The Economic and Social Survey of Asia and the Pacific 2017 , the United Nations Economic and Social Commission for Asia and the Pacific's (ESCAP) annual flagship report launched last week, highlights that despite a broadly positive economic outlook for 2017, Asia-Pacific economies are vulnerable to rising global uncertainty and trade protectionism.
Pacific Sub-regional Macroeconomic Performance and Outlook
As a group, economic growth in Pacific island developing economies dipped to 2.6 per cent in 2016 from 7.1 per cent in 2015 and 6.2 per cent in 2014. The sharp slowdown was driven by more sluggish economic expansion in Papua New Guinea, which accounts for 60 per cent of the output of the developing economies in the subregion, owing to subdued prices and reduced exports of minerals. The slower overall economic growth in 2016, however, masks the fact that growth performance indeed improved in about half of the subregional economies, including Cook Islands, Marshall Islands, Nauru, Samoa, Tuvalu and Vanuatu. Moreover, 2016 marked the first time in decades that all subregional economies recorded positive economic growth. Such across-the-board economic expansion has been rare because most subregional economies are highly vulnerable to external shocks, such as natural disasters and declining commodity prices.
The near-term growth outlook is expected to improve modestly, with growth projected to be 3.1 per cent in 2017. The improved prospects benefit from such factors as an expected uptick in global commodity prices, steady economic growth in key trading partners, particularly Australia and New Zealand, stable tourism receipts, continued infrastructure upgrades and post-cyclone reconstruction efforts in some economies. A key downside factor is the persistent risk of natural disasters, which have in the past significantly damaged productive sectors, infrastructure and tourism facilities.
While Pacific island developing economies are vulnerable to a wide range of negative shocks, the room for policy responses is often limited. For example, while public debt levels are generally within established thresholds for fiscal stability, several subregional economies are approaching such thresholds and are considered to exhibit a high risk of debt distress. Moreover, fiscal outcomes are subject to several sources of volatility, stemming from a narrow revenue base, such as fishing license fees, and large fluctuations in economic activity that make revenue less predictable. Spending rigidity caused by a large share of recurrent expenditure for civil service salaries and operations is also an issue.
Effective governance and fiscal management are critical for achieving sustainable development
The Survey highlights the importance of effective governance and fiscal management, given the high demands on fiscal policy to address the diverse challenges to sustainable development. For instance, economic expansion has been accompanied by rising income inequality with inadequate creation of decent jobs in the region, which trails the world in social protection coverage. Developing Asia-Pacific economies also use twice as many resources per dollar of GDP as the rest of the world.
To address these challenges, the Survey calls for effective governance, in particular a proactive fiscal policy through productive investments in such areas as infrastructure, social protection and resource efficiency. Effective governance can for example, improve health outcomes in the Pacific, promote economic diversification in North and Central Asia and the creation of decent jobs in South and South-West Asia, reduce development gaps in South-East Asia and accelerate ecological innovation in East and North-East Asia.
The Survey recommends that structural reforms could complement fiscal policy and help increase potential output. It notes that governments provide an enabling environment of policies, institutions and public services that helps factor and product markets to work efficiently.
Download the Survey: http://www.unescap.org/publications/economic-and-social-survey-asia-and…