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Fiscal and Trade Policy for the
SAARC Region - Vision 2020
Dr. Anura Ekanayake
Deputy Vice Chairman, The Ceylon Chamber of Commerce
SOUTH ASIAN TAX SUMMIT 2008
April 2008Karachi, Pakistan
“The only way of discovering the limits of the possible is to venture a little way past them into the impossible.”
- Late Arthur C. Clark, renowned scientist, S-F writer and a distiguished citizen of South Asia.
Why do we need them? Tools to raise Government revenue Influence demand and supply Encourage exports Stabilize Exchange rate/BOP Encourage investments Accelerate economic growth Create employment
How are they inter-related?Trade policy is very much a part of Fiscal policy. It is used to
raise/spend government revenue
They strive to contribute to the achievement of similar objectives - Growth, Income, and Employment
Fiscal and Trade Policies
Fiscal Policy Situation -
Despite the differences in the size and development of the countries in the region, there are some characteristics that seem to stand out in terms of fiscal policy
We seem to be high spenders relative to what we earn (high budget deficits and low government revenue)
Our countries experience relatively high rates of inflation and high growth
Poverty is high in our countries and income low
Current Position of intra-SAARC Trade - Data and issues in brief.
Some indicators
Per capita GNP
(US$)
GDP Growth rate
Inflation2006
Fiscal Balance
(% of GDP)
Govt. Revenue(% of GDP)
% of the people below
poverty line
Afghanistan 6.1 5.1 -3.1 18.3 N.A
Bangladesh 480 6.6 7.2 -3.2 10.7 50%
Bhutan 1410 7.8 4.9 -0.8 34.5 N.A.
India 820 9.6 5.4 -6.4 21.1 29%
Maldives 2680 19.1 3.5 -6.7 51.8 N.A.
Nepal 290 3.1 8.0 -1.6 13.1 42%
Pakistan 770 6.6 7.9 -4.3 14.2 33%
Sri Lanka 1300 7.7 9.6 -8.1 16.4 25%
Average 1107 8 6 -4 23 36%
Trade liberalization started late (late 70s early 80s) and slow progress
Tariff barriers are still significantly high
Protection in agriculture is higher than protection in non agriculture
Non tariff barriers are significant
Trade facilitation can bring many benefits however not much progress has been made
Intra regional trade is low, however, intra regional trade is more important for smaller SAARC countries than for larger ones (e.g. Bhutan 73% of total trade is within SAARC and Nepal 62%, in contrast for Pakistan intra regional trade is only 4% and India 3%)
SAARC Countries’ Trade Policy- The Current Situation
A Brief Comparison of SAARC with the European Union and the ASEAN
Membership Trade Liberalization
Original Current Intra regional trade - 2005
SAARC 7 8 SAPTA – 1993SAFTA – 2005
4-5%
ASEAN 5 10 AFTA – 1992 25%
EU 6 27 EU single market
completed in 1993
66.6%
Source: www.aseansec.org , http://europa.eu/ , www.saarc-sec.org
Importance of Trade within SAARC for SAARC Member Countries - 2005
Country As a % of total imports
As a % of total exports
As a % of total trade
Bangladesh 18 2 10
Bhutan 69 78 73
India 1 5 3
Maldives 15 16 15
Nepal 65 57 62
Pakistan 3 4 4
Sri Lanka 22 10 17
Source: www.trademap.org, Annual Report of the Central Bank of Sri Lanka
Tariff Profile of South Asia
Country Year Simple average applied tariff
Bangladesh 2006 15.2
Bhutan 2005 22.1
India 2005 19.2
Maldives 2006 20.2
Nepal 2005 13.9
Pakistan 2006 14.3
Sri Lanka 2006 11.2
Average for SAARC 16.6
Average for ASEAN 8.1
Source: World Tariff Profiles, 2006 (www.wto.org)
Potential for growth in South Asia
Based on Deutcshe Bank Research -A forecast by Deutsche Bank Research on 34 economies indicate that Growth in future will come from Asia. According to this Study done in March, 2005:India (5.5%), Malaysia (5.4%), and China (5.2%) will post the highest GDP growth rates overall during 2006-2020 period
The growth of India already is and will be a major driving force of growth in the SAARCPakistan is the gateway to the middle east and AfricaYet, are we ready to make use of these opportunities?All the big businesses around the globe are eying to make profits from themWhat are we neighbors doing? Are we hiding behind our fears, suspicions and historical hostilities and turn a blind eye to this chance of a lifetime?
How can the Region move Forward?
Find synergies, Find Win-Win situationsLook for harmony not for conflictThere are things we can share and benefit from
Some examples of such situations:Some examples of such situations: Cricket World Cup 1996
“Let us share our own backyard for the world to play cricket”
Health tourism : Combine medical expertise of India with hospitality in Sri Lanka “Professional medical care in a home away from home”
Trade: Combine increased trade of India with maritime expertise of Sri Lanka “Let your neighbor deliver your goods to the world”
Apparel: Combine designing skills of India with production technology of Sri Lanka “Together let us dress the world”
Improve Connectivity We are neighbors, we share borders We share culture, language, religion
Yet, doing business with each other is expensive both in terms of time and money:
Saying hello to my neighbor is quite expensive – “Cost of telecommunications”
Visiting to see my neighbor’s factory is quite expensive and time consuming – “Air connectivity”
Sending my goods to my neighbor is quite expensive and time consuming – “Air, sea and land connectivity”
Bringing down barriers must be seen as an opportunity rather than a threat –
It will help reduce the dependence on few outside markets like U.S.A. and E.U.,
It reduces the vulnerability of being over dependent on these markets
How can the Region move forward?
(…Contd.)
Cost of trading across borders – 2006
SAARC Average(excl.
Afghanistan)
ASEAN Average(excl. Brunei,
Myanmar)
Documents for export (number)
8 7
Time for export (days) 30 29
Cost to export (US$ per container)
1055 806
Documents for import (number)
13 11
Time for import 35 32
Cost to import (US$ per container)
1408 901
Source: Cost of Doing Business Report – World Bank
Role of the Government
Role of the Government would be to act as a Facilitator
To: Facilitate Trade Facilitate movement of people Improve infrastructure
Role of the private sector
Make use of each others strengths to make your business a success
Few thoughts…
India’s Entrepreneurs and Professionals
Sri Lanka’s Maritime Expertise and Hospitality
Labour and Commodities in Bangladesh and Nepal
Innovative Poverty Alleviation Schemes (for e.g. Grameen Bank)
Maldives Tourism - Sun and the Beaches
Bhutan’s pristine Natural Beauty and Gross National Happiness
Pakistan – the gateway to the Middle East
The direction of Trade Policy of SAARC in future should strive to
Have lesser direct and indirect trade barriers for Intra SAARC trade
& the direction of Fiscal Policy of SAARC should strive to Invest more on developing infrastructure Reducing wasteful recurrent expenditure Curtailing budget deficits Reducing poverty through growth
In Conclusion…