Abul Barkat, Ph - UN ESCAP...1 Abul Barkat, Ph.D Professor & Chair, Department of Economics, Dhaka University, Dhaka, Bangladesh (email: [email protected]) Bangkok, Thailand: 14-16

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Abul Barkat, Ph.DProfessor & Chair,

Department of Economics,Dhaka University, Dhaka, Bangladesh

(email: [email protected])

Bangkok, Thailand: 14-16 December, 2011

Prepared for presentation at ESCAP/OHRLLS Asia-PacificRegional Meeting on Implementing the Istanbul Programme of Action (IPoA)

Organized by

UNESCAP & OHRLLS

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Presentation Sequence

Domestic Resource Mobilization: WHY?

Structurally- disadvantaged LDCs

Diversity in key characteristics

Key factors to consider in

resource development

& mobilization

Matrix of key untapped/ less tapped domestic resources

Challenges ahead

Vision: Action Points

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1. Sustained high growth rate depends largely on DRM (empirically proved).

2. DRM essential to ensure ownership of development strategy and strengthening bonds of accountability between government and citizens.

3. DRM provides country’s “policy independence and space” often constrained by donor’s conditionalities.

4. Governments heavily dependent on foreign aid have less incentive to raise tax revenue and less reason to pay attention to tax payers’ demands.

5. DRM involves both public and private sectors. Government mobilizes domestic resources primarily through taxation and other methods, which are critical to strengthen state capacity to deliver public goods and services. Private sector mobilizes resources by channeling savings of households and firms through banks and other financial institutions, which then provide credit or investment capital to households and enterprises, which is critical in creating employment, income, and sustainable livelihood.

6. Critical challenges of DRM: Low savings rate, low tax- GDP ratio, high and chronic dependence on foreign aid, weak institutional capacity to mobilize domestic resources.

Domestic Resource Mobilization (DRM): WHY?

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Structurally-disadvantaged LDCs: Countries we are talking about

(in alphabetic order, SDLDCs)

1. Afghanistan (population 31.5 mil.) (LDC Asia)

2. Bangladesh (150 mil) (LDC Asia)

3. Bhutan (725,940) (LDC Asia)

4. Kiribati (99.546) (LDC Oceania)

5. Lao PDR (6.2 mil) (LDC Asia)

6. Myanmar (48 mil) (LDC Asia)

7. Nepal (30 mil) (LDC Asia)

8. Samoa (183,081) (LDC Oceania)

9. Solomon Islands (538,148) (LDC Oceania)

10. Timor-Leste (1.12 mil) (LDC Asia)

11. Tuvalu (9827) (LDC Oceania)

12. Vanuatu (239,651) (LDC Oceania)

LDCs Asia = 7LDCs Oceania = 5

Asian LDCs = 6Islands LDCs = 6

Geographic location of structurally disadvantaged LDCs

SolomonIslands

Tuvalu

Kiribati

Vanuatu

Timor-Leste

Samoa

Afghanistan

NepalBhutan

BangladeshMyanma

r

Lao PDR

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1. Population size: ranging between only 9,827 in Tuvalu and 150 mil. in Bangladesh.

2. Population density (# persons/km2 land area): ranging between only around 20 person in Solomon Islands, Vanuatu, Bhutan (each) and high at 1,033 in Bangladesh.

3. Population age 15-64 yrs (as % total population): ranging between 51% in Timor-Leste and Afghanistan (each) and about 69% in Myanmar.

4. GDP (PPP, constant 2005 international $, in million): ranging between only 220 mil. $ in Kiribati and 220,807 mil.$ in Bangladesh.

5. GDP per capita (PPP, constant 2005 international $): ranging between only 832 $ in Timor-Leste and 4,780 $ in Bhutan (Gross Happiness Index!).

6. GDP growth (annual %): ranging between only 0.2% in Tuvalu and 8.42% in Lao PDR (Afghanistan 8.23%, Bhutan 7.44%, Timo-Leste 7.42%, Solomon Islands 7%).

