WB and South Asia: past, present and fu­ture

South Asia has an es­tab­lished his­tory of ro­bust eco­nomic growth, but this has con­trib­uted lit­tle in cre­at­ing so­ci­eties free from poverty, in­equal­i­ties, hunger and il­lit­er­acy.

Southasia - - Cover story - By Huza­ima Bukhari & Dr. Ikra­mul Haq

South Asia — com­pris­ing Afghanistan, Bangladesh, Bhutan, In­dia, Mal­dives, Nepal, Pak­istan and Sri Lanka — is home to al­most half the poor of the world. For mil­lions of peo­ple in the re­gion, life is full of mis­ery. The gov­ern­ments and non-gov­ern­men­tal or­ga­ni­za­tions (NGOs) have con­tin­u­ously been pre­oc­cu­pied with plans and ac­tions to change the fate of these peo­ple and in do­ing so have at­tracted more crit­i­cism than ap­pre­ci­a­tion for their work. The in­ter­na­tional agen­cies, es­pe­cially the World Bank, have con­trib­uted sub­stan­tially for the peo­ple of South Asia dur­ing the last many decades, but the fact re­mains that poverty is still there and ba­sic is­sues of ed­u­ca­tion, health and shel­ter are pos­ing chal­lenges for all the states.

Lend­ing by the World Bank and oth­ers, crit­ics say, has not changed un­de­sir­able so­cio-eco­nomic sys­tems preva­lent in these coun­tries — fa­vor­ing the rich and mak­ing the poor, poorer. Cos­metic changes made through var­i­ous for­eign-funded pro­grams have brought some pos­i­tive re­sults, but could not achieve the goals of al­le­vi­a­tion of poverty, ed­u­ca­tion, health and hous­ing for ev­ery­one and above all, so­cial equal­ity. The les­son is clear: gen­er­ous fund­ing by in­ter­na­tional agen­cies or work by NGOs and/or in­di­vid­ual phi­lan­thropists can­not solve fun­da­men­tal prob­lems un­less in­equitable eco­nomic struc­tures are dis­man­tled and op­por­tu­ni­ties for so­cial mo­bil­ity are en­sured for all.

South Asia has an es­tab­lished his­tory of ro­bust eco­nomic growth, but the fact re­mains that it has helped lit­tle in cre­at­ing so­ci­eties free from poverty, in­equal­i­ties, hunger and il­lit­er­acy. The priv­i­leged classes have been the main ben­e­fi­cia­ries of eco­nomic growth, though its trick­le­down ef­fect brought some ben­e­fits to the poor as well. The World Bank in South Asia: Re­gional Strat­egy Up­date 2011 aptly ob­served: “South Asia has ex­pe­ri­enced a long pe­riod of ro­bust eco­nomic growth, av­er­ag­ing 6% a year over the past 20 years. The GDP growth ac­cel­er­ated to 8.7% in FY2010-11. This strong growth has trans­lated into de­clin­ing poverty and im­pres­sive im­prove­ments in hu­man de­vel­op­ment. Yet poverty re­mains wide­spread in many ar­eas, and South Asia has the world’s largest con­cen­tra­tion of poor peo­ple — more than 500 mil­lion peo­ple live on less than $1.25 a day.”

The World Bank has al­ways been a key de­vel­op­ment part­ner in South Asia with a port­fo­lio of 185 projects and cur­rent to­tal com­mit­ments of $30 bil­lion. In 2011 Re­gional Strat­egy, the World Bank sum­ma­rizes its ap­proach to ad­dress­ing key chal­lenges in South Asia. It pro­vides a road map to ac­cel­er­ate growth and foster hu­man de­vel­op­ment and in­forms the de­vel­op­ment of coun­try spe­cific strate­gies. The strat­egy com­prises three key pil­lars: in­clu­sive growth and cre­at­ing qual­ity jobs, re­spond­ing to fi­nan­cial and food price crises, and pro­mot­ing re­gional co­op­er­a­tion.

The World Bank, af­ter a long ex­pe­ri­ence of work­ing with South Asia gov­ern­ments has learnt nec­es­sary lessons and in 2011 its Re­gional Strat­egy sug­gested many par­a­digm shifts. It has ac­knowl­edged that high growth is in­creas­ingly con­cen­trated in some re­gions — the lead­ing re­gions, while poverty is con­cen­trated in other re­gions — the lag­ging re­gions. The lag­ging re­gions are lo­cated in the bor­der ar­eas of North West (Afghanistan and Pak­istan) and North East (Bangladesh,

In­dia, and Nepal). This phe­nom­e­non is man­i­fested both at coun­try level and re­gional level. The con­cen­tra­tion of poor in the re­gions lag­ging be­hind in South Asia is gen­er­at­ing con­sid­er­able so­cial and po­lit­i­cal con­cern. There is a broad con­sen­sus that South Asia must con­tinue to grow rapidly and pos­si­bly faster to tackle poverty more com­pre­hen­sively than in the past.

