UPSC MAINS 2019: Asian Development Outlook 2019- Strengthening Disaster Resilience: ADB

ADB

Asian Development Outlook 2019- Strengthening Disaster Resilience: ADB

Topic in Syllabus: General Studies Paper 2: International Affairs

ADB

Context:

Recently Asian Development Bank has published Asian Development Outlook 2019.

 

More about on news:

  • Growth in developing Asia is projected to soften to 5.7% in 2019 and 5.6% in 2020.
  • Excluding Asia’s high-income newly industrialized economies, growth is expected to slip from 6.4% in 2018 to 6.2% in 2019 and 6.1% in 2020.
  • As oil prices rose and Asian currencies depreciated, inflation edged up last year but remained low by historical standards.
  • In light of stable commodity prices, inflation is anticipated to remain subdued at 2.5% in both 2019 and 2020.
  • Risks remain tilted to the downside.
  • A drawn-out or deteriorating trade conflict between the People’s Republic of China and the United States could undermine investment and growth in developing Asia.
  • With various uncertainties stemming from US fiscal policy and a possible disorderly Brexit, growth in the advanced economies could turn out slower than expected, undermining the outlook for the People’s Republic of China and other economies in the region.
  • Though abrupt increases in US interest rates appear to have ceased for the time being, policy makers must remain vigilant in these uncertain times.

 

Asian Development Outlook 2019:

  • Asian Development Outlook 2019 Strengthening Disaster Resilience The annual Asian Development Outlook, now in its 30th year, analyzes economic performance in the past year and forecasts performance in the next 2 years for the 45 economies in Asia and the Pacific that make up developing Asia.
  • Growth prospects in developing Asia remain strong despite persistent external headwinds responsible for moderating expansion since 2017.
  • Global trade and economic activity weakened toward the end of 2018, slowing growth in many economies in the region.
  • The outlook is cloudy with risks that tilt to the downside: A drawn-out trade conflict could undermine trade and investment in the region, and US fiscal policy and the consequences of a disorderly Brexit could weigh on growth in the advanced economies and the People’s Republic of China.
  • Though the risk of sharp increases in US interest rates has subsided, policy makers must stay vigilant.
  • Disasters are shaped by natural hazards and the dynamics of the economy, society, and environment in which they occur.
  • They pose a growing threat to development and prosperity in the region, their consequences disproportionately severe in developing countries, especially for the poor and marginalized.
  • As developing Asia is home to more than four-fifths of the people an elected by disasters globally in the past 2 decades, the region must strengthen its disaster resilience. This means integrating disaster risk reduction into national development and investment plans, spending more on prevention for a better balance with spending on rescue and recovery, and pooling risk through insurance and reinsurance.

 

India’s performance:

  • Growth slowed slightly in fiscal 2018 as expansion in agriculture and services slipped, even though industry and investment strengthened.
  • The current account deficit widened but remained modest, while inflation continued to be benign.
  • Even with global headwinds, the outlook is for growth to edge up on strengthened domestic demand and bank and corporate fundamentals.
  • Inflation and the current account deficit should remain tame. Enhancing export performance remains a key objective, which can be achieved by improving conditions for India’s participation in global value chains.
  • Economic growth slowed to 7.0% in fiscal year 2018 (FY2018, ended 31 March 2019) according to preliminary official estimates, slightly down from 7.2% in FY2017 (Figure 3.17.1).
  • Growth slowed progressively during the year, partly from a base effect.
  • The slowdown reflected subdued agriculture, which grew by only 2.7%, the lowest in 3 years.
  • Food grain production was robust but slightly below the harvest in the previous year, mainly due to a shortfall in cereals and pulses. Production from livestock rearing, fisheries.

 

Definitions:

The economies discussed in Asian Development Outlook 2019 are classified by major analytic or geographic group. For the purposes of this publication, the following apply:

  • Association of Southeast Asian Nations comprises Brunei Darussalam, Cambodia, Indonesia, the Lao People’s Democratic Republic, Malaysia, Myanmar, the Philippines, Singapore, Thailand, and Viet Nam.
  • Developing Asia comprises the 45 members of the Asian Development Bank listed below.
  • Newly industrialized economies comprises Hong Kong, China; the Republic of Korea; Singapore; and Taipei,China.
  • Central Asia comprises Armenia, Azerbaijan, Georgia, Kazakhstan, the Kyrgyz Republic, Tajikistan, Turkmenistan, and Uzbekistan.
  • East Asia comprises Hong Kong, China; Mongolia; the People’s Republic of China; the Republic of Korea; and Taipei,China.
  • South Asia comprises Afghanistan, Bangladesh, Bhutan, India, Maldives, Nepal, Pakistan, and Sri Lanka.
  • Southeast Asia comprises Brunei Darussalam, Cambodia, Indonesia, the Lao People’s Democratic Republic, Malaysia, Myanmar, the Philippines, Singapore, Thailand, and Viet Nam.
  • The Pacific comprises the Cook Islands, the Federated States of Micronesia, Fiji, Kiribati, the Marshall Islands, Nauru, Palau, Papua New Guinea, Samoa, Solomon Islands, Timor-Leste, Tonga, Tuvalu, and Vanuatu.

