Launch of

ECONOMIC AND SOCIAL SURVEY OF ASIA AND THE PACIFIC 2015

Shamshad AkhtarUnder-Secretary-General of the United Nations

and Executive Secretary of ESCAP

Key messages• Policy focus on economic growth is necessary, but it is not sufficient

for achieving development. – Policymakers need to internalize the aspects of inclusive growth and sustainable

development into their domestic policy frameworks.

• Economic growth in Asia-Pacific developing economies will experience only a slight increase in 2015.

– Unless reforms are vigorously pursued, downside risks to the growth trajectory could increase.

• Inflation has declined and is expected to remain low, leading to interest rate reductions.

– Prudence, however, is required given the likely volatility in capital flows, especially in economies with weak fundamentals.

• Economic growth has not been inclusive within countries. – Inequality of income and of opportunity has risen between different geographies

and sections of society such as rural and urban areas and women and men.

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A moderate economic growth outlook

• Economic growth in developing Asia and the Pacific is forecast to rise only slightly to 5.9% in 2015 from 5.8% in 2014.

– this outlook is primarily associated with domestic and intra-regional factors.

• Economic growth potential in the region is being held back by, among others, two key challenges:

– infrastructure shortages– commodity dependence

• Fragile global economic recovery also exerting drag on growth prospects of the region.

8.8

9.6 10.1

6.4

5.3

8.9

7.2

5.46.0 5.8 5.9 5.9

2.8 3.1 2.8

0.1

-3.4

3.1

1.71.2 1.4

1.82.3 2.4

-4

0

4

8

12

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Rea

l GD

P g

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th (p

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ntag

e)

Developing Asia-Pacific economies (a)

Major global developed economies (b)

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Relatively better growth outlooks for all subregions except North and Central Asia

-4 -2 0 2 4 6 8 10

South-East Asia

South and South-West Asia

Pacific island developing economies

North and Central Asia

East and North-East Asia

2014 2015 2016

Real annual GDP growth (%)

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Importance of addressing infrastructure shortages

• Weaknesses in infrastructure is one of the key factors holding back the region’s economic growth potential.

• Significant investment in infrastructure is required, not least to meet the increasing demand due to growing incomes and populations together with the requirements of rapid urbanization.

• Efforts are needed on multiple fronts, including increasing government revenues, developing capital markets, and nurturing public-private partnerships.

– Emergence of Asian Infrastructure Investment Bank is an important development to meet the infrastructure deficit gap of the region.

• Need to remember that raising necessary finance is not the only solution; capacity to assess feasibility of bankable projects and an enabling legal and regulatory environment is also important.

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Reducing negative implications of excessive commodity-dependence

• Excessive commodity dependence can influence a host of economic indicators such as inflation, exchange rates, and budget and current account deficits

• To mitigate the negative implications, countries could consider:– targeting a cyclically-adjusted fiscal balance that takes into account

the potential revenue shocks due to large movements in commodity prices.

– Developing a production-oriented index to control inflation as it is more appropriate for countries susceptible to terms-of-trade shocks.

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Countries where commodity export-to-GDP ratio exceeded 10% in 2000-2013 30% plus  Azerbaijan  (‐4.3),  Brunei  Darussalam  (4.4),  Islamic  Republic  of  Iran  (2.8), 

Kazakhstan  (‐4.5),  Mongolia  (‐5.7),  Myanmar  (0.2),  Papua  New  Guinea  (10.4), Timor‐Leste (1.4) and Turkmenistan (‐1.2) 

10‐30%  Australia  (0.3),  Bhutan  (2.6),  Indonesia  (‐0.2),  Malaysia  (0.3),  the  Russian Federation (‐4.3) and Viet Nam (0.7) 

Note: Figures in parentheses show the percentage point difference between real GDP growth in 2013 and the 2015 forecast.

Outlook for trade, and thus an external demand led growth, remains challenging

• Exports of the region have been declining for few years now; outlook is not much different, primarily due to fragile economic recovery in most advanced economies.

• Similarly, sluggish import demand of major economies in the region will impact intraregional trade, and thus the overall trade outlook.

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Inflation dynamics• Inflation forecast to decline in 2015 to 3.3% in 2015 from 3.9% in

2014, driven by lower international oil prices and reduced demand pressure in export-led economies.

• For net oil importing economies, the decline in oil prices is and will remain beneficial. But this is not the case for oil exporting economies, due to pressure on their currencies and thus imported inflation.

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Monetary policy – balance benign inflation outlook and likely capital flow volatility

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• Declining inflation has provided space for an accommodative monetary policy stance in many economies of the region.

• At the same time, likely increase in interest rates in United States is encouraging capital outflows from region; countries with weaker macroeconomic fundamentals are likely to be most affected.

• This may necessitate higher interest rate by developing economies of the region. Partly because of this, some economies are already keeping real interest rates at a relatively higher level.

