CS73: Introductory Statement at the Ministerial Panel on the Economic and Social Survey
Delivered at the Ministerial Panel on the Economic and Social Survey during the 73rd Session of the Economic and Social Commission for Asia and the Pacific in Bangkok, Thailand.
Ladies and Gentlemen,
Welcome to this panel discussion. As a basis for discussion, I would like to give you a brief overview of the Economic and Social Survey of Asia and the Pacific, ESCAP’s annual flagship publication which has focused on the importance of improved governance and fiscal management for our region’s development.
The global recovery seems to be firming up, supported by economic growth in the Asia-Pacific, up from 4.9 per cent in 2016 to an expected 5.0 per cent in 2017. The region now accounts for over a third of the world’s output. But a growing distrust of globalization in a number of our export markets is leading to short sighted protectionism and creating global uncertainty. Left unaddressed, this uncertainty could dampen growth in Asia and the Pacific – a region that has traditionally depended on exports for jobs and prosperity.
In recent years, the Asia-Pacific region has skillfully managed exogenous shocks, particularly the shrinking of advanced economies’ output since the global financial crisis. In the face of a prolonged period of weak external demand and global trade, economic growth in our region has recently relied more on domestic demand - especially private consumption. This has been supported by low inflation and low interest rates. Yet these changing global dynamics underscore the urgency of further increasing domestic and regional demand, supporting intraregional trade and sustainably improving transport, energy and ICT connections.
China’s economic conditions remain stable. Rebalancing, restructuring and deleveraging have led to new normal growth trends averaging 6.7 per cent over 2015-2017. Higher value-added sectors are increasingly driving output and employment. The other large emerging economy in the region, India, is on the road to recovery as consumption and infrastructure spending increase and cash flows normalize after the disruption caused by demonetization. More broadly, South Asia’s economic growth potential continues to be limited by structural challenges such as inadequate infrastructure and an energy deficit. These can only be overcome by increasing levels of public investment which would have significant fiscal implications. In South-East Asia, higher growth rates are forecast for most economies, backed by an expected rise in commodity prices and supportive macroeconomic policies. Fiscal and current account deficits, and high levels of household debt, persist in some of this sub-region’s economies. In the Pacific, a modest improvement in near-term growth is forecast. This is again supported by rising global commodity prices - but also increased trade, stable tourism receipts, and infrastructure investment. In North and Central Asia, after two years of contraction, positive economic growth is anticipated in 2017. In the Russian Federation, this will be driven by higher oil prices, even though steps are being taken to diversify the economy.
The growth outlook for 2018 is expected to rise to 5.1 per cent. However, for the major developing countries, growth could be 1.2 percentage points lower than the baseline projections if trade protectionism and global uncertainty increases. Productivity gains, rather than factor accumulation, backed by institutional and governance reforms are needed to stimulate better regional outcomes. Without robust private investment, a durable and sustained growth recovery will be hard to achieve.
Monetary policy stances in the region have recently shifted from “accommodative” to “neutral” as upside risks to inflation increased due to non-domestic demand factors such as oil prices and exchange rate depreciation. Countries should also consider strengthening capital flow management and macro-prudential measures to mitigate the effects of exchange rate volatility and ensure financial stability.
Developing countries’ average debt to GDP ratio stands at 40.8 per cent. Fiscal policy needs to focus on improving the quality of growth. This could be done by enabling productive investments in infrastructure and social protection, and through more efficient use of natural and energy resources. Public infrastructure investments should be designed to attract private investment to facilitate structural transformation that promotes the creation of decent jobs. Reprioritization of expenditure is also needed. But the scope to increase spending will depend on tax collection. With a tax-to-GDP ratio in the region’s developing countries of just 16.4 per cent, revenues could be significantly increased, by broadening the tax base and improving compliance.
Given the growing demands on fiscal policy to support the economy and overcome social and environmental challenges, the 2017 Survey examines how effective governance could help deliver sound fiscal policy and improve fiscal management. The Survey finds the countries that perform better on governance measures – which focus on the rule of law, regulatory quality, control of corruption and government effectiveness – tend to mobilize and spend their fiscal resources more efficiently and effectively. Between 2005 and 2014, poor governance contributed to lowering tax revenue by up to 21 per cent. The Survey highlights the importance of transparency and accountability, and recommends strengthening the production and dissemination of key fiscal data, as well as the development of public administrative capacities to monitor, evaluate and audit policies.
To conclude, there is an urgent need for better governance and effective fiscal management to promote growth, social inclusiveness and environmental sustainability across the Asia-Pacific region. A multilateral approach is needed to deepen regional economic integration and increase regional demand, intraregional trade and connectivity. Alongside an increased focus on social inclusiveness and environmental sustainability, action in these areas will be crucial to achieve the Sustainable Development Goals. I am looking forward to hearing the views of our distinguished panelists on these issues.
Thank you for your attention.