Contact: In Washington: Erik Nora (202) 458-4735 enora@worldbank.org Singapore, September 15, 2006 — Strong economic growth in South Asia is creating “political space” for much-needed policy and institutional reforms to accelerate and sustain growth, and tackle long-standing social and economic problems, according to a World Bank report. The report, to be discussed tomorrow at the World Bank/IMF Annual Meetings in Singapore, says strong growth has created an unprecedented opportunity: a chance of ending poverty in a generation in South Asia, the region with the world’s largest concentration of poor people. “This is an opportunity that cannot be missed,” said Praful Patel, World Bank Vice-President for South Asia. “For the leadership of South Asia it is the chance of a lifetime. And for the poor people of South Asia it is a real chance to emerge from destitution and want.” The report observes that recent economic growth has made it possible for South Asian countries to address politically difficult reforms. “More informed public debate about what works and what doesn’t combined with global experience is emerging as an important force for change in South Asia,” said Shantayanan Devarajan, co-author of the report and World Bank Chief Economist for the South Asia region. “In some countries growth is also generating the resources to address economic and social problems - not just adding new money, but also the will to make existing public expenditures more effective.” Since 1996, GDP growth in Bangladesh, Bhutan, India, Maldives, Nepal and Sri Lanka has exceeded 5 percent a year on average; Pakistan has been growing at this pace since 2000. In the past two years, India and Pakistan have been averaging GDP growth of nearly 7 percent. Afghanistan, has been growing at double-digit rates, but starting from an extremely low base due to decades of conflict. “In order to use this growth to eliminate poverty in a generation, South Asian countries will need to accelerate and sustain their economic growth rates from 6 percent to 8-10 percent a year,”said Shekhar Shah, co-author of the report and Economic Adviser in the World Bank’s South Asia Region. “They also need to make growth more inclusive, boost human development and address governance issues.” The task is difficult but not impossible given the unique opportunity that recent growth has created, argues the report. Growth is adding not just more resources but the potential to generate the political space for greater reform. On the one hand, it is breeding greater public demand for addressing urgent challenges; on the other, it gives politicians the opportunity to make tradeoffs through strategic prioritization. The report says there is already evidence that current growth has made it possible for countries to pursue “second-generation” reforms, such as the privatization of public enterprises, deregulation of industries and financial sector reforms. Pakistan, for example, has privatized most of its banking sector, with impressive early results. South Asian countries are also responding to citizens’ demands for public accountability by putting in place new mechanisms of information disclosure and service delivery. Recently-passed right-to-information legislation in India, for example, holds the potential for dramatically greater contestability of government decision-making and implementation. In addition, growth-induced additional fiscal resources have led South Asian countries to increase spending on health and education. Countries are responding to the growing pressures from citizens for better outcomes by experimenting with new approaches such as community-managed schools, vouchers, conditional cash transfers, and contracting out.. Bangladesh and, more recently Pakistan, have been contracting out health services to NGOs. In Bangalore, publication of citizen report cards that rate the quality of public services has focused attention on service delivery. While most of these programs have yet to be rigorously evaluated, preliminary results are encouraging. The report also argues that growth, and the need for even faster growth, is helping bring South Asia’s governance problems to the fore, both revealing the fault lines of government failures and creating pressures to deal with them. With rising incomes and more at stake, citizens are demanding better outcomes. In order to assess South Asia’s potential to accelerate current growth rates, the report uses the East Asian experience as a benchmark and finds that the difficulties relative to East Asia are threefold: South Asia has lower saving and investment rates and, in particular, huge infrastructure deficits; distortions in labor markets; and lower total factor productivity levels and growth rates. Perhaps the most vivid demonstration of South Asia’s lower investment rate is the massive infrastructure “deficit” that plagues all countries in the region. For instance, to catch up to China’s present levels of infrastructure per capita, India will have to invest 12.5 percent of GDP per year until 2015, approximately four times its current investment. “If South Asians do not seize this opportunity, there is a chance that growth will not be sustained,” said Devarajan. “The problems of inequality, weak human development and governance will fester, possibly leading to greater conflict, and twenty years from now the region may have 400 million people or more still living in abject poverty.” Accompanying South Asia’s recent economic growth has been a rise in inequality. For instance, the richer, southern states of India are growing 3 percent faster than the poorer, more populous northern states. South Asia also has some of the worst levels of human deprivation on the planet. Pakistan, for example, has enjoyed six percent annual GDP growth since 2002, but one in 10 children still dies before his or her fifth birthday. In addition, South Asia has the world largest conflict-affected population - about 71 million people. Several South Asian countries score poorly on measures of corruption, with Bangladesh ranking at the bottom of Transparency International’s list for the last five years. And confrontational politics plagues countries such as Bangladesh and Sri Lanka, not to mention several Indian states. Any one of these challenges is daunting enough. Yet, South Asian countries have a real chance of overcoming them. The report argues that South Asian governments can bridge the gap among regions, sectors, and people with coherent policies that transmit economic and job growth to lagging regions, improve service delivery in health, education, and infrastructure, and protect the vulnerable. ### For more information about the World Bank in South Asia, please visit http://www.worldbank.org/sar To read the report, click here |
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