WB forecasts low growth

Kathmandu, November 16:

World Bank (WB) has blamed the increased political instability in Nepal for the deceleration of growth.

According to the World Bank’s annual Global Economic Prospects (GEP) report for 2006, the slowdown is due to the increased political instability in Bangladesh and Nepal, flooding in Bangladesh, and the after-effects of the Tsunami in Maldives and to a lesser extent Sri Lanka. “In Afghanistan, however, favourable weather has boosted agricultural output and gross domestic product (GDP),” reports World Bank.

The bank estimates GDP growth in South Asia at 6.9 per cent in 2005, up from 6.8 per cent in 2004. “For 2006, regional GDP is expected to slow to 6.4 per cent. This year’s performance reflects stable growth of about seven per cent in India and a 6.6 per cent growth in Pakistan.” The strong growth is attributed to increased consumption, investment, exports and industrial production in both the countries. “The October earthquake in Pakistan had catastrophic human consequences, its overall economic impact is expected to be small.”

The report also forecasts South Asia to receive $32 billion in remittances in 2005. “International migration can generate substantial welfare gains for migrants and their families, as well as their origin and destination countries, if policies to better manage the flow of migrants and facilitate the transfer of remittances are pursued,” states the report.

“With the number of migrants worldwide now reaching almost 200 million, their productivity and earnings are a powerful force for poverty reduction,” said François Bourguignon, World Bank chief economist and senior vice-president for development economics. “Remittances, in particular, are an important way out of extreme poverty for a large number of people.

The challenge facing policymakers is to fully achieve the potential economic benefits of migration, while managing the associated social and political implications.”

This year’s GEP, ‘The Economic Implications of Remittances and Migration’, also forecasts that economic growth in developing countries will slow to 5.9 percent this

year, and to 5.7 per cent in 2006, down from 6.8 per cent in 2004. Developing economies will continue to grow at historically very high rates, and more than twice as fast as high-income economies.

On the global level, high oil prices, capacity constraints and gradually rising interest rates are the key factors that have been dampening the global expansion. “Until recently, strong global demand and rising non-oil commodity prices have mitigated the impact of rising oil prices on oil-importing developing countries,” said Andrew Burns, one of the chapter authors, “However, the increase in the oil price since 2004 is expected to generate substantial economic costs for oil-importing poor economies that are not fully captured in the GDP numbers.”

In South Asia, where government budgets have absorbed much of the shock of higher oil prices, the financial burden are now expected to be passed through to consumers in form of higher prices and taxes.

Remittance economy

KATHMANDU: The South Asia region will receive an estimated $32 billion in remittances in 2005, a 67 per cent increase from 2001. With recorded inflows of $21.7 billion in 2004, India received the most in remittances in the world, followed by China and Mexico at $21.3 billion and $18.1 billion, respectively. Of other South Asian countries, Pakistan received $3.9 billion and Bangladesh $3.4 billion. Meanwhile, in Sri Lanka, remittance receipts are larger than tea exports, and in Nepal, remittances account for nearly 12 per cent of GDP. — HNS