ESCAP Survey 2013 presentation in Brasilia, 18 April

Forward-looking Macroeconomic Policies for Inclusive and Sustainable Development

ECONOMIC AND SOCIAL SURVEY OF ASIA AND THE PACIFIC20132013


Survey launch in 37 locations

28 Locations in Asia-PacificNew York, Geneva , 3 Regional Commissions, Rome

Helsinki, Paris, and Brasilia2


A win-win development agenda for the region

3

• Asia-Pacific growth to remain subdued in 2013; challenged by uncertainty in the euro zone & US + structural impediments

• Survey offers a blueprint for economic, social and environmental resilience

• ‘‘Grow first, distribute & clean up later’’ no longer viable and acceptable

• Investing in people and planet is also good economics

• Affordable, doable and economically sustainable

• Forward-looking macroeconomic policies for inclusive and sustainable development


2013: Subdued regional growth

4

• Growth is forecast to increase to 6% in 2013 from 5.6% in 2012– China to grow at 8%, up from 7.8% in 2012– India to grow at 6.4%, up from 5% in 2012

• Inflation likely to remain at 5.1% in 2013– Risk of oil and food price increase

• Lower growth could be “new normal” as region shows signs of strain from developed world uncertainty; estimated output loss of $1.3 trillion by end-2017– Pre-crisis (2000-2007 ): 8% – Projected growth (2013-2017): 6.5%

GDP growth

0

24

68

10

2009 2010 2011 2012 2013

Per

cent

age

Developing Asia-Pacific Asia-Pacific

0 2 4 6 8

Europe

Arab

Latin America and theCaribbean

Africa

Asia-Pacific

Percentage

20132012


Outlook: Regional and country groups

5

Subregions LDCs, LLDCs and SIDSs

Inflation

0 2 4 6 8 10 12

East / North-East

South-East

Pacific

North / Central

South / South-West

Percentage

20132012

GDP growth

0 2 4 6 8 10 12

Pacific

North / Central

South / South-West

South-East

East / North-East

Percentage

20132012

GDP growth

0 2 4 6 8 10 12

SIDSs

LLDCs

LDCs

Percentage

20132012

Inflation

0 2 4 6 8 10 12

SIDSs

LLDCs

LDCs

Percentage

20132012


Outlook: Selected countries

6

Real GDP growth Inflation

(Percentage) 2011 2012 2013 2011 2012 2013

Bangladesh 6.7 6.3 6.0 8.8 10.6 7.5 China 9.2 7.8 8.0 5.4 2.7 4.0 Fiji 1.9 2.5 2.7 7.7 3.5 3.0 India 6.2 5.0 6.4 8.4 10.0 7.0 Indonesia 6.5 6.2 6.6 5.4 4.3 5.0 Kazakhstan 7.5 5.0 6.0 8.3 5.1 6.5 Malaysia 5.1 5.6 5.0 3.2 1.7 2.5 Myanmar 5.5 6.3 6.3 4.2 1.5 6.5 Pakistan 3.0 3.7 3.5 13.7 11.0 8.5 Papua New Guinea 11.1 9.2 4.0 8.5 4.1 8.0 Republic of Korea 3.6 2.0 2.3 4.0 2.2 2.5 Russian Federation 4.3 3.4 3.6 8.4 5.1 6.4 Thailand 0.1 6.4 5.3 3.8 3.0 3.1 Turkey 8.6 3.2 3.8 6.5 8.9 7.6 Developing ESCAP 7.0 5.6 6.0 6.4 5.0 5.1


Policy challenge 1: Uncertain global environment

7

• Fiscal crisis in the euro zone + Policy uncertainty in US

Impact on Asia-Pacific• Decreased economic activity through the

trade and finance channel• Estimated regional GDP loss of 3% since the

onset of the global crisis five years ago - $870 billion

• Loose monetary policies, quantitative easing (QE), of the developed world including in US

Impact on Asia-Pacific• Short-term capital flows volatility• Rapid short-term currency appreciation

• Food and fuel price volatility Impact on Asia-Pacific• Poverty and inflation

Export growth

-100

102030

4050

2010

Q1

2010

Q2

2010

Q3

2010

Q4

2011

Q1

2011

Q2

2011

Q3

2011

Q4

2012

Q1

2012

Q2

2012

Q3

Perc

enta

ge (y

ear-o

n-ye

ar)

World Asia-Pacific

Vulnerability Yardstick

0 100 200 300

Republic of Korea

Malaysia

Indonesia

India

Philippines

Thailand

Kazakhstan

Russian Federation

ChinaLeast

vulnerable

Mostvulnerable


Policy challenge 2: Regional slowdown

8

• China growth slowdown affects the region– China is currently the largest individual export market for the rest of the region– About 50% of imports of intermediate goods to China are sourced from developing Asia-

Pacific economies and Japan

• China export growth decelerated significantly– After mid-2012, 10.5% in the second quarter to 4.5% in the subsequent quarter

