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Financial Uncertainty, Destructive Start to Monsoon Highlight Asia's Growing Vulnerability
MANILA, PHILIPPINES — Asia's resilience to shocks is being tested again by the turmoil on the world‟s financial markets and a particularly destructive start to the monsoon season.
Both threaten to worsen the impact on the region of prolonged weakness in the global economy, says Independent Evaluation at the Asian Development Bank. Its Annual Evaluation Review 2013 highlights the growing risks and vulnerabilities that endanger the region‟s hard-won socio-economic gains and success in reducing poverty.
“Asia leads the world in the pace of growth, but governments need to be more conscious of the risks facing the region from economic, social, and environmental factors,” says Independent Evaluation director general Vinod Thomas.
“Emerging vulnerabilities point to a longer road than previously expected in eradicating extreme poverty in the region unless action is stepped up,” he says.
Tackling them will require greater effort by governments and development agencies to provide effective early warnings of impending economic and financial shocks and adequate social safety nets in a region with among the world‟s lowest levels of public expenditure on social protection. The other main source of vulnerability is from a marked increase in floods, storms, and drought worldwide, but especially in Asia and the Pacific. This will require governments to ramp up disaster preparedness.
“A big worry is that the uncertain outlook seems to be sapping the commitment of governments to finding novel solutions,” says the report‟s main author Walter Kolkma, director, Independent Evaluation. “But the vulnerabilities need to be confronted because they will deflate economic growth while hitting the poor hardest.”
Against this backdrop, evaluative evidence supports the effectiveness of governments transferring resources in cash directly to the poor to broaden their access to economic opportunities. Social safety nets have been shown to be effective in reducing poverty when cash transfers are conditioned on the poor sending their children to school and using health services.
A case in point is the Philippine government‟s Pantawid Pamilya cash transfer program to the poor, which is conditional on beneficiary households meeting health and education targets. The ambitious program is showing promising early results, reaching nearly 4.0 million households by March 2013 and targeting 5.2 million by 2015.
Microfinance programs also offer the potential for reducing poverty and promoting inclusive growth, but more so if linked to wider banking services than to credit alone, and if they are combined with social protection. But the access of financial services to the poor remains a struggle, as evaluative evidence has borne out time and again. A survey of six countries in the region showed that fewer than 9% of microfinance borrowers lived on below $1.25 a day and fewer than 22% on $2 a day.
In the area of natural disasters, greater preparedness and better prevention works, such as river dikes and storm drains are another solution that needs to be scaled up. Despite crippling floods hitting Bangkok, Beijing, Jakarta, and Manila in recent years, disaster preparedness in most of Asia's developing countries remains disturbingly low. Many of the poor, living in unplanned, low-lying areas in cities, are at highest risk. Thomas says that systematic disaster risk reduction measures still do not feature sufficiently in national development plans, even in some countries where disasters strike with regularity.
“We are increasingly hit by extreme floods and storms described as „once in a century.‟ Imagine three of them with the rainfall intensity of, say, tropical cyclone Ketsana hitting an area in a single year—it‟s no longer that far-fetched,” says Thomas, referring to the flooding that submerged large parts of Manila in 2009. “As with stress tests against financial calamities, it‟s high time we did stress tests against natural hazards.”
Catastrophic floods and landslides in the north Indian state of Uttarakhand—which may have claimed over 1,000 lives—are an ominous start to the monsoon season. In Manila, the first rains of the season brought parts of the city to a standstill. The rains were not that heavy this time, but they exposed the city‟s poor flood defenses all the same.
With the heightened exposure to economic and environmental risks, Kolkma says that ensuring development projects are disaster resilient and bring sustainable benefits to the poor will be increasingly necessary. “But sustainability—the continuity of project outcomes—is one of the least successful areas of development interventions,” he says.
The reasons vary among sectors and countries. But in infrastructure projects—an area in which development banks are highly active—budget constraints and the perception that climate proofing is expensive and a luxury, are often the main causes for lack of sustainability, next to a sometimes limited implementation capacity.
“Putting more emphasis on sustainability when development projects are designed and completed is going to be an increasingly important facet of development work,” says Kolkma.
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To download the evaluation study, visit: http://www.adb.org/documents/2013-annual-evaluation-review and click on the PDF.
About Independent Evaluation at the Asian Development Bank
Asian Development Bank's Independent Evaluation, reporting to the Board of Directors through the Development Effectiveness Committee, contributes to development effectiveness by providing feedback on ADB's policies, strategies, operations, and special concerns in Asia and the Pacific.