The prospects of peace between India and Pakistan have increased
international confidence and contributed to improved regional
creditworthiness, says the World Bank in its latest publication.
"Peace talks between India and Pakistan,
coupled with the regional trade initiatives of the South
Asian Association for Regional Cooperation (Saarc) may
further boost international confidence," says the
Global Development Finance 2004, released on Monday. The
South Asian GDP rose 6.5 per cent in 2003, a sharp pick-up
from the 4.3 per cent registered in 2002. The Bank projected
7.2 per cent growth rate for the region in 2004.
The report says Pakistan has also outlined
infrastructure development as one of its priority areas
during the next fiscal year with a possible growth target
of 7 per cent during 2004-05. The Bank, however, observed
that smaller economies in the region would face difficulty
from the impending phase-out of the international multi-fibre
arrangement in 2005.
The growth in South Asia was driven by
rising domestic demand, especially fixed investment -
the investment rate consistently increased in the region
to reach nearly 25 per cent of GDP currently. The Asian
Development Bank has also advised Pakistan to spend an
additional $ 1.5-2 billion to prop up the growth rate
to 8 per cent in the medium-term. The current investment
level in the country is about 16 per cent, which needs
to be jacked up to the regional average to ensure sustainability
of the growth rate.
From 1992 to 2003, total international
investment in developing countries’ infrastructure
is estimated to have been $ 622 billion-an average of
$ 52 billion a year or 3.8 per cent of total gross domestic
investment in the developing world. Infrastructure needs
in developing countries remain largely unmet as 1.1 billion
people lack access to safe drinking water, 2.4 billion
are affected by inadequate sanitation, 1.4 billion have
no power, and telecommunication links are five times less
dense than in the developed world.
The cost of needed infrastructure investments
in developing countries is estimated at $ 120 billion
a year from now to 2010 in the electricity sector, and
$ 49 billion a year up to 2015 for water and sanitation.
The World Bank report recommends that developing countries
seek to tap international capital to meet this demand
for infrastructure financing by, among others, establishing
transparent rules with the assurance that contracts will
be respected, strengthening local capital markets, developing
public-private risk mitigation instruments, and helping
public providers of infrastructure services achieve commercial
standards of creditworthiness.
On South Asia, the report estimates the
international reserves rose to a record $ 114 billion
in 2003, more than double the size in 2002. India accounted
for most of this increase, but other economies, notably,
Pakistan, also experienced sharp increases in reserves.
A decline in the current account deficit — a noteworthy
development in the face of rising oil prices for this
region as a net oil importer —and rising inflows
in the capital account contributed to the increase in
international reserves. Workers’ remittances to
the region rose further to $ 18.2 billion in 2003 from
$ 13.1 billion in 2001. India remained the second largest
recipient of remittances (after Mexico) with $ 8.4 billion.
In Pakistan, remittance receipts tripled between 2001
and 2003, to reach $ 4.2 billion last year. During the
same period, remittance flows to Bangladesh also increased
nearly 50 percent.
India joined the top 5 developing country
recipients of FDI ($ 4.1 billion in 2003). FDI to South
Asia expected to rise from $ 5 billon in 2003 to over
$ 7 billion in 2005, assuming that India’s reform
programme continues and it continues to attract FDI into
call centres and other outsourced businesses. India’s
long-term foreign currency rating was upgraded to investment
grade by Moody’s in January 2004. Pakistan’s
rating was also upgraded last year. In February, S&P
assigned a ‘B’ rating to Pakistan’s
issuance of $ 500 million fixed rate bonds due 2009.
Aid flows to the region, especially to
Pakistan, rose in 2002. Pakistan received $ 2.1 billion,
up sharply from $ 0.7 billion in 2000. Bangladesh, and
to a lesser extent Pakistan, continue to rely heavily
on trade finance. These two countries were among the top
10 recipients of loans and guarantees - over 10 percent
as a share of imports - from export credit agencies.
Mansoor Dailami, lead author of the report,
said the challenge is to increase the flows to developing
countries in a way that is sustainable, which requires
channeling them to countries with good policies and into
investments that spur long-term growth and poverty reduction.