 

Challenges from rising headwinds:

Growth softens as trade tensions persist:

  • Developing Asia posted strong but moderating growth in 2018. Despite rising headwinds, growth in aggregate gross domestic product (GDP) slowed only slightly from 6.2% in 2017 to 5.9% in 2018 as global trade and economic activity decelerated at the end of the year, affecting many economies in the region.
  • A slowdown from late 2018 will continue in the advanced economies. Aggregate growth in the three major advanced economies—the United States, the euro area, and Japan—slowed from 2.3% in 2017 to 2.2% in 2018.
  • PRC moderation reflects structural factors and financial tightening. With the economy maturing, growth in the PRC slowed from 6.8% in 2017 to 6.6% in 2018 as the government sought to reduce corporate leveraging and control financial risks.
  • India is set to see growth pick up as consumption strengthens. Growth slowed from 7.2% in fiscal 2017 to 7.0% in 2018, with weaker agricultural output and consumption growth curtailed by higher global oil prices and lower government expenditure.
  • Southeast Asia will sustain growth at close to 5% this year and next. Strengthening domestic demand will offset weaker export growth.
  • Growth will recover in the Pacific but moderate in Central Asia. Growth in the Pacific is set to rebound from a meager 0.9% in 2018 to 3.5% in 2019 as liquefied natural gas production in Papua New Guinea, the subregion’s dominant economy, returns to full capacity following the 2018 earthquake.
  • Financial conditions in Asia tightened in 2018, but have since improved. Jitters over emerging markets sparked by Argentina and Turkey in 2018 caused regional currencies to depreciate against the US dollar, with the Indian rupee, Indonesian rupiah, and Philippine peso most sharply hit.
  • Inflation edged up in 2018 but remains low by historical standards. On the heels of rising oil prices and currency depreciation, inflation in developing Asia picked up slightly from 2.2% in 2017 to 2.5% in 2018.
  • In a cloudy outlook, risks remain tilted to the downside. The primary risks still center on the PRC–US trade conflict. Uncertainty is heightened by protracted negotiations and disagreements, which could curtail investment and growth in the region.

 

Exchange rates affect domestic financial conditions through financial and trade channels:  

High reliance on funding denominated in US dollars renders countries vulnerable to changing global financial conditions. An appropriate policy mix and regional policy dialogue can strengthen domestic financial resilience and limit the impact of shocks from external funding conditions.

  • Exchange rate uncertainty may bear on regional financial conditions. The depreciations and heightened exchange rate volatility in 2018 could affect borrowing costs for economies in the region. High reliance on funding denominated in US dollars renders countries vulnerable to changing global financial conditions.
  • Trade and financial channels both affect domestic financial conditions. Empirical analysis of selected economies in emerging Asia shows that changes in exchange rates affect sovereign credit risk premiums, which can further influence financial conditions through domestic lending rates.
  • Domestic financial resilience can mitigate adverse external influences. An appropriate policy mix and regional policy dialogue can strengthen domestic financial resilience and limit the impact of shocks from external funding conditions.

 

Strengthening disaster resilience:

Disaster risk and costs are rising, and Asia is particularly vulnerable:

  • Rapid socioeconomic development is converging with worsening threats from natural hazards to pose unprecedented risk from catastrophes in developing Asia.
  • While the direct, immediate impacts of disasters tend to be local and short term, new evidence presented in this report shows how these effects can spill over to other places and last for a lifetime.
  • Suitable policy interventions are required to keep disaster losses from spiraling into the future and across the region.

Disaster risk management has improved, but gaps remain:

  • Governments should continue to integrate disaster risk reduction into broader development policies and public investment strategies.
  • Asia has led progress on these fronts in recent years, but positive trends need reinforcement. Spending on disaster prevention continues to lag far behind disaster response.

Managing disaster risk can enhance equity, resilience, and sustainability.

  • A greater focus on strengthening disaster resilience and preparing for recovery can ensure that rebuilding in the wake of disasters—building back better—emphasizes safety, timeliness, social equity, and the full realization of economic potential.

 

The Asian Development Bank (ADB):

  • The Asian Development Bank (ADB) is a regional development bank established on 19 December 1966
  • It is a multi-lateral lending agency
  • It is modeled on the World Bank
  • It has a similar weighted voting system where votes are distributed based on member’s capital subscriptions.
  • ADB borrows from international capital markets with its capital as guarantee
  • Japan and USA are its major donors.
  • There has been criticism that ADB’s large scale projects cause social and environmental damage due to lack of oversight
  • India has about 6% voting rights (4th highest; Japan highest, USA 2nd highest)
  • It is owned by 67 members – 48 from the region including India.

 

Sample Question:

According to Asian Development Outlook 2019 “India’s Growth slowed slightly in fiscal 2018 as expansion in agriculture and services slipped, even though industry and investment strengthened” discuss the reasons.


adb infograph