Steadily improving economic performance provides a valuable opportunity to mobilize financing for development, says UN report

South and South-West Asia remains fastest-growing subregion in Asia-Pacific, despite slowdown in 2017

New Delhi (ESCAP News) – Mobilizing financing for development remains a fundamental priority in the Asia-Pacific region. The robust growth registered by the region in 2017 and forecast to continue this year provides the opportunity to meet this objective, according to a major United Nations report launched in New Delhi today.

The report advises countries in the region to take advantage of the current favourable economic conditions to address vulnerabilities and enhance the resilience, inclusiveness and sustainability of their economies. Implementation of several policy initiatives will require mobilizing domestic public financial resources and leveraging private capital, the report noted.

Launched at an event organized jointly by the New Delhi-based ESCAP South and South-West Asia Office and the Indian Council for Research on International Economic Relations (ICRIER), the annual Economic and Social Survey of Asia and the Pacific forecasts economic growth to moderate to 6 per cent in 2018 in South and South-West Asia (from 6.4 per cent in 2017), before picking up to 6.2 per cent in 2019. South and South-West Asia remains the fastest growing subregion in Asia-Pacific, according to the Survey.

A gradual recovery is foreseen in India, according to the report; with private investment being expected to revive as the corporate sector adjusts to GST, infrastructure spending and corporate and bank balance sheets improving with government support.

“Sustained and inclusive growth, and improved well-being in the Asia-Pacific region require concerted efforts to mobilize financial resources for development and dedicated steps to mainstream resource efficiency, social protection and environmental considerations into policymaking”, said Dr. Rupa Chanda, Head, ESCAP South and South-West Asia Office, presenting the report’s key findings.

The report points out that due to robust domestic demand and improved global economic prospects, developing economies in the Asia-Pacific region are projected to grow by 5.5 per cent in both 2018 and 2019, with a slight moderation in China offset by a recovery in India and steady performance in the rest of the region.

However, this diagnostic does not imply that there are no risks or challenges. Potential financial vulnerabilities, declining or low foreign exchange reserves in a few South Asian economies and uncertainty concerning trends in oil prices must be closely monitored.

To address these risks and challenges, monetary and financial policies should be focused on ensuring macroeconomic and financial stability and tackling systemic risks in the financial system through appropriate macroprudential measures. Fiscal policy should be focused on lifting productivity growth and reducing inequalities. In addition to budget reallocation in favour of development spending, governments should increase expenditure efficiency, ensure equal access to basic public services, and consider progressive taxation.

The Survey argues that lifting productivity will require a “whole-of-Government approach” for fostering science, technology and innovation and investments in relevant skills and infrastructure. Similarly, strengthening social protection and mainstreaming resource efficiency targets into national plans and budgets will help improve region’s economic dynamism and prospects for sustainable development.

Participating in the launch as Chief Guest, Dr. Jaimini Bhagwati, Reserve Bank of India Chair Professor, ICRIER, noted that “the report is a timely reminder of the need for Asia-Pacific countries to maintain macroeconomic stability, along with effective macroprudential policies, in the face of possible headwinds of trade protectionism, interest rate hikes in the United States and the Eurozone and rising oil prices. Against this backdrop, countries should focus on providing an enabling environment to raise adequate financing and fuel sustained growth, while reducing inequality”.

Strengthening tax revenues remains a high priority for several economies in the Asia-Pacific region, and this can be improved in several ways, according to the report. For instance, the Survey finds that the impact of better-quality tax administration on revenues is significant. A one-point increase in a new tax administration index, presented in the report, is associated with a tax revenue increase of 0.15 per cent of GDP.

It is estimated that if Asia-Pacific countries have the same tax administration efficiency than OECD countries, revenue impact could be as high as 8 per cent of GDP in such countries as Myanmar or Tajikistan; and about 3 to 4 per cent of GDP in larger countries, such as China, India or Indonesia.

Expanding the tax base by rationalizing foreign direct investment (FDI) tax incentives, introducing a carbon tax, and prudently increasing sovereign borrowings from financial markets while preserving debt sustainability, are other examples of policies that can be implemented to enhance public revenues and facilitate fiscal space commensurate with the investments necessary to achieve the 2030 Agenda.

“The assessment of ESCAP, as presented in this report, shows that the prospects for mobilizing financing for development purposes are promising”, Dr. Chanda concluded.

The Economic and Social Survey of Asia and the Pacific is a flagship publication of the United Nations Economic and Social Commission for Asia and the Pacific. Every year, it discusses regional economic progress, provides cutting-edge analysis and guides policy discussion on current and emerging economic and social development issues to support sustained, inclusive and sustainable economic growth.

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