• India growth and exports still subdued

China: Monthly import growth

-100-50

050

100150

Jan-

10

Apr-1

0

Jul-1

0

Oct

-10

Jan-

11

Apr-1

1

Jul-1

1

Oct

-11

Jan-

12

Apr-1

2

Jul-1

2

Oct

-12

Imports: Ordinary Trade

Imports: Processingand Assembling

Imports: EquipmentImported for Processingand Assembling


Policy challenge 3: Economic insecurity

9

• Decreased job growth, increased economic insecurity and vulnerabilities – High incidence of informal sector jobs– Nearly 1.1 billion of the region’s workforce

remain trapped in low quality, more pervasive among women and youth than men

• Youth employment information– Youth unemployment is forecast to edge

slightly upwards in 2013– 13.4% in South-East Asia and the Pacific,

10% in South Asia and 9.8% in East Asia

• Low social security– Less than 2% of GDP in many countries

Youth Unemployment (%)

355

77

910

1111

1213

1515

1718

19

0 5 10 15 20

ThailandViet Nam

SingaporeMacao, China

JapanRepublic of Korea

IndiaMarshall Islands

PakistanAustralia

Taiwan province of ChinaPhilippines

Hong Kong, ChinaNew Zealand

Sri LankaIndonesia

Percentage

3342

626870

7378

8486

0 20 40 60 80 100

ChinaThailand

Sri LankaViet Nam

PhilippinesIndonesiaPakistan

IndiaNepal

Percentage

Informal sector (%)


Structural impediments 1: Growing inequality

10

• Income inequality (Gini index) increased from 33.5 in the 1990s to 37.5 in the latest available year

• Inequality-adjusted ‘real’ GDP per capita falls

Sri Lanka: GDP per capita $4,555 to ‘real’ GDP per capita $2,323 (in 2005 PPP) Republic of Korea: GDP per capita $27,415 to ‘real’ GDP per capita $19,492.

• Inequality reduces social development gains by over 20%

Pakistan: Gains reduced by over 30% Russian Federation: Gains reduced by over 10%

Inequality-adjusted GDP per capita

0 20000 40000 60000

Philippines

Mongolia

China

Bhutan

Fiji

Georgia

Sri Lanka

Armenia

Maldives

Thailand

Azerbaijan

Iran Is Rep

Kazakhstan

Turkey

Malaysia

RussianFed

Korea Rep

Singapore

GDP per capitaGini-adj

Inequality-adjusted social development index

0.0 0.5 1.0

Viet Nam

Indonesia

Turkey

Maldives

Thailand

China

Philippines

Tajikistan

Azerbaijan

Kyrgyzstan

Uzbekistan

Mongolia

Sri Lanka

RussianFed

Kazakhstan

Armenia

Georgia

Korea Rep

SDIGini-adj


Structural impediments 2:

Inadequate tax revenue + progressivity

11

• Many economies in the region have failed to raise sufficient tax revenue despite rapid growth

• Region has lowest tax burden of any developing region in the world

• The low tax revenue restricts governments’ fiscal space– Negative relationship between the tax burden of

countries in the region and their levels of inequality

Tax (% of GDP)

0 5 10 15 20

IndiaBangladesh

PakistanIndonesia

Korea RepThailand

China

Percentage

20112000

Government tax and inequality

0

20

40

60

80

0 20 40General government taxes/GDP

Gin

i coe

ffici

ent


Structural impediments 3: Infrastructure deficit

12

• Impediment to growth, especially in South Asia and the Pacific islands– LDCs of the region, such as Afghanistan, Cambodia

and Myanmar have the largest infrastructure deficits– Power is the most critical bottleneck and then

transportation

• Economic cost of traffic congestion: Indonesia: 1.2% of GDPThailand: 2.1% of GDPRepublic of Korea: 2.6% of GDP

• Financing requirement in the region – $600 billion to $800 billion per year

Population without electricity access

0 20 40 60 80 100

Korea, RepMaldives

Brunei DarussalamChina

MalaysiaThailand

Iran, Islamic RepViet Nam

SamoaPhilippines

FijiSri Lanka

IndiaBhutan

MongoliaIndonesia

PakistanLao PDR

NepalBangladesh

Korea, Dem RepCambodia

Timor-LesteVanuatu

AfghanistanSolomon Island

MyanmarPapua New Guinea


Structural impediments 4: Unsustainable resource use

13

• Asia-Pacific economy is requiring more resources to produce one dollar of GDP as the economy grows • For example, domestic material consumption

intensity and water intensity are very high

• Future growth of resource use in several countries holds significant implications for overall resource demand

• Vulnerability to natural disasters – 42% of the global economic losses due to

natural disasters– Disaster losses since 1980 have increased by

16 times in Asia while GDP per capita has grown by only 13 times

Domestic material consumption intensity

0 2 4 6 8 10

World

Pacific

East / North-East

Asia-Pacific

South-East

North / Central

South / South-West

Tonnes per US dollar

2008

1992

Water intensity

0.0 0.2 0.4 0.6 0.8 1.0 1.2

World

Pacific

East / North East

Asia-Pacific

South-East

North / Central

South / South West

Cubic metres per US dollar


Conventional macro policies

14

Debt and macro instability

Inflation and growth

• Over-emphasis on stabilization role (debt and price stability) • Neglected developmental role• Impact on Asia-Pacific:

