South Asia withstand economic crisis

South Asia was the region of the world that better withstood the crisis and the first to return to the growth path, but poverty persists — with some 600 million living on $1.25 a day, says a new book by World Bank economists.

"So the challenge is to make recovery stronger, inclusive and sustainable. The priority is to reduce fiscal deficits and tame public debt accumulation in order to create fiscal space for social programmes and critical infrastructure," it said, adding that deepening trade integration will be critical.

While the rich world puts its house in order, developing countries are becoming a new engine of global growth and a pulling force for advanced economies, according to 'The Day After Tomorrow: A Handbook on the Future of Economic Policy in the Developing World', almost half of global growth is currently coming from developing countries.

As a group, it is projected that their economic size will surpass that of their developed peers in 2015. “Developing countries have come to the global economy’s rescue,” said Otaviano Canuto, World Bank vice-president for Poverty Reduction and Economic Management (PREM), and co-editor of the book. "They are the new locomotives of growth which will move global growth forward while high-income countries remain stagnant."

According to the publication, growth in developing countries is estimated to reach 6.1 per cent in 2010, 5.9 per cent in 2011, and 6.1 per cent in 2012, while corresponding figures are 2.3 per cent, 2.4 per cent, and 2.6 per cent for high-income countries. These diverging growth prospects continue in the medium term. Five factors account for it like faster technological learning, larger middle- classes, more South-South commercial integration, high commodity prices, and healthier balance sheets that will allow borrowing for infrastructure investment.

"The economic horizon of the developing world is promising,” said Marcelo Giugale, World Bank’s director for Poverty Reduction and Economic Management in the Latin America and Caribbean Region, and co-editor of the study. "The rebalancing of global growth toward a multiplicity of engines will give the developing countries new relevance. It will also change their policy agendas: on average, economic management will be stronger, governments will be better, and the beginning of the end of poverty will be within reach."

The study notes that developing countries should take advantage of their relatively healthier fiscal positions to foster inclusive growth. This means better targeting of social programmes, more emphasis on giving people the same opportunities, and business environments that facilitate the creation of formal jobs. Other upcoming, developing-country trends identified in the book include the recovery of remittances, an increase in South-South trade, rising investment by sovereign wealth funds, more conservative debt management, and progress by many governments in gaining public trust. According to The Day After Tomorrow, regions like East Asia, Latin America, South Asia and, soon Africa, have the potential to turn into 'newly developed'.