Statement at the Launch of the Economic and Social Survey of Asia and the Pacific 2017
Delivered at the Launch of the 2017 Edition of the Economic and Social Survey of Asia and the Pacific in Bangkok, Thailand.
Welcome to the launch of the 2017 edition of “The Economic and Social Survey of Asia and the Pacific”, the annual flagship publication of the United Nations Economic and Social Commission for Asia and the Pacific. This year’s Survey highlights the urgent need for better governance and effective fiscal management to promote durable economic dynamism, social inclusiveness and environmental sustainability in our region.
This year’s launch is being held at a time when the global recovery seems to be firming up, supported by modest economic growth in Asia-Pacific, up from 4.9 per cent in 2016 to 5.0 per cent in 2017. The region now accounts for nearly 37 percent of world output. Yet the growing distrust of globalization and emerging protectionist tendencies have created global uncertainty which, if not addressed, has implications for growth prospects in Asia and the Pacific – a region that has traditionally depended on exports for jobs and prosperity.
To its credit, the Asia-Pacific region has skillfully managed exogenous shocks, particularly the shrinking of advanced economies’ output since the global financial crisis. Given the prolonged weakness in external demand and global trade, economic growth in the Asia-Pacific region has in recent years relied more on domestic demand - especially private consumption. This has been supported by low inflation and low interest rates. These changing global dynamics underscore the urgency of increasing domestic and regional demand, and overcoming the region’s remaining challenges so it can realize its full economic potential.
China’s economic conditions remain stable. Rebalancing, restructuring and deleveraging have led to new normal growth trends averaging 6.7 per cent over 2015-2017 period. Higher value-added sectors are increasingly driving output and employment. The other large emerging economy in the region, India, is on the road to recovery as consumption and infrastructure spending increase and cash flows normalize after the disruption caused by de-monetization. More broadly, South Asia’s economic growth potential continues to be limited by structural challenges such as inadequate infrastructure and an energy deficit. These can only be overcome by increasing levels of public investment which would have significant fiscal implications. In South-East Asia, higher growth rates are forecast for most economies, backed by an expected rise in commodity prices and supportive macroeconomic policies. Fiscal and current account deficits, and high levels of household debt, persist in some South-East Asian economies. In the Pacific, a modest improvement is forecast in near-term growth. This is again supported by rising global commodity prices - but also increased trade, stable tourism receipts, infrastructure upgrades and post-cyclone reconstruction. In North and Central Asia, after two years of contraction, positive economic growth is anticipated in 2017. In the Russian Federation, this will be driven by higher oil prices, even though steps are being taken to diversify the economy. This positive outlook is contingent on steady economic growth in China – an increasingly important trading partner and investor for North and Central Asia.
The growth outlook for 2018 in the Asia-Pacific region is modest and is expected to rise to 5.1 per cent. For the major developing countries, growth could be 1.2 percentage points lower than the baseline projections if trade protectionism and global uncertainty increases. Productivity gains, rather than factor accumulation, backed by stronger institutional and governance reform in both public and private sectors are needed to stimulate better regional outcomes. Without robust private investment, a durable and sustained growth recovery will be hard to achieve.
Monetary policy stances in the region have recently shifted from “accommodative” to “neutral” as upside risks to inflation increased due to non-domestic demand factors such as oil prices and exchange rate depreciation. This should dissuade policymakers from further interest rate reductions. Countries in the region should also consider strengthening capital flow management and macroprudential measures to mitigate effects of exchange rate depreciation and ensure financial stability.
In this context, fiscal policy could play a more active role – while recognizing the region has already adopted an expansionary and countercyclical stance. Developing countries’ debt to GDP stands at 40.8 per cent. Pro-active fiscal policy should focus on improving the quality of growth. This could be done by enabling productive investments in infrastructure and social protection, and through more efficient use of natural and energy resources. Public infrastructure investments should be designed to crowd in private investment to facilitate structural transformation that promotes the creation of decent jobs. Reprioritization of expenditure will be critical to boosting growth, while the scope to increase spending will depend on tax collection which remains low. With a tax-to-GDP ratio in the region’s developing countries of just 16.4 per cent, revenues could be significantly increased, by broadening the tax base and improving compliance.
Given the growing demands on fiscal policy to support the economy and overcome social and environmental challenges, the 2017 Survey examines how effective governance could help deliver sound fiscal policy and improve fiscal management. The Survey finds the countries that perform better on governance measures – which focus on the rule of law, the quality of regulation, control of corruption and government effectiveness – also tend to mobilize and spend their fiscal resources more efficiently and effectively. Our team has estimated that between 2005 and 2014, poor governance contributed to lowering tax revenues by up to 21 per cent. The Survey highlights the importance of transparency and accountability for better governance. It recommends strengthening the production and dissemination of key fiscal data, and the development of public administrative capacities to monitor, evaluate and audit policies.
In sum, effective economic governance and fiscal management are essential to support long-term economic growth across the Asia-Pacific region. A multilateral approach to deepening regional economic cooperation and integration is needed to enhance regional demand and intraregional trade and connectivity. Alongside an increased focus on social inclusiveness and environmental sustainability, action in these areas is fundamental to the 2030 Agenda for Sustainable Development.
I thank you.