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The World Bank predicted, on Wednesday, the global economic outlook as sluggish impeding poverty reduction in developing countries, but said South Asia will achieve an average of 5.4 per cent growth in 2003.
''South Asia will grow at an average growth rate of 5.8 per cent in 2004'', a new World Bank report "Global Economic Prospects and the Developing Countries: Investing to Unlock Global Opportunities" released in New Delhi said.
Growth in the region is expected to average 4.6 per cent for the year, a downward revision from the "Global Economic Prospects 2002" forecast of 5.3 per cent GDP growth.
''Future prospects appear bright. The improvement in growth prospects is premised upon a return to normal weather patterns, an improvement in political stability and regional security aspects thereby facilitating faster implementation of reforms and recovery in world trade volumes,'' the survey says.
The briefing on the report was done by Dominique van der Mensbrugghe, senior economist, Development Prospects Group and Aaditya Matto, lead economist, International Trade, through a vide conferencing linking New Delhi with Dhaka and Kathmandu.
A sluggish global outlook, with slower growth in the next 12 to 18 months than previously anticipated, will impede poverty reduction in developing countries, the report says.
Uncertainties in global financial markets have sapped the momentum of the modest recovery that began in late 2001.
After exceptionally slow growth in 2001 and 2002, global GDP is now expected to rise by 2.5 per cent in 2003, higher than the previous two years but still well below the 3.9 per cent expansion recorded in 2000 and significantly below long-term potential growth rates. The report warns that the global rebound might quickly lose momentum and there was significant risk that the world could slip back into recession.
The report makes a strong case on the part of developing countries for improving investment climate. While previous Bank studies emphasised good governance, sound institutions, and property rights as necessary conditions to produce greater quantities of private investment, both domestic and foreign, this year's Report goes further by considering policies to promote competition as a way of improving the quality of investment -- that is, making investment more productive.
According to the forecast, high-income countries are expected to grow at about 2.5 per cent in 2003. On an average developing countries will grow considerably faster at 3.9 per cent. But the average masks wide regional differences, with East Asia leading the pack at 6.1 per cent, followed by South Asia at 5.4 per cent. Other regions are expected to grow less than four per cent with Latin America managing a mere 1.8 per cent.
Outside Asia and East Europe, growth rates in most developing countries are too low to generate a marked reduction in poverty.
The report lists factors suppressing global growth in the near term. These include waning consumer confidence, high debt levels in the face of a weak equity market and the fallout from the corporate financial scandals in the US, continuing investor worries over imbalances in the Japanese banking system, and over investment in telecommunications and other high technology in Europe as well as debt problems in Latin America.
The sagging global economy has reduced private capital flows to developing countries, net commercial lending has turned negative, and foreign direct investment flows to developing countries have fallen since the peak in 1999. ''We are looking at the most sustained fall in foreign investment in developing countries since the global recession of 1981-83'', says Richar Newfarmer, lead author of the report.
Private foreign investment in infrastructure is down 25 per cent from 1997 level in developing countries. Investors are becoming averse to long-term projects, accounting scandals in industrial countries have driven major players such as Enron and WorldCom from the market, and slower growth in East Asia, Russia and Brazil has reduced investment demand. Not only is there less investment, but investors are more discriminating. Investment in developing countries is being redirected to countries with better investment climates.
For the South Asian region, the report's near to medium -term forecast of growth is based on a return to more normal weather pattern, following the recent drought in the region. It also assumes improvement in political stability and regional security issues, which allow a more rapid implementation of required reforms.
As an example, given improved internal conditions in Sri Lanka and better policies, a sharp increase in GDP over the near term from their recent stagnant levels can be expected. In contrast, Nepal may under-perform in comparison to the regional growth averages for the near term, if domestic turmoil continues and reforms falter.
The report says the slowing global economy threatens to distract attention from the need for rapid progress in global trade talks.
Global trade talks launched at Doha in November last year to address the needs of developing countries are showing signs of getting bogged down.
The Cancun meeting will have to take up, among other things, two new controversial issues -- a proposed international investment agreement and requirements for competition policy. Multinational corporations hope such an agreement would provide them with increased market access and new protections against adverse government policies, such as expropriation.
However, the report finds that a global agreement to add new investor protections against adverse government policies would probably do little to increase FDI in developing countries.
UNI