Asia-Pacific developing nations must unlock fiscal space to sustain growth                                  dynamism

 ESCAP flagship publication outlines ways to mobilize resources for sustainable development

Bangkok  (ESCAP  News) – Asia-Pacific developing economies are experiencing
yet  another  year  of  subdued growth, the United Nations said here today,
calling  for quick action on the removal of domestic structural constraints
and  the  unlocking  of  fiscal  space to help stimulate growth and support
social development.

Structural  constraints,  such  as infrastructure and development deficits,
along  with  external challenges, are keeping the region from realizing its
economic potential, according to the Economic and Social Survey of Asia and
the  Pacific  2014,  the  annual flagship publication of the United Nations
Economic and Social Commission for Asia and the Pacific (ESCAP).

Developing  countries  in  the region are forecast to grow at an average of
5.8  per cent in 2014, up from 5.6 per cent last year. This marks the third
successive  year of growth below 6 per cent. By comparison, growth averaged
9.5  per  cent  in the pre-crisis years of 2005-2007 and over 7 per cent in
2010 and 2011.

“The  constrained  domestic  growth prospects of the region have underlined
the  importance  of  productive  countercyclical public spending to support
inclusive    growth    and   sustainable   development,”   United   Nations
Under-Secretary-General  and  ESCAP Executive Secretary Dr. Shamshad Akhtar

Trade-driven East and North-East Asia is expected to grow moderately at 4.1
per cent in 2014 against 4.2 per cent last year. Subdued global commodities
demand  is forecast to lower North and Central Asian growth to 1.3 per cent
from  2.1 per cent in 2013. Despite geographical challenges, Pacific island
developing  economies are projected to grow at 4.9 per cent against 4.0 per
cent  last year. Growth in South and South-West Asia is forecast at 4.7 per
cent  in 2014 from 3.9 per cent last year. South-East Asia’s economy is set
to grow slower at 4.6 per cent from 4.9 per cent last year.

Dr. Akhtar emphasized that developing economies in Asia and the Pacific are
experiencing  subdued  growth  for  different  reasons,  including economic
rebalancing and sustainability considerations in China, monetary tightening
to  fight  capital  flight  and  inflation  in India and Indonesia, and the
impact of geopolitical instability on the Russian Federation.

China, India, Indonesia and the Russian Federation are projected to grow at
7.5,  5.5,  5.4  and  0.3 per cent, respectively, in 2014, compared to 7.7,
4.7,  5.8  and  1.3  per cent, respectively, in 2013. The group of 12 least
developed  countries  (LDCs)  in the region are forecast to grow at 5.6 per
cent in 2014 – slower than the developing Asia-Pacific average.

Inflation  in  developing Asia-Pacific countries as a whole is projected at
4.8  per cent in 2014 against 5.0 per cent last year, but will be a concern
for some large developing economies including Bangladesh, India, Indonesia,
Kazakhstan and Pakistan.

Launching  Survey  2014  in  Bangkok,  Dr.  Akhtar stressed the urgency for
bridging   gaps  in  infrastructure  and  development  in  the  region  and
addressing   environmental   degradation   in   order  to  promote  higher,
well-balanced  and  sustainable  growth.  Another priority for ensuring the
sustainability  of  growth  is  to  better  address  climate change through
improved climate finance.

ESCAP estimates an annual infrastructure development funding requirement of
$800-$900 billion in the region. At the same time, more than 60 per cent of
Asia-Pacific  people lack social protection coverage. An estimated 63.1 per
cent  of  women  and  56  per  cent  of  men in the region faced employment
vulnerabilities  in  2013  and  youth unemployment is three times the adult

External challenges

Asia-Pacific  countries  are  coping with the fallout of monetary and trade
policies  in  the developed world. The withdrawal of quantitative easing by
the  United  States  has  jolted  regional  financial  markets. Survey 2014
estimates  further financial market volatility, expected from the continued
normalization  of  monetary  policy  in the United States, could cut annual
growth  by  between  0.7 to 0.9 per cent in India, Indonesia, Malaysia, the
Russian Federation, Thailand and Turkey.

Trade-restrictive  measures  in  advanced  economies outside the region may
also  have  deprived  Asia-Pacific  developing countries of $255 billion in
goods  export  opportunities  between  2009  and  2013,  translating into a
cumulative  decline  of more than 1.6 per cent of regional economic output,
the ESCAP analysis reveals.

Rising inequality

The  growing  disparity  in incomes and access to social opportunities is a
dampener  on  economic  dynamism in Asia-Pacific developing countries, says
Survey  2014. The estimates indicate that the poorest 20 per cent of people
in  40 Asia-Pacific countries account for less than 10 per cent of national
income.  The  net  wealth  of about 49,000 ultra-wealthy individuals in the
region – with at least $30 million in assets – is 17 times the combined GDP
of Asia-Pacific least developed countries.

Mobilizing finances for sustainable growth

Given  high  public  debt  levels  and  declining international development
assistance,  Survey  2014 outlines a blueprint for mobilizing resources for
required  productive  government  spending,  focused  on  strengthening tax
revenues, which fall far short of potential in most Asia-Pacific countries.
This  tax  gap  is more than 5 per cent of GDP in some countries, rising as
high  as  12.5  per  cent of GDP in others. Closing existing tax gaps in 16
Asia-Pacific  developing  economies would increase total revenues in excess
of  $300  billion,  boosting  tax revenues by more than 70 per cent in some
countries, ESCAP estimates in Survey 2014 show.

ESCAP  recommends broadening the tax base and rationalizing rates; tackling
tax  evasion  and  tax  fraud; making tax administration efficient; careful
sequencing of tax reforms; and better regional cooperation.

ESCAP  also  proposes  the  establishment  of  an Asia-Pacific Tax Forum of
experts and officials which it would coordinate, to monitor tax legislation
and regulations across the region, help develop regional best-practice, and
address   issues   ranging   from  avoiding  tax  competition  for  foreign
investment,  to  double  taxation,  and  preventing the illicit transfer of

“The 2014 Survey makes a valuable contribution to the development discourse
underway in the Asia-Pacific region and beyond. It provides fresh data, new
perspectives  and policy guidance on issues which are critical to fostering
more  inclusive and sustainable development,” the ESCAP Executive Secretary

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