A major United Nations economic survey released on Thursday projected an acceleration in the country’s economic growth for the current year and the next with real GDP growth of two per cent and 2.3pc, respectively.

It also projected an ease in inflation from 26pc in 2024 to 12.2pc in 2025.

The 2024 Economic and Social Survey of Asia and the Pacific region, released by the UN Economic and Social Commission for Asia and the Pacific (UN-ESCAP), noted that the economy faced political unrest that had adverse impacts on business and consumer sentiment while a massive flood disrupted agricultural production.

It noted that an agreement with the International Monetary Fund in mid-2023 and further assistance from China, Saudi Arabia and the United Arab Emirates had helped the economy regain some macroeconomic stability during 2023.

The survey pointed out that the economy was undergoing fiscal adjustments to restore stability through various measures such as removing subsidies for the power sector.

It also noted that despite the low tax levels, tax gaps were moderate, although such gaps were not necessarily small if measured as a share of current tax revenues rather than a share of GDP.

The above suggested that better tax policies and administration alone might not help to bridge the vast development financing gaps in low-tax countries, the survey said.

Overall improvements in socioeconomic development and public governance would be needed as well as tax revenue enhancement on a larger scale, the survey suggested.

It emphasised that the governments of developing Asia-Pacific countries were in urgent need of affordable and long-term financing as many of them were being forced to choose between servicing debt in a high-interest rate environment or investing in education, health and social protection for their people.

According to the survey, new perspectives and approaches could solve this long-standing challenge. Suggesting such actions, the survey said that donors should prioritise the development financing needs of recipient countries over political interests, multilateral development banks need to improve their lending capacities, including through fresh capital injections, and credit rating agencies should adopt a long-term perspective and appreciate that public investments to realise shared development ambitions raise fiscal credibility over time.

The survey also recommended stronger public revenue collection, which would not only help close the “tax gap” but also reduce fiscal risks and borrowing costs.

Apart from digitalising tax administration, policies to increase society’s willingness to pay taxes offered untapped potential, the survey pointed out.

Similarly, it said that more developed capital markets were needed to unleash sizeable domestic savings in the region and to increase the supply of long-term capital for investments in the Sustainable Development Goals (SDG).

“Governments of developing countries across Asia and the Pacific are victims of an unjust, outdated and dysfunctional global financial architecture. They face fiscal constraints, rising borrowing rates with shorter loan maturity and heavy debt burdens,” UN Secretary-General Antonio Guterres was quoted as saying in the report.

He said income inequality was also likely to widen in the region, as the value of national minimum wages, adjusted for inflation, had declined in several countries in recent years, further weakening the ability of lower-income groups to cope with weak job opportunities and high food prices.

“It is crucial to dispel the misconception that higher public debt levels inevitably lead to higher debt distress. In fact, strategic deployment of public debt to invest in the SDGs not only benefits people and the environment but also contributes to lowering public debt as a percentage of gross domestic product over the long term,” said UN-ESCAP Executive Secretary Armida Salsiah Alisjahbana.

Average economic growth in the developing Asia-Pacific region picked up from 3.5pc in 2022 to 4.8pc in 2023, although the rebound was concentrated in a few large countries, the survey found.

GDP growth in the region was projected to remain relatively steady but below the pre-pandemic trend, at 4.4pc in both 2024 and 2025.

The survey said uncertain inflation and interest rate trends, escalation of geopolitical tensions and trade fragmentation were examples of economic headwinds faced by the region’s economies.

While a strong and fair taxation system and efficient and effective public spending should remain the backbone for financing essential public investments, governments would need to borrow to finance large sustainable development investment needs.

For Asia and the Pacific, the share of external public debt owed to official creditors dropped from 54pc in 2010 to 35pc in 2022. As such, private creditors, bondholders, in particular, have now become the main creditors for countries in the region, according to the survey.

A new quantitative analysis by ESCAP showed that macroeconomic fundamentals, such as inflation, exchange rate volatility, fiscal position, sovereign credit rating and capital market liquidity, were key in influencing government borrowing costs in several Asia-Pacific economies.

The 2024 survey argued that strengthening tax revenue collection and boosting domestic savings were particularly important.

The developing Asia-Pacific region has recorded notable progress in tax revenue mobilisation, with the average tax-to-GDP ratio increasing from 13pc in 2001 to 17.8pc in 2011 before moderating to 15.7pc in 2021 amid the pandemic, the survey noted.

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