Development Resources: Diversity in key characteristics (2010 data)

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7. Tax revenue (tax-GDP ratio): ranging between 5.8% in Afghanistan and 13.34% in Nepal (Lao PDR 12.2%, Bangladesh 12.1%, Bhutan 9.24%; data for 7 countries not available).

8. Gross domestic savings rate (as % GDP): ranging between -7.9% in Afghanistan and high at 51.4% in Bhutan (Bangladesh 39%, 26% Lao PDR, 19% Vanuatu, 15.4% Myanmar, 11.2% Nepal; data not available for 5 countries).

9. Gross domestic investment rate (as % GDP): ranging between only 8.2% in Tuvalu and 83.3% in Kiribati (Bhutan 37.9%, Nepal 31.9%,Lao PDR 31.3%, Vanuatu 27.1%, Afghanistan 24.6%, Bangladesh 24.2%, Timor-Leste 24%, Myanmar 15.1% Samoa 9.2%).

Development Resources: Diversity in key characteristics (2010 data) (…Contd…)

Savings > investment : Bangladesh, Bhutan, Myanmar?Savings < investment: Afghanistan, Lao PDR, Nepal, Vanuatu?

Savings > investment : Bangladesh, Bhutan, Myanmar?Savings < investment: Afghanistan, Lao PDR, Nepal, Vanuatu?

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Development Resources: Diversity in Key Characteristics (2010 data) (…Contd…)

10 Sectoral composition of GDP (sector-wise % value addition in GDP): In GDP, agricultural contribution ranges between 12% in Samoa and 48% in Myanmar; industrie’s contribution ranges between 7.5% in Solomon Islands and 42% in Bhutan; contribution of services sector ranges between 36% in Myanmar (also Afghanistan) and 70% in Vanuatu. Services sector is much pronounced (with over 50% to GDP) in Vanuatu (69.8%), Tuvalu (68.9%), Kiribati (63.3%) and Solomon Islands (57%), and less pronounced in Myanmar (35.6%), Afghanistan (35.8%) and Bhutan (37.6%). Industry is relatively more pronounced in Bhutan(41.8%), Bangladesh (28.6%), Afghanistan (26.9%), Samoa (26%), Lao PDR (25.4%) and least pronounced in Solomon Islands (7.5%), Vanuatu (8.9%), and Kiribati (9.6%). Agriculture contributes relatively high in Myanmar (48%), Afghanistan (37.3%), Solomon Islands (35.6%), Nepal (32.6%) and Timor-Leste (30.5%) and less in Samoa (11.7%), Tuvalu (17.5%), and Bangladesh (18.6%). A general pattern is evident: while Island LDCs rely more on services sector and less on industries, Asian LDCs depend more on agriculture and services with emerging industries.

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Country Sectors

Agriculture Industry Services

1. Afghanistan 37.3 26.9 35.8

2. Bangladesh 18.6 28.6 52.8

3 Bhutan 20.6 41.8 37.6

4. Kiribati 27.1 9.6 63.3

5. Lao PDR 31.6 25.4 43.0

6. Myanmar 48.0 16.5 35.6

7. Nepal 32.6 15.8 51.6

8. Samoa 11.7 26.0 62.3

9. Solomon Islands 35.6 7.5 56.9

10 Timor-Leste 30.5 13.6 56.0

11. Tuvalu 17.5 13.6 68.9

12. Vanuatu 21.3 8.9 69.8

(as % of GDP, 2009)Sector-wise % of value added in GDP

Source: ESCAP (2011), Statistical Yearbook for Asia and the Pacific 2011. Source: ESCAP (2011), Statistical Yearbook for Asia and the Pacific 2011.

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11. Current account balance (as % GDP): ranging between – 25.6% in Solomon Islands (- 23.1% in Kiribati) and 22.7 % in Timor-Leste (negative in 8 countries).

