Asian Development Outlook 2013 Update: Governance and Public Service Delivery

Description

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The annual Asian Development Outlook, generally launched in April, presents an analysis of developing Asia’s recent economic performance plus its prospects for the next 2 years. This Update shows whether these forecasts were met, explaining divergence between forecasts and the actual outturn, and firms the forecasts for the next 18 months or so.

Findings

Developing Asia is challenged to sustain its growth momentum. The region's pace is expected to marginally slide from 6.1% in 2012 to 6.0% in 2013, before picking up to 6.2% in 2014. This is mainly on account of the growth moderation in the region's two largest economies.

The prospective tapering of United States' quantitative easing has destabilized financial markets in emerging economies, including developing Asia. However, fears of a crisis recalling the 1997 Asian financial crisis are unwarranted. The region is in a much stronger position to weather the storm with many economies running current account surpluses and holding large foreign reserve stockpiles. The reforms instituted since 1997 strengthened macroeconomic management, financial regulation, and corporate governance.

 

Nevertheless, developing Asia is still faced with the twin challenge of maintaining financial stability and sustaining growth. The recent financial turmoil has all the more emphasized the need for structural reforms to support growth.

The region has seen little closing of the governance gap with advanced economies despite its phenomenal economic growth. Good governance is needed to sustain development momentum and ensure the benefits of growth are widely shared. Improving public service delivery is an effective entry point toward wider governance reform.

Key messages

  • Growth in developing Asia is forecast to decline marginally to 6.0% this year from 6.1% in 2012, before picking up to 6.2% in 2014.
  • Resurgence of the US economy is expected to pick up in the coming months.
  • In the  People's Republic of China, growth is expected to moderate to 7.6% in 2013 from 7.7% last year.
  • India’s growth is forecast to slow to 4.7% in FY2013 (ending 31 March 2014) from 5.0% in FY2012.
  • Slower growth in Asia's two giants hampers but does not hobble growth across Asia.
  • Inflation in developing Asia is projected dipping to 3.6% this year from 3.7% in 2012 as weaker growth and tepid commodity prices keep price pressures in check. Next year, inflation is expected to return to 3.7%.
  • Prospective tapering of US quantitative easing has destabilized financial markets in developing Asia and other emerging economies, in particular India and Indonesia.
  • Fears of a crisis recalling 1997 seem unwarranted. Many developing Asian economies now have current account surpluses and large foreign exchange reserves. In addition, reforms since 1997 have strengthened macroeconomic management, financial regulation, and corporate governance.
  • Developing Asia faces the twin challenges of maintaining financial stability and sustaining growth.
  • The recent turbulence in financial markets underscores the need for structural reform to sustain growth. Priority areas include foreign direct investment, industrial diversification, infrastructure and human capital, fiscal consolidation, and social protection.
  • Governance is another key area for reform. Asia must make headway toward catching up with the advanced economies and matching their quality of governance. Focusing on strengthening public service deliver can provide immediate benefits to make growth more inclusive and create momentum for wider governance reforms.