There is also an emerg­ing con­sen­sus that this growth must be more in­clu­sive to ad­dress the di­chotomy of the two faces of South Asia re­sult­ing from the grow­ing gap be­tween lead­ing and trail­ing re­gions. It is there­fore im­por­tant for the coun­tries to turn their at­ten­tion to spread­ing the ben­e­fits of growth to larger seg­ments of the pop­u­la­tion.

It is a dis­turb­ing fact that In­dia af­ter avail­ing fund­ing of U.S.$ 9.3 bil­lion in fis­cal year 2010 from the World Bank is fac­ing the high­est preva­lence of un­der­weight chil­dren in the world which is nearly dou­ble that of Sub­Sa­ha­ran Africa. Mal­nu­tri­tion in In­dia is a se­ri­ous phe­nom­e­non. A rel­a­tively small num­ber of states, districts, and vil­lages ac­count for a large share of the bur­den – 5 states and 50 per­cent of vil­lages ac­count for about 80 per­cent of the mal­nu­tri­tion cases. Pak­istan has failed to re­ha­bil­i­tate earthquake and flood vic­tims even af­ter years de­spite get­ting aid and grants. Bangladesh has per­pet­ual mon­strous prob­lems of poverty and un­em­ploy­ment. War­wrecked Afghanistan has failed to cre­ate ba­sic in­fra­struc­ture for its peo­ple even af­ter get­ting bil­lions from World Bank and oth­ers.

The World Bank has now em­pha­sized that the key link be­tween growth and in­clu­sive­ness is cre­ation of more and bet­ter jobs for growth and for eq­uity. South Asia at present is un­der­go­ing a ma­jor struc­tural trans­for­ma­tion based on rapid growth of ser­vices and man­u­fac­tur­ing. The GDP share of agri­cul­ture is shrink­ing fast. South Asia has so far seen a rapid in­crease in the con­tri­bu­tion of the ser­vices sec­tor to em­ploy­ment. How­ever, there is a con­cern that job cre­ation has been mostly in the in­for­mal sec­tor char­ac­ter­ized by low skills and low earn­ings. At the same time, the re­duc­tion in the GDP share of agri­cul­ture is not matched by a com­men­su­rate re­duc­tion in the em­ploy­ment share.

Though the key as­set of South Asia is its young pop­u­la­tion but un­for­tu­nately, it has the low­est fe­male par­tic­i­pa­tion rate in the la­bor force. More than 300 mil­lion peo­ple are ex­pected to en­ter the prime work­ing age pop­u­la­tion over the next decade. Cre­at­ing jobs for them would pose a big chal­lenge. If it is met, there can be sub­stan­tial con­tri­bu­tion to growth, eq­uity, and peace in the re­gion pro­vided they co­op­er­ate with each other.

The World Bank has noted that while South Asia is nav­i­gat­ing the fi­nan­cial cri­sis bet­ter than most re­gions, yet it suf­fers the worst in terms of trade de­te­ri­o­ra­tion dur­ing pre­vi­ous food and fuel crises. With global food and fuel prices ris­ing again, South Asia is af­fected dis­pro­por­tion­ately. Re­gional in­fla­tion is al­ready high and coun­tries have lim­ited fis­cal space to ma­neu­ver. The rise in global food prices was high­est for ce­re­als, which re­main rel­a­tively ex­pen­sive: be­tween 2005 and 2008 the in­ter­na­tional price of wheat more than dou­bled, and rice and maize prices tripled, and as of June 2009, wheat and maize prices re­mained sub­stan­tially higher than pre­vi­ous four years (by 55% and 87% re­spec­tively) while rice prices were about dou­ble. Food price in­fla­tion is de­creas­ing the wel­fare of house­holds. In par­tic­u­lar, it threat­ens the wel­fare of poorer house­holds, for whom food takes a large share of their in­come.

