunities” hosted by the World Bank.

Studies show that improved transport corridors generate economic development around them. Better road accessibility also allows more people to have access to jobs, education, healthcare, and opportunities, leading to poverty reduction.

“Connectivity is a complex issue and has wide-ranging impacts, affecting businesses, consumers, trade, logistics, economic growth and a country’s overall development,” said Jean-François Marteau, World Bank Country Manager for Kazakhstan. “In Kazakhstan, our analysis shows a clear link between investments in infrastructure and the level of the gross regional product of the oblasts.”

Countries in Central Asia are some of the least connected economies in the world, with the region’s connectivity indicator averaging below 60 percent in terms of the ratio of access to the global GDP – the lowest on the spectrum. The cost to import and export from or to Central Asia remains high, undermining the competitiveness of Central Asian products abroad and resulting in expensive imported goods. For example, the cost of shipping a container from any of the Central Asian countries to Shanghai is five times more expensive than from Poland or Turkey.

“Countries in Central Asia are yet to realize the enormous potential of internal and external trade, and the key here is improving transport connectivity in a holistic way,” said Antonio Nunez, Program Leader for Infrastructure at the World Bank Central Asia. “We see significant returns on investments when they are combined with other improvements in reducing delays and trade tariffs. These measures together could boost the regional GDP by about 15 percent.”

Connectivity within countries in Central Asia is also limited with most areas in the countries suffering from insufficient infrastructure and expensive services, limiting access to services, activities, and jobs, and hindering the tourism potential.

In the past two decades, Central Asian countries invested heavily in improving infrastructure; however, the region still lags behind middle-income countries in terms of both investing and maintaining the infrastructure. Central Asia ranks low on key trade indicators, such as the number of days to clear imports and exports and the Logistics Performance Index.

Despite some recent progress, the latter has either remained at the same level or declined compared with 2010 for all Central Asian countries. According to CAREC data, investing in corridors has paid off in saved travel time due to higher speeds. However, these time savings are often lost at the borders due to inefficient procedures and capacity constraints.

Key challenges in improving connectivity in Central Asia include tackling the low productivity of the state-owned enterprises that dominate the transport sectors in the region, harmonizing the different standards, improving infrastructure quality at local, national, and regional levels, as well as improving governance and efficiency.

“Over the years, the region has launched or become part of numerous connectivity initiatives that vary across types of infrastructure and geographical scope. What is needed now is for the countries to prioritize the connectivity initiatives that work best for their economies,” said Lilia Burunciuc, World Bank Regional Director for Central Asia. “We at the World Bank will continue supporting Central Asia in understanding and improving connectivity through our advice as well as investments, which in the last 10 years have reached over $5 billion in this sector.”

Speakers underlined the importance of greener, more sustainable and smarter transport solutions that are integrated with urban planning to reduce greenhouse gas emissions, improve air quality management systems and reduce air pollution. Globally, transport accounts for a quarter of energy-related GHG emissions. In the Central Asian capitals and larger cities, transport generates particulate emissions that exceed the WHO maximum levels, leading to various diseases and premature deaths.

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Political and Security Uncertainty Slow Down Afghanistan’s Economic Recovery

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 Afghanistan faces a sluggish economic recovery from COVID-19 amid continued political uncertainties and possible decline in international aid, says the World Bank in its latest country update. 

Released today, Setting Course to Recovery shows that robust agricultural growth has partially buoyed Afghanistan’s economy, which shrunk by around two percent in 2020—a smaller contraction than previous estimates. However, lockdowns, weak investment, and trade disruptions have hit hard services and industries, increasing hardship and unemployment in cities.

Growth is expected to reach one percent in 2021 and top around three percent in 2022 as the COVID-19 crisis fades. Per capita incomes are unlikely to recover to pre-COVID levels until 2025 due to fast population growth.

“The current political and security uncertainties have created serious hurdles to Afghanistan’s economic recovery from the COVID-19 crisis. A slower pace of recovery means higher unemployment, lower government revenues, and – ultimately – more difficult living conditions for Afghans,” said Henry Kerali, World Bank Country Director for Afghanistan.

A full recovery will be challenging as many firms have closed and jobs were lost. Private sector confidence has weakened amid difficult security conditions, uncertainty about the outcome of the ongoing peace talks, the possible withdrawal of international troops, and potential sharp declines in future international aid support. Droughts are expected in 2021 and will likely reduce agricultural activity, further weakening growth prospects.

The report emphasizes that a strong and sustainable partnership between the Afghan government and its international partners is key to driving recovery and restoring private sector confidence. In that effort, the government needs to accelerate reforms to improve governance, fight corruption, mobilize revenue, and boost business. Simultaneously, donors can support private sector confidence through clearer multi-year aid commitments and by defining measurable priority reforms that condition continued grant support. 

The Afghanistan Development Update is a companion piece to the South Asia Economic Focus, a twice-a-year World Bank report that examines economic developments and prospects in the South Asia region and analyzes policy challenges faced by countries. The Spring 2021 edition titled “South Asia Vaccinates,” launched on March 31, 2021, shows that economic activity in South Asia is bouncing back, but growth is uneven, recovery remains fragile, and the economic outlook is precarious. The report also focuses on the different dimensions of vaccine deployment and provides a cost-benefit analysis of vaccination in the region.

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