12. Inflation (consumer prices, % in 2010): ranging between -1.85 in Tuvalu and double digit in Afghanistan (13%), Nepal (10%), Bangladesh (10%). Low in Kiribati, Samoa, Solomon Islands, Vanuatu.

13. FDI (net inflows as % GDP): ranging between 0.46% in Samoa and 40% in Timor-Leste (less than 1% in Samoa, Nepal, Bhutan, Bangladesh; around 5% in Lao PDR Tuvalu, Vanuatu; 35% in Solomon Islands).

14. Net ODA received (as % GDP): ranging between 0.3% in Myanmar (0.4% Bangladesh) and 7.9% in Afghanistan (2-3% Nepal, Vanuatu, Lao PDR, Samoa; 3-4% Solomon Islands, Timor-Leste; 4-5% Kiribati, Bhutan, Tuvalu).

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15. Military expenditure (as % GDP): ranging between 0.39% in Lao PDR and 10.97% in Timor-Leste (data not available for Bhutan, Kiribati, Myanmar, Samoa, Solomon Islands, Tuvalu, Vanuatu).

16. HDI index (2011): Lowest in Afghanistan (0.398) and relatively high in Samoa (0.688). Others value (high to low order): Kiribati 0.624, Vanuatu 0.617, Lao PDR 0.524, Bhutan 0.522, Solomon Islands 0.510, Bangladesh 0.500, Timor-Leste 0.495, Myanmar 0.483, and Nepal 0.458.

17. Urbanization (urban population as % total population): ranging between 19% in Nepal and Solomon Islands and 50.4% in Tuvalu (for others, Kiribati 43.9%, Bhutan 34.7%, Myanmar 33.6%, Lao PDR 33.2%, Bangladesh 28.1%, Timor-Leste 28.2%, Vanuatu 25.6%, Afghanistan 22.6%, and Samoa 20.2%).

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Key factors to consider in resource development & mobilization

Country

Population GDP/capita (PPP$, 2005

constant international)

Tax-GDP ratio

Gross domestic savings

(% GDP)

Gross domestic

investment (% GDP)

Inflation (consumer

price)

Current account balance

(% GDP)

Net ODA

received (% GNI)

FDI (%

GDP)Size Density

1. Afghanistan High Low Low LowVery low (negative)

Moderate High Low High Low

2. Bangladesh HighVery high

Low Low Low Moderate High Low Low Low

3. Bhutan Moderate Low Moderate Low High Moderate Moderate Negative Low Low

4. Kiribati Low Low Moderate ¶ Low High Low Negative Low Low

5. Lao PDR Moderate Low Moderate Low Moderate Moderate Moderate Negative Low Low

6. Myanmar High Low Low ¶ Low Low High Negative ¶ Low

7. Nepal High Moderate Low Low Low Moderate High Negative Low Low

8. Samoa Low Low Moderate ¶ ¶ Low Low Negative Low Low

9. Solomon Islands

Low Low Moderate ¶ Low Low Low Negative High High

10.Timor-Leste Low Low Low ¶ Low Moderate Moderate High Low High

11.Tuvalu Low Moderate ¶ ¶ Low Low Low Low High Low

12.Vanuatu Low Low Moderate ¶ Low Moderate Low Negative Low Low

¶ Blank cell = Data not available ¶ Blank cell = Data not available

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Matrix of key untapped/less tapped domestic resourcesCountry Resources untapped/less tapped

AfghanistanEnergy sources: gas, petroleum, coal (also minerals)

Tourism Labor-intensive manufacturing

Expanding trade partners

Bangladesh Population/manpower Agriculture IT sector Tourism Remittances Bhutan Hydro power Tourism Forest Agro-processingKiribati Tourism Forest Fishing Handicraft

Lao PDR Hydro power Mineral resources Tourism

Myanmar Agriculture TourismAgro-processing industry

Natural gas, oil Banking

NepalHydro power (42,000MW feasible capacity)