• ESCAP analysis shows that countries with better fundamentals will have to increase interest rates, if and when such a need arises, less to defend against capital outflows – positive impact on GDP growth of up to 0.5 percentage points

• Macroprudential policies offer an important complementary method of managing capital flows while allowing governments to preserve monetary policy flexibility and maintaining domestic financial stability.

Realizing inclusive growth• Inclusiveness is typically measured using income-related

indicators.

• Yet, inclusiveness is a multidimensional concept that goes beyond economic measures. It should also capture social and environment dimensions of development.

• Inclusiveness is broadly defined in terms of: (a) increasing the average standard of living of the population; (b) reducing income inequality; (c) reducing levels of extreme poverty and (d) expanding and broadening equality in opportunities (social and environment related)

“We, the Heads of State and Government and high-level representatives, renew our commitment … to ensuring the promotion of an economically, socially and environmentally sustainable future… for present and future generations. “

(Rio+20)

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Economic inclusiveness• Rates of extreme poverty have declined.

• Yet, significant differences remain between rural/urban sectors and genders.

70.0 70.0

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1.77.8 8.0 6.5

1.7 2.60

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20

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40

50

60

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Asia Pac

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Prop

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China India Indonesia

Pove

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head

coun

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of p

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n Rural Urban

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Economic inclusiveness• Income inequality has increased.

• Lack of productive employment is one of the major reasons for the high incidence of poverty in many developing countries.

0 20 40 60 80 100

CambodiaLao PDRThailandViet Nam

BhutanMalaysiaMongolia

Republic of KoreaIndia

BangladeshNepal

PakistanAzerbaijan

KazakhstanMaldives

IndonesiaKyrgyzstanPhilippines

Percentage

Vulnerable employment Unemployment

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0 10 20 30 40 50 60

MalaysiaPhilippines

ChinaRussian…

TurkeyThailand

Iran (Isl.Rep)IndonesiaLao PDRMongoliaSri Lanka

CambodiaViet Nam

IndiaAzerbaijanKyrgyzstan

BangladeshPakistan

Kazakhstan

Gini coefficient

1990 2012

Social inclusiveness

0

10

20

30

40

50

60

70

80

90

100

Sri

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Opportunity index for children

Primary school age groud Secondary school age group

0

10

20

30

40

50

60

70

80

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100

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Per

cent

age

Secondary school attendance

Males Urban Males Rural Females Urban Females Rural

• Enrolment rates diverge across sector and gender and across income quintiles.

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Social inclusiveness

Access, affordability and acceptability of health services are critical in identifying whether growth is inclusive.

• Large spatial differences characterize provision of health services.

• High ‘out-of-pocket payments’ affect particularly low-income persons.

• Services may note be socially or culturally appropriate, particularly when related to sexual and reproductive health services.

0

10

20

30

40

50

60

70

80

90

100

Poorest 20% Q2 Q3 Q4 Richest 20%P

erce

ntag

eIncome quintiles

Percentage of skilled birth attendance in three years preceding survey, by income

quintile

Bangladesh Cambodia India

Indonesia Nepal Pakistan

Philippines Timor-Leste Turkey

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Environmental inclusiveness• Being less resilient, the poor

are particularly affected by environmental degradation.

• Environmental degradation can also be an outcome of economic inequality.

• Important progress in increasing access to improved water, yet disparities still exist between rural and urban areas.

• Achievements in access to improved sanitation have been relatively moderate.

0

10

20

30

40

50

60

70

80

90

East andNorth-East

Asia

North andCentral

Asia

Pacific South andSouth-West

Asia

South-EastAsia

Per

cent

age

of p

opul

atio

n

Access to improved sanitation

1990 2012

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Environmental inclusiveness

• At least 620 million people lack access to electricity in the region.

• Large disparities between rural and urban sectors.

• More than 1 million premature deaths annually in India and China can be attributed to exposure to household air pollution.

0% 20% 40% 60% 80% 100%

DPRK

Cambodia

Myanmar

Bangladesh

Philippines

Pakistan

Indonesia

Lao PDR

Nepal

Mongolia

Sri Lanka

Access to electricity, 2012

Rural electrification rate (%) Urban electrification rate (%)

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ESCAP Inclusiveness Index

The ESCAP Inclusiveness Index captures 15 indicators, covering economic, social and environmental dimensions of development.

Overall, growth has been inclusive.

Yet, some countries have made more progress than others.

Growth has not been inclusive within countries.

Intergenerational inequities can be perpetuated if large and widening income inequalities are not addressed.

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Policy recommendations

1. Address the neglect of the rural sector.

• Increase agricultural productivity by focusing on quality and standards, investments in R&D.

• Develop non-farm sector through rural industrialization.

2. Strengthen financial development, foster financial inclusion.

3. Foster creation of small and medium-sized enterprises.

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Policy recommendations

4. Strengthen the developmental role of macroeconomic policy by making existing expenditure more development-oriented:

• Reduce non-development expenditure (defence, energy subsidies).

• Increase access to and the affordability of health systems.

• Strengthen social protection programmes.

• Expand investment in education.

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