Asia Must Step Up Governance Reforms to Sustain Growth and Development

News Release | 2 October 2013

HONG KONG, CHINA – Asia and the Pacific’s economic gains must be matched by stepped-up efforts on governance so that growth benefits can be more evenly shared and development progress locked in, says a new Asian Development Bank (ADB) report.

“Progress on good governance has lagged well behind the region’s economic achievements and there has been little headway in closing the governance gap with advanced economies,” said ADB Chief Economist Changyong Rhee. “There is abundant global evidence to show that governance improvements correlate strongly with faster and more inclusive growth, higher investment, and more rapid poverty reduction.”

The theme chapter of the update of ADB’s flagship annual economic publication, Asian Development Outlook 2013, says since 1993, the region has made only modest advances in rule of law and the quality of bureaucracies. Corruption ratings in East Asia which declined sharply during the Asian financial crisis of 1997-1998 have yet to fully recover, and a World Governance Index study in 2011 found that Asia ranked below Latin America in all areas including control of corruption, government effectiveness, political stability, regulatory quality, and rule of law.

People typically judge governance standards by their experiences with public services, and in Asia services lag those in advanced economies, in both quantity and quality. Large infrastructure gaps also plague the region with over 75% of the populations of Myanmar, Afghanistan and Cambodia still lacking electricity. Corruption, too, remains a threat, with a survey in the People’s Republic of China (PRC) showing that 40% of respondents found corruption to be the main cause of poor public services.

On a subregional basis, Central Asia is weak on all governance indicators while East Asia shows strong government effectiveness, regulatory quality and rule of law, but lags in controlling corruption. Southeast Asia also struggles with controlling corruption and giving a voice to all its citizens. Political stability and regulatory quality are the key issues in South Asia.

Tackling the current shortcomings requires a multi-pronged approach, including directly involving communities in delivering services to give them a greater say in how and where funds are used. Devolving power and funding to local authorities is also crucial, with Bangladesh and the PRC using increased tax and spending autonomy to boost social infrastructure and poverty programs. Broader use of modern information technology is also essential to empower citizens, drive improvements in service quality, increase transparency, and reduce opportunities for corruption.

Since individual countries are at different stages of development, there is no one-size-fits-all approach to governance improvements, the report says. However as a general rule of thumb, low-income countries should look to improve government effectiveness, the quality of regulations and rule of law, and to scale up corruption controls to support growth. Middle-income countries, meanwhile, need to respond to the aspirations of increasingly affluent citizens who want to have a greater say in the development process.

Inflows of cheap foreign capital into Asia may have allowed some countries to put governance reforms on the back burner, but recent financial market volatility and a pullback in economic activity have added fresh urgency to long-term structural action which can ensure development gains are not lost, and future growth benefits all.