Global Economic Prospects
According to Global Economic Prospects (GEP), an annual publication of the World Bank, GDP growth in South Asia was estimated at 6.9 percent in 2005, up from 6.8 percent in 2004. In 2006, it is expected to slow down to 6.4 percent.
The recent strong performance of the developing countries suggests that the reforms undertaken over the past decades have had a positive impact on growth trends. "Long-term growth in South Asia is forecasted to average around 5.5 percent during 2007-2015, reflecting a rising contribution to growth from the private sector. Trade reforms, banking sector liberalisation, privatisation and infrastructure development are all expected to improve the investment climate, productivity growth, and ultimately incomes."
Discussing the situation in Pakistan, the World Bank report says that while the October 2005 earthquake had catastrophic human consequences, its overall impact was expected to be smaller.
The GDP growth during FY06 was now expected to be 6.6 percent as against the earlier projections of 7.0 percent. In India, growth rate was recorded at 7.0 percent. Healthy growth rates in both the countries were attributed to increased consumption, investment, exports and industrial production.
The GEP's main theme this year was migration and remittances. It concludes that migration "offers potentially huge economic gains" and presents evidence that an increase in migrants that would raise the work force in high-income countries by three percent by 2025 could increase global real income by 0.6 percent, or $356 billion.
Such an increase in migrant stock would be in line with the trend observed during the past three decades. Besides, the relative gains are much higher for developing-country households than rich-country households. Out of $356 billion, $162 billion will be going to new migrants, $143 billion to people living in developing countries, and $51 billion to people living in high-income countries.
The steady stream of foreign exchange that remittances deliver can improve developing countries' balance of payments and creditworthiness. The World Bank has also strongly favoured easy and cheaper access by poor migrants and their families to formal financial services for sending and receiving remittances.
This could be done by encouraging the expansion of banking networks, allowing domestic banks in origin countries to operate overseas and providing recognised identification cards to migrants. The report cites experiences of reduction in remittance transfer fees in India, the Philippines and the US-Mexico corridor, as examples for others to follow.
The World Bank's projection that South Asia would continue to experience a strong growth rate is a good news for Pakistan and the region as a whole. Trapped in poverty for a long time, South Asia now looks set to usher in a new era of rising incomes and better standards of living for majority of its population.
Since growth rates of developed countries are expected to be lower than that of South Asia, the wide disparity of incomes and wealth between the haves and have-nots would now gradually be narrowed over time.
A relatively richer South Asia can provide Pakistan the opportunity to expand its exports within the region and accelerate its growth rate. In our view, the World Bank has done a service by reminding the Pakistani policy planners that the recent earthquake, contrary to their public pronouncements, would have a negative effect on the country's economy.
At the macro-economic level, the most significant impact of the earthquake is expected to be on the fiscal deficit. In the absence of any offsetting revenue increases and expenditure reductions, the earthquake may increase the budget deficit by about 0.6 percent of GDP.
The earthquake may also cause an increase, albeit limited, in imports of fuel, food and construction materials and this could aggravate pressures on the balance of payments.
We would advise the policy makers to come to terms with the new environment as early as possible and not continue to insist that the impact on the economy will be very insignificant, if any. Such a stance would help the country to adjust to the new situation in a shorter period of time.
The World Bank's observations about the benefits of migration to both the developed and developing countries and the advice about facilitating remittances should prove to be very timely and beneficial.
The report clearly demonstrates, in quantitative terms, the gains of migration to various countries and suggests indirectly that encouragement of migration would be in the interest of all the countries of the world.
The advice by the World Bank to increase the flow of remittances through official channels by adopting suitable measures is particularly welcome for our country. Our banking system still remains bureaucratic in character and takes much larger time to deliver the money to the recipients than the informal channels with the result that Pakistani expatriates prefer to send their remittances through hundi or other means.
Of course, there is no harm in learning from the experiences of other countries in this regard. It is true that the menace of money laundering and financing of terrorism needs to be checked but expatriates sending genuine remittances should not be harassed or put to unnecessary inconvenience.