Asia's developing economies must invest more in infrastructure and social welfare to promote long-term growth in a region where millions fell back into poverty during the global economic crisis, an IMF official said Monday. John Lipsky also said that, despite general macroeconomic stability, some threats remain and financial sector soundness must be further improved as a recovery takes hold.
While Asia is helping lead the world toward stronger growth after the global crisis that began in 2008, the region's developing economies face key policy challenges, said Lipsky, the IMF's first deputy managing director. "While the region's story is very much a positive one it should not be forgotten that significant numbers of the region's citizens remain poor or vulnerable. In developing countries, even small economic dislocations can provoke substantial challenges," Lipsky told a conference.
He said the recent crisis pushed an estimated 14 million people back into poverty in Asia. "Agricultural poverty remains a particular problem, partly reflecting a widening gap between urban and rural income," Lipsky said. He was speaking at an international gathering in Hanoi, attended by around 100 delegates including policymakers, diplomats, analysts and non-governmental groups, to discuss post-crisis growth and poverty reduction in Asia.
Lipsky said some Asian developing nations face large fiscal deficits and public debt, high credit growth and inflation and low international reserves. "As a recovery takes root it will be important to rebuild policy buffers and to further improve financial sector soundness," he said, calling for structural reforms to help raise developing Asia's global competitiveness and integration into trade networks.
Lipsky cited Asian Development Bank figures that show Asia-Pacific countries need to invest up to eight trillion dollars in infrastructure over the next decade. "There are still large infrastructure gaps in developing Asia, especially in areas such as transport, energy and communications," he said.
"Such investments would not only boost productive potential but also would help to fight poverty, including in rural areas." Social safety nets should be strengthened "to protect the poor and vulnerable and to raise access to basic public services including healthcare," Lipsky said. While global growth is expected to reach about four percent this year, the economies of "emerging Asia" are forecast to expand by 8.5 percent, led by China and India, he said.
Another IMF official, Anoop Singh, said the region's eight low-income countries should see growth rebound to about six percent over the next two years. The eight are: Bangladesh, Cambodia, Laos, Mongolia, Nepal, Papua New Guinea, Sri Lanka and Vietnam.
Inflation in the low-income economies seems driven by food and fuel prices, "and we have to be careful to ensure that this does not feed into broader price pressures in the economy," said Singh, director of the IMF's Asia-Pacific department. He said the eight collectively have a deficit in their current account, which measures trade and financial transfers. "The main point is to make sure that the FDI (foreign direct investment) and capital inflows are sufficient and sustainable to finance it," Singh said.