– Significant infrastructure shortages– Decline in public investment in agriculture from 14.8% to 7.4% of GDP – Low public social security expenditure, total social security expenditure is 6.9% of GDP

Public social security benefit expenditure, excl. heal care (% of GDP)

0 1 2 3 4 5

BangladeshIndonesia

PakistanThailand

FijiViet Nam

Korea RepIndia

China

Percentage


Developmental macro policies

15

• Greater emphasis on the quality and composition of public expenditure– Rather than on aggregate budget deficits,

public debts and targeting inflation at a very low level

• Higher investment in health, education and social security

• Higher public investment in environment

• Inclusive finance– SMEs and agriculture development

Social expenditures and inequality

20

25

30

35

40

45

50

55

60

65

70

15 25 35 45 55 65 75

General government social expenditures over total government outlays (per cent)

Gin

i coe

ffici

ent


Win-win policies

16

• China’s economic rebalancing to make growth more inclusive; good for region and beyond– Increase exports to China by other Asia-Pacific

countries by $13 billion during 2013-2015

• Minimum wage policy also good for employers and the economy– Thailand’s minimum wage adjustment to boost job

growth by 0.6% and GDP growth by 0.7% by 2015

• National rural jobs scheme in India– 48 million households provided employment in over

600 districts in 2012-13

• Inclusive finance in Bangladesh– 10 million new bank accounts for smallholder

farmers

Impact of China rebalancing: Export growth

0.0 0.1 0.2 0.3 0.4 0.5 0.6

TurkeyThailandPakistan

Iran, IslamicNepal

IndonesiaIndia

FijiCambodia

ArmeniaKazakhstan

RussianAfghanistanRepublic of

JapanPhilippines

Viet NamSingapore

New Zealand

Percentage point

Estimated impact of minimum wage hikes in Thailand

-2

-1

0

1

2

2011 2012 2013 2014 2015 2016 2017pe

rcen

tage

poi

nt

GDP growth Employment growth

Forward-looking Macroeconomic Policies for Inclusive and Sustainable

Development

Proposed policy package

17

• A job guarantee programme– 100 days per year for participants

• A universal, non-contributory pension– For all aged 65 or older

• Benefits to all persons with disabilities– Ages of 15 and 65

• Increasing the share of public health expenditures– 5% of GDP by 2030

• Universal enrolment in primary and secondary education– Primary by 2020 and Secondary by 2030

• Energy access to all – Modern energy services by 2030

Illustrative package of policies to promote inclusive and sustainable development in 10 Asia-Pacific countries


Investing in inclusive and sustainable development

18

• Overall public expenditure and investment requirements to implement such a policy package vary across countries

• Total investment needs of above package of policies 5% to 8% of GDP by 2030

• Public investment needed to deliver policies to sustain growth and promote inclusive and sustainable development– In the case of China, the cost of the package is

projected to reach 3.3% of GDP in 2020 and 5.2% of GDP by 2030

– The cost of the package is projected to exceed 10% of GDP by 2030 only in Fiji (13%) and Bangladesh (22%)

Forward-looking Macroeconomic Policies for Inclusive and Sustainable

Development

Doable and economically sustainable

19

• Most countries can self-finance– broadening tax bases– tax regimes more progressive– tax administration more efficient – tighter regulations on capital flights– fighting corruption – reducing non-development expenditures

• LDCs would need global partnership and development cooperation

• Will not jeopardize macroeconomic stability


Maintaining long-term macro stabilityChina: Public debt (% GDP)

China: Inflation (%)

20

• The good news is that public expenditure on these policies package does not lead to macroeconomic destabilization

• Direct impact of additional public spending on GDP growth

• Indirect impacts on labour force participation, wage earnings and labour productivity would lead to sustainable future debt paths in the region


Forward-looking macroeconomic policies

21

• Rio+20+ 2010 MDGs Summit recognized forward-looking macroeconomic policies should include:

• Safeguard the sustainability of public investment strategies

• Not focus narrowly on debt stabilization and curbing inflation

• Often necessary to relax unnecessarily stringent fiscal and monetary restrictions

• Use countercyclical fiscal and monetary policies

• Strengthen mobilization of domestic resources

• Enhanced international cooperation to strengthen tax revenue collection

Objective:

• Supportive of growth of real output and employment.

• Minimize the impact of external and other shocks on poverty

• Buttress the fiscal capacities of all Governments


Need for macroeconomic course correction

22

New development paradigm

• Grow now, distribute + clean up later is dead end

• Investing in social and environment pillars fortifies economic pillar…– Leads to sustained, inclusive and

equitable economic growth

• Leaders in the Asia-Pacific should pledged to adopt forward-looking macroeconomic policies to promote inclusive and sustainable development

Thank youEconomic and Social Survey of Asia and the Pacific 2013 is downloadable on:

www.unescap.org/Survey2013/

email: [email protected]

23

http://www.unescap.org/Survey2013/

mailto:[email protected]

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ESCAP Survey 2013 presentation in Brasilia, 18 April

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