ISLAMABAD, April 14: The World Bank has warned that public debt burdens could increase significantly in South Asia given the sizable fiscal imbalances in some countries. In its “Global Development Finance (GDF 2005)” report launched here on Thursday, the World Bank, however, acknowledged that the external debt burden in South Asia has declined substantially during the last few years, falling from 29 per cent of the GDP in 1998 to 22 per cent in 2004.
The Islamabad launch of the GDF 2005 was chaired by Abid Hasan Acting Country Director of the World Bank for Pakistan where Hans Timmer made a detailed presentation on the salient features of the report. A number of government officials, members of the civil society and reporters attended the launch at the Bank’s office.
According to the report, South Asia’s GDP has registered a robust growth of 6.6 per cent in 2004. “While this is down from the 7.8 per cent growth posted in 2003, the deceleration mainly reflects a poor crop in India,” says Shanta Devarajan, the World Bank’s Chief Economist for the South Asia Region. India’s growth rate this year is lower than last year but still a healthy 6.9 per cent. Outside India, regional growth increased from 5.7 per cent in 2003 to 5.9 per cent in 2004.
The report said that central governments in the region as a whole recorded a budget deficit equal to 8.3 per cent of the GDP in 2004, up from 7.9 per cent in 2003.
It forecasts that global growth will slow down to 3.1 per cent in 2005, as a result of increases in US interest rates, fiscal tightening, and the effects of the 25 per cent real effective appreciation of the Euro. A reduction in demand for developing-country exports is expected to slow growth among them to 5.7 per cent in 2005, which still remains above recent growth trends.
This comparatively buoyant growth among developing countries is led by East Asia, South Asia, and Eastern Europe and Central Asia, where regional GDP grew by 8.3, 6.6 and 6.8 percent respectively in 2004.
Workers’ remittances sent to the region increased significantly in 2004, rising from $26.8 billion in 2003 to $32.7 billion, an amount greatly exceeds the $22.7 billion in total (private and official) flows to the region. The large increase in 2004 stems from remittances sent to India which surged from $17.4 billion in 2003 to $23 billion in 2004. The region as whole receives 26 per cent of remittances to all developing countries.
The more balanced growth that characterized the region in 2004 is expected to continue with domestic consumption and investment providing the largest contributions to growth.
Net private capital flows in South Asia increased from $11.2 billion in 2003 to a record $16.8 billion in 2004. Foreign direct investment rose modestly from $5.2 billion in 2003 to $6.5 billion in 2004. FDI outflows from developing countries rose to an estimated $40 billion in 2004, up from $16 billion in 2002; these outflows are coming, for the most part, from the same countries receiving the bulk of private capital inflows, namely Brazil, China, Mexico and Russia.
The report said developing countries outgrew high-income countries, and the gains were widespread as all developing regions grew faster in 2004 than their average over the last decade. But global growth momentum has peaked, and developing country gains are vulnerable to risks associated with adjustments to ballooning global imbalances — especially the $666-billion US current account deficit.
The strong global performance was underpinned by solid US growth and rapid expansion in China, India, and Russia. Record expansion of 6.6 per cent in developing countries was encouraged by favourable global conditions and supported by years of domestic policy improvements. As a result, financial flows to developing countries during 2004 reached levels not seen since the onset of the financial crises of the late 1990s.