The World Bank has noted with con­cern that South Asia is the least in­te­grated of the global re­gions and bar­ri­ers to trade and in­vest­ment and move­ment of peo­ple are very high. In the past there has been a lot of talk for re­gional co­op­er­a­tion—a pow­er­ful tool for in­creas­ing growth, re­duc­ing the gap be­tween lead­ing and lag­ging re­gions, and re­duc­ing vul­ner­a­bil­i­ties for the poor—but tan­gi­ble re­sults have not been at­tained so far. It is high time that coun­tries of this re­gion fo­cus on the in­come of the poor both through growth mech­a­nism and by re­duc­ing vul­ner­a­bil­ity. South Asia has the po­ten­tial to ac­cel­er­ate growth and re­duce poverty, if the re­gion could ex­ploit its four un­der-uti­lized spa­tial fea­tures: ge­og­ra­phy, trans­porta­tion, mo­bil­ity, and scale economies.

South Asia is densely pop­u­lated, with a sig­nif­i­cant pro­por­tion of the pop­u­la­tion liv­ing close to the bor­ders be­tween coun­tries. Re­gional in­te­gra­tion ini­tia­tives will un­lock the growth ben­e­fit of ge­og­ra­phy and sup­port in­come con­ver­gence across re­gions and coun­tries. Re­gional trade is more sen­si­tive to trans­port costs, scale economies and fac­tor mo­bil­ity than global trade. South Asia suf­fers from high trade and trans­porta­tion costs com­pared to other re­gions be­cause of bor­der re­stric­tions and poor trans­port. The cost of trad­ing across bor­ders is high com­pared to other re­gions. The qual­ity of trans­port in­fra­struc­ture, es­pe­cially the high­way net­works, in South Asia is poor. The other im­por­tant fac­tor is mo­bil­ity, and in par­tic­u­lar mi­gra­tion rate, is low in South Asia. At the of­fi­cial level the re­stric­tions on la­bor mo­bil­ity be­tween coun­tries are many. Within coun­tries, la­bor mo­bil­ity is also lim­ited. In­creased agri­cul­tural pro­duc­tiv­ity can help to re-al­lo­cate la­bor and cap­i­tal from the lower value ac­tiv­i­ties (agri­cul­ture) to high value ac­tiv­i­ties (man­u­fac­tur­ing and ser­vices sec­tors) and sup­port growth.

The pre­scrip­tions for eco­nomic growth and in­te­grated so­cial pro­grams by the World Bank in its 2011 Re­gional Strat­egy and ear­lier pol­icy pa­pers for South Asia are the­o­ret­i­cally sound but they do not take into ac­count the ground re­al­i­ties. Most

of the South Asian coun­tries lack good gov­er­nance and state in­sti­tu­tions suf­fer from in­ef­fi­ciency and cor­rup­tion. Text-book eco­nomic de­vel­op­ment the­o­ries can­not work in such environment. There are pol­icy changes with change of regimes leav­ing lo­cal and for­eign in­vestors in be­wil­der­ment. The neigh­bor­ing coun­tries in South Asia hav­ing po­lit­i­cal an­i­mosi­ties are not ready to take ad­van­tage of the in­ter­ac­tions be­tween ge­og­ra­phy, trans­porta­tion, fac­tor mo­bil­ity and scale economies. If they do so, it will lift growth not only in the lag­ging re­gions but also sup­port higher growth rates at the coun­try level and across South Asia.

The World Bank in its 2011 Re­gional Strat­egy, con­cludes: “South Asia’s poor would prob­a­bly gain most from re­gional co­op­er­a­tion in water and cli­mate. The melt­ing of Hi­malayan glaciers lead­ing to the dis­as­trous prospect of re­duced water avail­abil­ity in some of the South Asian rivers, the fre­quency of floods and cy­clones, and the ev­i­dence of ris­ing sea level have given South Asia an op­por­tu­nity for col­lec­tive ac­tion for man­ag­ing chang­ing cli­mate to re­duce vul­ner­a­bil­ity and poverty over the longer-term. Find­ing so­lu­tions for flood con­trol, ir­ri­ga­tion and river trans­port will re­quire co- op­er­a­tion with up­stream coun­tries. Thus, cross-bor­der co­op­er­a­tion on water be­tween In­dia, Bangladesh, and Nepal of­fers the only long-term so­lu­tion to flood mit­i­ga­tion.”

It is hoped that those at the helm of af­fairs in South Asian coun­tries are lis­ten­ing and will act fast to foster re­gional co­op­er­a­tion for the ben­e­fit of all, es­pe­cially the poor. This is the only way to bring pros­per­ity and peace in the re­gion.

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