Debt crises are named as one of the most pressing issues over the next decade, though respondents believe they will become most serious in 3-5 years. Government stimulus was necessary, but many countries now have debt burdens.
by Kazi Anwarul Masud
POVERTY IN SOUTHERN ASIA
The current population of Southern Asia is 2,030,658,877 as of August 22, 2023, based on the latest United Nations estimates. Southern Asia’s population is equivalent to 25.2% of the total world population. Southern Asia ranks number 1 in Asia among subregions ranked by Population. The population density in Southern Asia is 317 per Km. Any discourse on poverty worldwide will be incomplete without discussing the situation in South Asia. It is not only poverty but the crisis points as indicated by the World Bank can be enumerated in the form of Poverty in 2022. World Bank will update the International Poverty Line from $1.90 to $2.15 meaning anyone living on less than $2.15 is in “extreme poverty.”
CAUSES OF POVERTY
Increases in the costs of food, clothing, and shelter between 2011-2017 make the “real value of $2.15 in 2017 prices equal to $1.90 in 2011 prices. As for the World Bank’s goal to reduce extreme poverty to 3% or less by 2030, the pandemic has made it even harder. Extreme poverty isn’t the only problem the world has to contend with. 62% of the global population lives on less than $10/day. While there’s been progress over the years, the end of poverty is still far off. According to the 2022 Global Report on Food Crisis, which is produced by the Global Network Against Food Crises, the number of people in crisis is worse at present. Close to 193 million people were experiencing acute food insecurity in 2021, which is an increase of almost 40 million since 2020. Causes include “economic shocks,” like an increase in global food prices. Domestic food price inflation in low-income countries also rose considerably. “Weather-related disasters” are also a big driver. For 15.7 million people in 15 countries, it was the primary driver of acute food insecurity.
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| Oriental Mindoro, Philippines [ Photo: Zeyn Afuang/ Unsplash] |
DEBT CRISIS AND POVERTY
Debt crises are named as one of the most pressing issues over the next decade, though respondents believe they will become most serious in 3-5 years. Government stimulus was necessary, but many countries now have debt burdens. For corporate and public finances in large economies, debt burdens can lead to defaults, bankruptcies, insolvency, and more. Corruption encompasses a host of actions such as bribery, election manipulation, fraud, and state capture. The World Bank Group names corruption as a barrier to ending extreme poverty and “boosting shared prosperity” for the poorest populations. When it comes to addressing poverty, climate change, healthcare, gender equality, and more, corruption gets in the way. Because corruption is a global problem, global solutions are necessary.
AUTHORITARIANISM AND POVERTY
Authoritarianism also plays a role in the persistence of poverty. According to Freedom House, global democracy is eroding. That includes countries with long-established democracies. In their 2022 report, the organization reveals that global freedom has been declining for the past 16 years. 60 countries faced declines in the last year. Only 25 saw improvements and 20% of the global population lives in Free countries. China, Russia, and other authoritarian countries have gained more power in the international system, while countries with established democracies – like the United States – are losing their freedoms. A way out says Freedom House “requires a bold, sustained response that establishes support for democracy and countering authoritarianism.”
Governments and citizens engage and stand for democracy. A report titled SOUTH ASIA ECONOMIC FOCUS, FALL 2021 SHIFTING GEARS: DIGITIZATION AND SERVICES-LED DEVELOPMENT has been upbeat on South Asia. It says that South Asia’s recovery continues as global demand rebounded and targeted containment measures helped minimize the economic impacts of the recent waves of COVID-19. But the recovery remains fragile and uneven, and significant risks exist that could jeopardize short-term recovery and long-term growth. Regional growth is set to increase by 7.1 percent in 2021 and 2022, as the economic recovery in South Asia continues. Despite devastating COVID-19 waves in the second quarter of 2021, countries were able to minimize economic impacts, thanks to more targeted and localized containment measures and a rebound in global demand.
India’s economy, South Asia’s largest, is expected to grow by 8.3 percent in the fiscal year 2021-22, supported by an increase in public investment to boost domestic demand and incentive schemes to boost manufacturing. In Maldives, output is projected to grow by 22.3 percent in 2021, as tourism bounces back strongly. In Sri Lanka, real GDP is expected to grow by 3.3 percent in 2021, with import restrictions, elevated food prices, and shortages casting a shadow on the outlook. In Bangladesh, growth rates are expected to pick up to 6.4 percent in fiscal year 2021-22, as exports and private consumption continue to recover. In Bhutan, output is expected to grow by 3.6 percent in fiscal year 2021-22, supported by the return of migrant labor and large infrastructure projects. In Nepal, GDP is expected to grow by 3.9 percent for the fiscal year 2021-22, as domestic vaccination picks up and tourism and migrant worker flow recover in the country. In Pakistan, growth is expected to ease a little to 3.4 percent in fiscal year 2021-22, as fiscal and monetary measures are expected to unwind. However, recovery remains uneven as many challenges and uncertainties remain. The strong near-term growth is driven in part by very low base numbers in 2020. The outlook will depend on the speed of vaccination, the possible emergence of new COVID variants, as well as any major slowdown in global growth momentum. Vaccine rollouts have accelerated but most countries still have some way to go to vaccinating the majority of the population, as constraints on the supply of vaccines remain.
SLOWDOWN OF GLOBAL RECOVERY
Global recovery momentum is showing signs of a slowdown due to the impact of the COVID Delta variant. Any major disruptions to the global recovery can have adverse impacts on South Asia, through trade, tourism, and migrant workers. Supply constraints have pushed up inflation in the region and as the economy recovers, rising demand may sustain the high inflation. In addition to the medium-term uncertainties, the pandemic has left scars on the economy, the impacts of which can last well into the recovery. World Bank projections show that economic activity in South Asia will stay well below the pre-pandemic trend for several years. South Asia’s average annual growth is forecast to be 3.4 percent over 2020-23, which is 3 percentage points less than it was in the four years preceding the pandemic.
