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.
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.