South Asia Can Weather Economic Crisis, Says New Study

News Release | 9 March 2009

MANILA, PHILIPPINES - South Asian countries can weather the global financial crisis by taking both short- and long-term measures to stimulate their economies, says a new study commissioned by the Asian Development Bank (ADB).

The study titled The Impact of the Global Economic Slowdown on South Asia notes that the subregion has been hit by capital outflows and weaker commodity prices, and faces a sharp slowdown in exports and remittances as the global troubles worsen.

A number of short-term measures have been taken to cushion the impact of the crisis, including monetary easing and fiscal stimulus packages. The study suggests there is further room for interest rate reductions, particularly in India and Sri Lanka. While most countries have little scope for large stimulus packages, given deficit constraints, India, which has introduced two of them, should disburse the funds swiftly for maximum impact, the study says.

It adds that governments could consider incentives to encourage overseas workers to remit money home, such as special savings instruments, and they should also discuss currency swap arrangements and other measures to keep their financial systems stable.

In the longer term, South Asian countries need to reduce their fiscal deficits, diversify their economies, step up infrastructure investment and boost intra-regional trade to take up the slack of lower demand from G7 nations, the study says.

"While some countries in South Asia have had relatively less exposure to the crisis from the adverse impacts of capital flows, more than half of the 900 million people in developing Asia who survive on US$1.25 a day live in the subregion, so any tempering of growth is a serious cause for concern," says ADB President Haruhiko Kuroda.

The study is being presented as a discussion paper at the South Asia Forum on Impact of the Global Economic and Financial Crisis, a two-day forum being held at ADB headquarters on March 9 and 10. Participants include former Managing Director of the International Monetary Fund, Michel Camdessus, former Philippines President, Fidel V. Ramos, and former Vice Minister of Finance, Japan, Makoto Utsumi.