PROCEEDINGS REPORT: EXPORT AND BEYOND- PLUGGING THE TRADE GAP IN SOUTH ASIA

PROCEEDINGS REPORT EXPORT AND BEYOND: PLUGGING THE TRADE GAP IN SOUTH ASIA

03 JUNE 2019

South Asia is one of the fastest growing regions of the world where strong domestic demand accompanied by government consumption and investment drives growth. However, most South Asian countries suffer a ballooning trade deficit as the export lie below their potential. In Nepal alone, the current account deficit rose to 8.2% of GDP in the fiscal year 2018, up from 0.4% the fiscal

year before, due to increased imports for the establishment of local government offices, reconstruction activities, and intermediate goods import for the industrial sector. Closing the export gap and ensuring sustained growth is still a major question for the countries in South Asia.

The neftalk, thus, focused on finding ways to plug the widening trade gap in the region with exclusive recommendations for Nepal.

With global evidence from past the financial and economic crisis, Hans Timmer underscored that enormous shifts have taken place all over the world, which has contributed to the current state of the global economy.

Be it The Great Depression of the 1930s or the Financial Crisis, he believes that a ‘new normal’ has always followed as an aftermath of a huge crisis.

Comparing the latest crisis with that of 1930, he pointed out that there has been a global political and economic shift. The gravity of the economic and political power after the 1930s shifted from the European nations, especially England, to the United States of America (USA) and, towards Japan forty years after the Great Depression. With the Financial Crisis, it has now shifted towards China and many other parts of Asia, including South Asia. Consequently, South Asia has become the fastest growing region in the world. More specifically, domestic demand has led to huge economic growth in South Asian economies like India, Nepal, and Bangladesh over the past few years.

Similarly, Hans also emphasized that the emergence of the digital econo-

my in today’s era, which has led to a shift in the economic paradigm. It has altered the way of doing business, production, distribution, and policy framework. The digital economy has aided in various global inventions HANS TIMMER World Bank’s Chief Economist for South Asia

and has encouraged the emergence of new businesses, attracting investments and creating new opportunities, and more importantly integrating economies worldwide. He thus implied that integration with the global economic paradigm could lead to sustained growth; the effects of which are visible in South Asia.

Additionally, he also stressed that many smaller economies of South Asia are witnessing widening current account and budget deficits. He addressed these issues as ‘short term concerns’, which are justifiable given the current difficulties in international current account financing and reiterated that the current account deficits are not always unhealthy. A large chunk of finance in South Asia goes mostly for imports rather than investment; however, higher imports do not manage current account deficit. This phenomenon is also evident in Nepal where the current account deficit is increasing, as is the imports, and the lack of investments are leading to less export, which directly hampers the foreign exchange reserves to finance their larger current account deficit. Thus, the issue is consumption as much as it is about production and trade.

For Nepal, this mindset has developed, but the concern is about overheating of the economy, i.e., demand is growing faster than supply caused by a lack of fiscal policies and trade deficits. Addressing the issue on a larger scale, he believes that Nepal can take reference of the development model of Uzbekistan. Over the last two years, Uzbekistan has seen a rapid reform-courtesy of the internal approach of focusing on domestic growth as well as exports. He, thus, believes that if the South Asian countries further integrate with the global market, the current account deficit should not be an issue for keeping up with the current trend of extensive economic growth.

The latest World Bank’s Economic update in April depicted that all other countries with similar potential and capabilities to that of South Asian nations were exporting three times more than South Asia and nine times more compared to Nepal. In addition, there are data that highlights how exports are creating high-quality jobs via competitive environment. Even in the case of South Asia, the empirical analysis shows that the districts exposed more to exports are providing higher wages and sustained skills than that of non-exposed districts. He also stressed that the economies can grow into a domestic economy for a certain period but achieving sustained growth without integrating into the global econo-

my can question the export potential of the country. Likewise, he emphasized that having export potential and trade policies alone is not enough for sustained long-term growth. It should complement export and import tariffs, accessibility to international markets, the flexibility of the labor market, the productivity growth of tradable as well as non-tradable goods.

Lastly, Hans drew attention towards the incredible trade volume of South Asia, which is its strength. The shift of economic power towards Asia in itself can hold Asia competent of free trade and global integration. It is hence, crucial to provide Asian perspective to the global public

goods. As for Nepal, it needs to re-work on the trade agreements that it has with multiple countries as per the circumstances.

Sujeev Shakya, Chair of Nepal Economic Forum summed up the session by emphasizing on the burning issue of the discourse around productivity and exports in Nepal. Certainly, production and export are two of the major backbones of a land-linked economy, but in the absence of long-term focus and sustainability around it, the economy cannot thrive. He stated that the issues related to non-tariff barriers in many countries of South Asia were highlighted; in Nepal too, non-tariff barriers exist which limit the trade and export within the regional trade paradigm. Regional and multilateral trade agreements, as well as global integration, can help unleash the potential of trade, export and beyond in South Asia.

About the Speakers

Hans Timmer Hans Timmer, is the World Bank’s Chief Economist for South Asia. Prior to that, he was the Chief Economist for Europe and Central Asia region of the World Bank. He is a quantitative international macroeconomist and econometrician with 30 years of management experience in leading teams of modelers, forecasters, and policy analysts.

Sujeev Shakya Sujeev Shakya is the Chair of Nepal Economic Forum and is also a Thought Leader who speaks and writes extensively on business, development, economics and management. He leads beed management pvt. ltd., a management consulting firm, that is in the business of positive transformation of individuals and organizations. He is the author of ‘Unleashing Nepal: Past, Present and Future of the Economy’ and ‘Arthat Arthatantra’ (It’s the Economy).

Nepal Economic Forum is a not-for-profit organization initiated by beed and aimed at becoming Nepal’s premier private sector led economic policy and research institution. neftalk is a platform for policy discourse and discussion on pertinent economic issues

For more information visit our website: http://nepaleconomicforum.org/