Domestic challenges block path to Asia-Pacific growth
Shamshad Akhtar says poverty and rising inequality are major concerns
Asia-Pacific countries continue to drive the global economy, though regional growth is now in a challenging phase. The 2014 Economic and Social Survey of Asia and the Pacific forecasts a third successive year of growth below 6 per cent in Asia-Pacific developing economies.
However, this conceals a wide variation in performance among some major developing economies, ranging from a 7.5 per cent 2014 growth forecast for China, to just 0.3 per cent for Russia.
Regional growth dynamics are being influenced by the anaemic recovery in the developed world. Yet overcoming domestic structural impediments is also vital. Widespread poverty, rising inequality, social inequity and environmental degradation are hurdles to be cleared before the region can set itself on the fast track to high growth that is stable and inclusive.
Escap's research highlights these specific challenges:
- The ongoing normalisation of monetary policy by the US Federal Reserve poses continuing challenges for developing Asia-Pacific countries, but these can be mitigated by stronger macro-prudential policies and flexible exchange rate management.
- If the G20 continues to delay implementation of their standstill commitments to target trade protectionism, Asia-Pacific export growth will be affected.
- On the domestic side, countries need to implement labour market programmes that effectively align and strengthen education, training and skills with the requirements of employers.
Without adequate social protection systems, high-quality education, better access to credit and land, as well as stronger labour market institutions, developing countries will be unable to tackle high and rising inequality.
Fast-tracking the closure of physical infrastructure gaps and social development deficits will augment the region's growth potential. About US$800 billion to US$900 billion of annual investments are needed for national and cross-border infrastructure in transport, telecommunications, energy, water and sanitation.
Another priority is to better address climate change through more progressive implementation of climate adaptation and mitigation measures.
Enhancing productive and countercyclical spending is critical to offer short-term stimulus and to remove domestic structural constraints. It is also vital to make growth more inclusive and environmentally friendly.
Unlocking fiscal space calls for strengthening of tax revenues. In several countries in the region, tax-to-GDP ratios are near single digits. They are 25 to 35 per cent or more in developed countries.
The good news is that tax-to-GDP ratios can be raised. In many Asia-Pacific countries, the gap between potential and actual tax collection is more than 5 per cent of gross domestic product. Closing the existing tax gaps in 16 developing Asia-Pacific economies could increase revenues by more than US$300 billion, boosting tax revenues by more than 70 per cent in some countries.
The key measures to strengthen tax revenues are broadening the tax base, rationalising tax rates and careful sequencing of tax reforms.
An Asia-Pacific tax forum to coordinate regional action on these concerns is, therefore, an idea whose time has come.
