WB forecasts 6.9 percent GDP growth in South Asia

A recent report of World Bank has estimated 6.9 percent Gross Domestic Product (GDP) growth rate in South Asia in 2005 up from 6.8 in 2004.

The WB's annual Global Economic Prospects (GEP) report for 2006 mentioned that this year’s performance reflects stable growth of about 7 percent in India, and a 6.6 percent growth in Pakistan.

The GEP report mentions, “This strong growth can be attributed to increased consumption, investment, exports and industrial production in both countries. While the October 2005 earthquake in Pakistan had catastrophic human consequences, its overall economic impact is expected to be small, the report adds.

However the report said that growth in the region’s other countries is expected to decelerate to 5.1 percent this year from 5.9 percent in 2004.

“This slowdown reflects increased political instability in Nepal and Bangladesh, flooding in Bangladesh, and the after-effects of the Tsunami in Maldives and to a lesser extent Sri Lanka. In Afghanistan, favorable weather boosted agricultural output and GDP,” the report said.

The report entitled 'The Economic Implications of Remittances and Migration' mentions that of the total $232 billion officially recorded remittances worldwide, the South Asia region will receive an estimated $32 billion in remittances in 2005, a 67 percent increase from 2001.

The report suggests that remittances sent through informal channels could add at least 50 percent to the official estimate, making remittances the largest source of external capital in many developing countries.

With recorded inflows of $21.7 billion in 2004, India received the most 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 percent of GDP.

The report adds that an increase in migrants - which 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.

"Of this $162 billion will go to new migrants, $143 billion to people living in developing countries, and $51 billion to people living in high-income countries," the report states. "This shows that the relative gains are much higher for developing-country households than rich-country households, rivaling potential gains from global reform of merchandise trade."

“With the number of migrants worldwide now reaching almost 200 million, their productivity and earnings are a powerful force for poverty reduction,” the report quoted François Bourguignon, World Bank chief economist and senior vice president for Development Economics as saying. "The challenge facing policymakers is to fully achieve the potential economic benefits of migration, while managing the associated social and political implications," he added

“Managed migration programs, including temporary work visas for low-skilled migrants in industrial countries, could help alleviate problems associated with a large stock of irregular migrants, and allow increased movement of temporary workers,” the report quoted Uri Dadush, Director of the Bank’s Development Prospects Group, which produces the GEP as saying. “This would contribute to significant reductions in poverty in migrant sending countries, among the migrants themselves, their families and, as remittances increase, in the broader community.”

The report states that the fees charged by remittance service providers are often as high as 10-15 percent for small transfers which is one of the hurdles of free flow of remittance.

The GEP urges for action to reduce these fees, which are often much higher than the actual cost of carrying out the transactions. The report says increased competition in the remittance transfer market would result in lower fees, thereby increasing the disposable income of poor migrants, as well as their incentives to send more money home.

“Remittances are hard-earned income that, in most cases, has already been taxed,” the report quoted chief economist Bourguignon as saying adding “They should not be taxed again, and governments should not try to count them as development aid.”

The GEP recommends increasing 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, providing recognized identification cards to migrants, and facilitating the participation of micro-finance institutions and credit unions in the remittances market, the report adds. nepalnews.com pb Nov 17 05

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