In South Asia, the pandemic is estimated to have caused 48 to 59 million people to become or remain poor in 2021. Many countries experienced lower investment flows, disruptions in supply chains, and setbacks to human capital accumulation. Many South Asian countries saw substantial increases in debt levels in 2020, with Maldives and Sri Lanka particularly vulnerable. As South Asia builds back, policymakers have a chance to rethink long-term development models. The emergence of a new services economy has created an opportunity for South Asia to move away from the traditional manufacturing-led growth model toward a services-led development model. The role and contribution of services to economic growth have been unappreciated in large part because services’ value-added contribution to output has been difficult to measure.
COMPARATIVE ADVANTAGES OF COUNTRIES OF SOUTH ASIA
Countries in South Asia have a strong comparative advantage in exporting services, particularly business processes and tourism, whereas they have struggled to break into manufacturing export markets. Automation of the manufacturing sector is making it even harder to become highly competitive in international markets. The pandemic has uncovered new roles for digital remote services, while new inventions have created growth opportunities for the supply of services.
Moreover, digital technologies make services more tradable and enable services to increase the productivity of other sectors—including manufacturing. Governments in South Asia face major hurdles. Existing regulations of business services in South Asia are stricter than in most other countries and these regulations have created vested interests and entry barriers, despite the notable success promoting the Business Process. An implicit preference for manufacturing in several South Asian countries makes it difficult to find the political will for major reforms in the services sectors.
Even globally, countries are struggling to find an optimal institutional environment for the new services sectors. A discourse on South Asian poverty reveals that the World Bank has set an ambitious target to eradicate extreme poverty globally by 2030. Evaluating progress toward this goal requires a solid data infrastructure. In April 2013, the World Bank set two goals to guide its work in the coming years—the first is to eradicate extreme poverty from the world by 2030, while the second is to promote shared prosperity. But poverty comparisons across countries are partly influenced by the quirks of each country’s surveys. A thorough analysis is needed to understand the similarities and differences between these survey data collection procedures and how much they affect reported poverty rates. Extreme poverty is measured using the international poverty line, currently set at $1.9 per person per day in 2011 dollars (hereafter: international poverty rate).
DEFINITION OF EXTREME POVERTY
Anyone consuming less than that amount, or earning less than that amount in countries that use income rather than consumption as their primary welfare measure, is assumed to be extremely poor. In addition, each country sets its own official poverty line to assess national poverty, with the line depending on the levels of consumption in each country. Therefore, official poverty lines and the subsequent national poverty rates generated using these lines are not comparable across countries. To generate international poverty estimates, the World Bank has created an international poverty line, which is applied consistently to all countries to monitor extreme poverty. A poverty line of $1 per day was first estimated in 1990 and has been repeatedly updated to take into account changes in the purchasing power parity of countries. The last update of the international poverty line was done in 2015 when it was raised to $1.9 per person per day according to the 2011 values of purchasing power parity exchange rates.
The report continues to emphasize on recent report by the Commission on Global Poverty to improve global poverty monitoring highlighting the considerable uncertainty in global poverty estimates. Since adopting the twin goals mentioned above, the World Bank has devoted considerable attention to improving its measure of extreme poverty. As part of this effort, the World Bank established the Commission on Global Poverty, to come up with different recommendations on how to improve the measurement and monitoring of global extreme poverty. The commission’s report highlighted shortcomings in the global poverty measurement infrastructure in detail and offered several suggestions on how to improve the monitoring of global extreme poverty.
METHODOLOGICAL DIFFERENCE IN POVERTY MEASUREMENT
South Asia is a useful laboratory to study how methodological differences in poverty measurement can contribute to total error. Globally, the extreme poor are concentrated in sub-Saharan Africa and South Asia. On average, 12.6% of the world’s population, or about one in eight people, lives in extreme poverty. Sub-Saharan Africa and South Asia have the highest and second-highest number and proportion of the world’s extreme poor, respectively, with 50.7% and 33.4% of the world’s extreme poor living in these two regions. A report by Geopolitical Futures ( August 25, 2023) has pointed out protectionism driving food prices higher.
INDIA AND THAILAND AS SUPPLIER OF FOOD GRAINS
On July 20, three days after Russia pulled out of the Black Sea grain deal, India opted to impose restrictions on the export of non-basmati white rice. India is the world’s largest rice exporter, having accounted for about 40 percent of global rice trade last year. Despite India’s continued export of parboiled and basmati rice, global food prices have surged by 15-25 percent since the ban. Given the heightened vulnerability of paddy in Asia concerns have begun to grow in other major rice-producing and exporting countries in the region. Some of these countries have even started creating stockpiles in anticipation of a potential shortage.
A shortage of rice could spill over to affect wheat, soybeans, and corn, all of which frequently stand in as substitutes for rice, serving both human consumption and livestock feed needs. Cascading shortages of these commodities could also drive up prices for fuel. Thailand, a significant rice exporter and a purveyor of high-quality rice, has stepped in to fill the void left by India’s export ban. This shift has precipitated a surge in Thailand’s rice exports and has given its economy a boost. However, it also underscores the fragility of the global system of food trade. It is evident that food scarcity in South Asia has many facets many of which are tied to international strategic reasons. How the significant players of the international arena, complex as it is, will determine the fate of a quarter population of the world.
Kazi Anwarul Masud is a retired Bangladeshi diplomat. During his tenure, he worked in several countries as the ambassador of Bangladesh including Thailand, Vietnam, South Korea and Germany
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