Remarks by Shamshad Akhtar, ADB Special Senior Advisor to the President, at International Women's Day, Manila Philippines
Views and experience with respect to South Asia
My remarks this morning will be through the lens of someone who has been in the midst of the debate on the impact of global and financial crisis on Asia and has steered a complex economy, i.e., of Pakistan, through an unprecedented crisis. From my standpoint, there has to be a virtual consensus that women are adversely impacted by the current global crisis. This impact is likely to be more severe for South Asian women. I state this because of few well known dictums:
- Applying the International Comparison Program, using 2005 prices and $1.25 a day cut-off, MDBs found that the number of the world's poor is actually half a billion more than the original estimate, reaching close to 1.4 billion - or 25% of the world's population.
- South Asia is home to 77% of the poor in ADB's developing member countries.
- South Asia has high degree of feminization of poverty as over 70% of the poor are women.
- The present crisis has swollen the ranks of poor and those moderately poor.
South Asia's women are relatively more vulnerable, being less integrated in the formal labor markets. In the wake of low literacy and weaker access to job markets, the majority of women are employed in vulnerable jobs and industry - often at low wages relative to their male counterparts.
Focusing squarely on the current crisis, it is to be acknowledged upfront that South Asia managed to escape the first round impact of the subprime mortgage crisis because of low exposure to esoteric products. The region however felt strong tremors of the global commodity prices as South Asia is a net importer of oil and some countries of food items too. The surge in global commodity prices triggered widespread inflationary pressures: in Sri Lanka inflation rose to 28% and in Pakistan 25% and in other South Asian economies it ranged between 9 and 12%. An overall rise in inflation hurts the poor and women more as their real income's fell and purchasing power was circumscribed. Cuts in food expenditures, which constitute more than half of household budgets, and managing within low real incomes is stated to be threatening nutritional standards.
Good news is that inflation in South Asia has softened with the easing of global prices. For instance, in Sri Lanka the inflation rate fell from 28% in August 2008 to 7.6% in February 2009, in India from 13% in August 2008 to below 4% in February 2009 and Bangladesh from a 12% peak in November 2008 to 5%. Inflation has been more stubborn in Pakistan.
The scale and magnitude of global head winds have exacerbated domestic vulnerabilities. The impact on South Asian economies has deepened. South Asia's high growth performance, averaging annually around 6.5% during 2000-2007, and its hard gained macroeconomic stability has been disrupted. While South Asia managed to grow by around 6% in 2008 with some countries registering lower than this average growth, 2009 will register still lower growth. Besides worsening terms of trade, South Asia's macroeconomic imbalances have risen: in Pakistan both fiscal and external current imbalances has doubled close to 7.4% and 8% of GDP, respectively, for FY08; in India the deficit for general government is anticipated to rise to 9.9% of GDP and external current account deficit to double to 3% for FY09.
The intensity of impact varies across the region depending on the country's level of trade and financial integration. Generally trends indicate that
- South Asia's exports have decelerated in countries that have higher exposure to US and Europe.
- Growth in remittances had held but could be impacted in 2009 given recessionary trends in US and Europe.
- Crunch in international liquidity markets, lowering of some South Asian country's sovereign rating, and market confidence issues have lowered capital flows.
- The public lost substantial savings in stock markets as indices declined by over 50% from peak level in most South Asian markets.
- Local currencies have depreciated.
- Foreign exchange reserves loss was significant in case of Pakistan and Sri Lanka.
With inflationary pressures easing, South Asia has adopted countercyclical policies. Notable is India's fiscal stimulus package of close to $4 billion and public expenditures rose by 33% (relative to 14%), taking expenditure/GDP ratio to all time high in the last two decades. Other countries have relatively limited room for fiscal stimulus.
Revival of economies depends on how the private sector responds to incentives being offered by the South Asia governments. Central banks have resorted to monetary easing. India lowered its repo rate by 350bp to 5.5% and CRR by 400bp to 5%. Pakistan is now contemplating a policy rate adjustment, but has already lowered the reserve ratio by 400bp or so. Sri Lanka has lowered its reserve ratio by 300bp to 7% relative to September 2008, the bank rates have been held, while repo and reverse repo rates were marginally lowered.
