The ESCAP survey

The United Nations Economic and Social Commission for Asia and Pacific (ESCAP) launched its flagship document – the Economic and Social Survey of Asia and the Pacific 2013 (hereafter survey) simultaneously in 35 locations around the world on April 18, 2013.

A widely read document, within and outside the region, the member countries of the region study the survey to get an independent view of the performance of their economies. Others read the document to know what is happening in the most dynamic region of the world. Hence, this is a must-read document for the policy-makers, students of economics and for those who have an interest in this region.

This survey has reviewed the performance of the economies of the Asia-Pacific region for the year 2012 and made assessment for 2013 at the back of continued global economic crisis. Economic growth of the region slowed to 5.6 percent in 2012 and inched up to 6.0 percent in 2013 – still below the average of 7.8 percent in 2010-2011 and the average of 8.6 percent observed during the pre-crisis period of 2002-2007.

Notwithstanding a marked slowdown in economic growth, the Asia-Pacific region remained the anchor of the global economy in 2012. A slower economic growth in the range of 6.0-6.5 percent appears to have become the ‘new normal’ growth for the region. Consequently, the region as a whole is likely to lose $1.3 trillion in output by end-2017. This is disturbing because the loss of output is occurring at a time when about 800 million poor ($1.25/day) – nearly two-thirds of the world poor and an equal number of vulnerable population is struggling to survive in the region.

The Asia-Pacific region presents some interesting facts about strong economic growth and social development. While the region has experienced strong economic growth over the last three decades, it appears that the fruits of growth and prosperity have not trickled down to the millions of unfortunate citizens. Although strong economic expansion succeeded in taking over 700 million poor people out of poverty, the region is still home to more than 800 million people living in poverty, 563 million people are undernourished, more than 1.0 billion workers are in vulnerable employment, as well as rising income inequality and economic insecurity in many of the countries.

In sum, despite the region’s rapid economic growth, millions of people continue to live in a highly vulnerable and economically insecure environment. Economic growth appears to have not been inclusive enough and has not translated into increased security of jobs and livelihood. Instead, growth has been mostly jobless that is without a commensurate growth in decent and productive employment in the formal sector.

It is in this perspective that the world leaders at the Rio + 20 summit in Brazil last June called for reframing the development agenda, including the rethinking of the macroeconomic policy paradigm that focuses not just on growth but also on equality, social development and environment. They also recognised the importance of job creation by calling for adoption of forward-looking macroeconomic policies that promote sustainable development leading to inclusive and equitable economic growth.

What are forward-looking macroeconomic policies? The conventional macroeconomic policies advocated by the international financial institutions (including the IMF) since the 1980s have always emphasised stabilisation in the narrow sense of reducing budget deficit, controlling debt and keeping inflation low. In developing countries like Pakistan, there often has been a trade-off between achieving stabilisation targets and broader development objectives. Many countries succeeded in stabilising their economies at the expense of economic growth and social development by cutting expenditure on education, health and even infrastructures.

While keeping inflation and budget deficit under control are important objectives of macroeconomic policies, disregarding important development objectives could be highly detrimental for an economy’s long-term prospects. In the light of development challenges of the Asia-Pacific region that include high degree of economic insecurity, large development gaps, serious infrastructural bottlenecks, less than satisfactory quality and quantity of human capital and environmental degradation, the forward-looking macroeconomic policies advocate striking a balance between stabilisation and developmental roles of macroeconomic policies.

Such balance could entail changing the way fiscal and monetary policies are designed and implemented. Macroeconomic policies should not focus narrowly on reducing budget deficit, debt stabilisation and curbing inflation, but should be supportive of growth and employment generation. Such macroeconomic policies do not in any way advocate lax fiscal policy or encourage fiscal irresponsibility. Rather, they give greater emphasis to the quality and composition of public expenditure on the one hand and domestic resource mobilisation through tax and expenditure reforms on the other. In other words, it is a matter of degree of fiscal adjustment – measured versus sharp adjustment.

Likewise, in the case of monetary policy, there has to be more careful scrutiny of the direction or disbursement of credit rather than aggregate credit itself. In sum, the aim of fiscal and monetary policies should be to enhance the inclusiveness and sustainability of development, which will contribute to improving human security.

It is possible to design fiscal stimulus packages and formulate monetary policies to increase public expenditure on critical infrastructure, health, education and social protection, and to extend more credit to productive and employment – intensive sectors, such as agriculture, small and medium enterprises, construction etc.

It has been observed in the recent past that countries ignoring the developmental aspects of macroeconomic policies have jeopardised economic recovery at a great human and social cost. The survey argues for the rethinking of macroeconomic policies in the region to simultaneously tackle the short-term effective demand problem and the long-run structural impediments to inclusive and sustainable development such as energy shortages and inadequate infrastructure.

The survey provides a roadmap for implementing a developmental agenda with forward-looking macroeconomic policies, a sound guide for countries looking to bolster economic growth without sacrificing social development agendas for their most vulnerable populations.

The writer is principal and dean at NUST Business School (NBS) Islamabad. Email: ahkhan@nbs.edu.pk