Comment - Asian economies worthy of emulation

The high economic growth rate of 7.4% was a matter for satisfaction for our policy makers and their economic advocates during the last few months. This will help them to counter an argument at any point when any economic issue arises or any criticism is levelled by the opposition.

This scenario will continue until next year's growth rate is announced. Last week the United Nations Economic and Social Commission for Asia and the Pacific released its 'Economic and Social Survey' report.

The report presents more facts and figures for them to consider in planning the economy. The report compares the statistics and analyses the issues faced by the countries and discusses the common issues faced by the region.

If the high economic growth rate alone gives a true picture of the economy, the Maldives, Bhutan and Afghanistan are better economies in the region. The report discusses about the growth figures and economic issues in South and South West Asian countries.

In 2006, the Indian economy grew at 9.2%, 0.2% higher than the previous year. In India the agriculture sector declined while the industry and service sectors performed well.

The report pointed out that to sustain growth the country's physical infrastructure is not sufficient adding that the rural infrastructure remains a key issue.

Pakistan's economy grew at 6.6%, lower than the 7.5% average in the last three years. The high oil price, impact of the earthquake in 2005, adverse weather conditions and decline in agricultural sector growth are the reasons for the economic growth slow down.

Bhutan's economy grew at 10% and the strongest reason highlighted by the report for the high growth is the Tala hydroelectric project. Other diversified economic activities including tourism have also grown.

The Maldives economy is strongly recovering from the 2004 tsunami impact and has registered an 18.7% growth. The tourism industry which is recovering is the strongest reason for the high growth and tourism accounts for one-third of the country's economy and the tsunami contracted the sector by 33%, the report said.

The political stalemate and escalating conflicts in Nepal had obstructed the economic growth and in 2006 the growth rate was 1.6%. However, the report expects the fresh peace initiatives to improve the economic growth.

According to the evidence in the region a political reason, climate changes, natural disasters or even a strong performance of a single economic sector would cause a high impact positively or negatively on the economic growth.

The reasons for high growth in small economies such as Bhutan or the Maldives are impressive. Peace in Nepal has raised fresh hopes. These figures are very relevant to our leaders and their policy advocates who are dreaming of a higher growth rate.

If peace is achieved what would be its impact on economic growth. What would be the potential of the tourism industry and how would it affect the growth such as the Maldives' experience.

The high oil price created difficult conditions for all oil importing economies in Asia in 2006. High inflation and high oil prices hurt poor people, the report said.

In India inflation rose to 6%, and it was led by the high price of sugar and other food items, petroleum, chemical and cement prices. In Pakistan it rose to 7.9% with a higher aggregate demand compounded by a shortage of principal commodities. Shortfall of cereal production contributed to high inflation in Afghanistan.

Inflation in Bangladesh increased to 7.2%, Nepal to 8%. In Sri Lanka it increased to 13%. The oil price, rapid credit expansion and higher civil service wages contributed to inflationary pressure.

The report highlights the policies pursued by countries to contain inflation and said that most countries follow tight monetory policies. India manages supply and demand of essential consumer goods and raw materials through its liberal import policy and strengthening its public distribution system for food grains, sugar and kerosene oil.

Other countries have also taken similar measures, the report said. Though our neo liberal policy advocates would not be happy about the system this should be considered by our political leaders to curb the rising cost-of-living. As budgets shops have become talk shops, they too can reconsider the restoration of Sathosa and the co-operative's public distribution system we earlier enjoyed.

In its outlook for 2007 the report expects the growth in Asia to remain strong. In India the growth forecast for 2007 is 9% and will be led by the industrial and service sector.

In Pakistan the anticipated growth rate for 2007 is 7%, with the recovery of agriculture and the improved manufacturing sector. Sri Lanka's growth is expected to slow down to 6.5% due to escalation of violence. Bangladesh will grow at 6% and the Maldives at the normal 7% rate, the report said.

In its policy conclusion, the report highlights the deficit of infrastructure in the countries of the South and Southwest Asia sub region.

As the private sector is not interested in investing public investment should go to rural infrastructure, the report said. Private sector financing in infrastructure development in developing countries in the region is less than 30%. Physical infrastructure for the poor should be a donor priority and the current situation is not promising, the report said.

The report said that the government should set up an effective regulatory framework including independent regulatory agencies to protect consumers, financial transparency and a fair return on investment.

The report also said that pricing is complex in the region due to efficiency and equity. Tariff rates should be competitive and reflect market conditions with some provision for poor households and advocate a more targeted approach in providing subsidies for the poor.