The banking system, being less integrated with global financial markets, remained strong in South Asia. However, private sector credit growth was subdued or even declined in the wake of (i) faltering real sector performance; (ii) corporate sector decisions to postpone investment; and (iii) bank's risk aversion in wake of growing NPLs and fear of corporate delinquencies. Most hit are export oriented, textile and garment as well as IT and electronic industries, dependant on US and Europe demand.
ILO's survey did point out that women tend to dominate these industries and the ratio could be as high as 2-5 female workers for every male worker. Consequently, women would be more prone to job losses and any gains achieved post 1990s and 2000s industrialization when job creation was high, and for women too, would be wiped out.
ILO contemplates that 80% of irregular worker's are women in Asia. This group is likely to swell to 21 million but even triple in 2009 if the economic situation worsens. These numbers essentially represent workers that had regular jobs, but are now being laid off and/or include new entrants into the labor force, i.e., young workers. Global unemployment could increase anywhere by 18 million (IMF estimate) to 30 million people over 2007 figures (ILO). According to the "pessimistic'' ILO scenario, the number of unemployed people in the Asian region could spiral up by 23.3 million. A drastic increase of those in extreme poverty of a staggering 140 million is projected in 2009.
In conclusion, while South Asia has withstood crisis and has shown its resilience, governments have to be vigilant. Aside from keeping inflation contained, a revival of domestic demand is critical as the trade prospects remain at best uncertain, since global uncertainties persist. Across the region, unemployment rates have risen and more for women. In India, close to half a million have been already laid off. In this scenario, women will be hurt and greater directed efforts are warranted to protect this vulnerable segment of society.
To protect women's welfare it seems essential to protect the level of public expenditure on important basic social services - how feasible is this approach in Asia and Pacific economies?
South Asia has launched fiscal stimulus to raise public expenditures. However, the order of magnitude of fiscal stimulus has been relatively low as most countries have limited room for maneuverability. In Pakistan and Sri Lanka fiscal deficits are already unsustainable. Notwithstanding, higher allocations have been devoted to social sector spending and social sector and poverty alleviation programs.
Are these adequate? Certainly no! relative to the level of social stress that has been high and growing public expenditure levels are low. Programs launched in South Asia can be broadly grouped into following categories:
- Enhanced expenditures for employment generating programs such as India has allocated higher funding for the National Rural Employment Guarantee Scheme and Pakistan announced establishment of new Employment Commission to facilitate job creation;
- Public sector wage hikes have been common and in case of Pakistan a rise in minimum wages was announced in early 2008;
- Cash income transfer programs have been launched - notable is the Benazir Income support program in Pakistan whose main beneficiaries are likely to be women;
- Direct provisions include employment-based guarantees (such as Employees' Old Age Benefit Institution, Workers' Welfare Fund and provincial social security benefits), direct transfers (Zakat and Pakistan Bait-ul-Mal) and market-based interventions (microfinance).
Subsidy on the price of flour and food subsidies through the Utility Stores Corporation of Pakistan. In rural areas, the population has benefited from a rise in support prices and higher returns on major crops as a result of the rise in international prices. India has launched a debt relief program for farmers.
Complexities of targeting and ensuring effective transparency in income transfers make it difficult to assess how women benefit from such programs. Complementing these efforts are, however, a range of policy initiatives to promote employment by supporting industry and exports as well as small and medium enterprises. This is being done through liquidity provision to revive credit growth, refinancing for exports, and other priority credit such as India has raised refinancing flows to HBFC, SIDBI, and EXIM banks. Pakistan has given a one year debt repayment moratorium to the textile industry, aside from reinstating the export refinancing support from the central bank.
Those in informal markets benefit from microfinance, which has grown substantially in South Asia. Bangladesh has the strongest support mechanism followed by India and Sri Lanka. Pakistan is now focusing on this industry. Developing capacities of microfinance industry and ensuring timely availability of local currency liquidity would benefit microfinance clients - three fourths of which are women.
Investing in women is key to solving the food crisis. Rural women alone produce half of the world's food and 60% to 80% of the food in most developing countries, but receive less than 10% of credit provided to farmers. Increasing women's access to the means of agricultural production, such as farming land or fertilizers, farm labor, credit and education, as well as decision-making authority within the household, is crucial to guaranteeing food security and improving the nutritional status of children. In some places, if women had the same access as men to land, seed, and fertilizer, agricultural productivity could increase by up to 20%.
Decades of research and experience have shown that when women have extra income, they reinvest in their children's health and education, creating a positive cycle of growth for the entire family.