Tourism Timber Remittances

Samoa RemittancesExport (broadening needed)

TourismUtilization of foreign reserve

Fishing

Solomon Islands

Wood/timber/log/ natural forest

TourismManpower development

Mineral resources (mining revenue)

Timor-Leste Oil/fuel Tourism

TuvaluFishing (licence income)

RemittancesExport base (broadening needed)

TourismSkilled seaman

VanuatuTourism (weak telecom and air transport)

ForestCoffee, cocoa, vegetables, fish

TimberFood/meat processing

Note: Matrix needs further scrutiny and elaboration Note: Matrix needs further scrutiny and elaboration

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1. Afghanistan: Weak law enforcement; governance; insecurity; war-drug lords, criminality.

2. Bangladesh: Good governance; poverty reduction; manpower development; reforms-administrative, decentralization and local governance; fighting corruption; infrastructure; power supply; climate change impact.

3. Bhutan: Trade with SAARC; excessive govt. control; relationship with India; attract FDI.

4. Kiribati: Infrastructure, skilled manpower; (infant) financial sector; fiscal management; SOE reform.

5. Lao PDR: Infrastructure; investment climate.

6. Myanmar: Pervasive govt. control; inefficient economic policies; corruption; rural poverty; “democracy”.

7. Nepal: Civil strife; labor unrest; susceptibility to natural disaster.

8. Samoa: Transportation; power generation; environmental protection; labor market flexibility.

9. Solomon Islands: Depletion of natural forest; management of natural resources; providing basic services; job creations; institutional capacity building; rebuilding policy buffers.

10 Timor-Leste: Infrastructure; strengthening civil administration; job creation; petroleum fund.

11. Tuvalu: High cost of traveling to the island; limited air traffic; fiscal management; SOE reform.

12. Vanuatu: Enhance export base/diversify; political stability; reforms- telecom, air transport.

Challenges ahead

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There exist a number of payoffs to enhance DRM in SDLDCs – increase ownership and convergence with domestic development priorities; less vulnerability to external shocks; and benefits associated with good governance. The initiative and responsibility rest largely with the SDLDCs. The constraints and opportunities differ among individual countries, so the optimum policy mix should take such specificities into account at the country level. Donor countries can undertake a number of supporting measures through more coherent aid, concessional loans, trade and investment policies, and technical assistance.


“Aid Exit” = No; Well-crafted DRM strategy = Yes

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Vision : Action Points for -Vision : Action Points for -

Structurally-disadvantaged LDCs

Structurally-disadvantaged LDCs

1. (Greater) Tax mobilization

2. Intermediating savings for investment

1. (Greater) Tax mobilization

2. Intermediating savings for investment

DonorsDonors

1. Building capacity for public resource mobilization

2. Building infrastructure for financial sector

3. Direct aid

1. Building capacity for public resource mobilization


3. Direct aid

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A. Action points for SDLDCs1. (Greater) Tax Mobilization

(multipronged tax reform: short-to-medium term; medium-to-long term)

ü Strengthening administrative and legislative framework of taxation

§ Simplify tax laws and codes

§ Enhance integrity of tax administration

§ Build tax administration capacity (upgradation; autonomy; IT; e-filing)

ü Transforming tax structure

§ Lower tax levels and widen the base

§ Close exemptions and loopholes

§ Better sequencing and greater coherence (trade liberalization and tariff reduction resulted in significant loss in revenues)

§ Bring (some) informal sector into tax net

§ Introduce property taxes

§ Ensure public expenditures have demonstrable results and social benefits.

Vision: Action Points …Contd…

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2. Intermediating savings for investment(medium-to-long term)

üDevelop local capital markets (bond markets; regulations; regional cooperation among neighboring countries to increase listings and trading activity; regional markets; “capital flight”

ü(Re-)establish development banks

üEnsure greater outreach to depositors by commercial banks

üEnsure greater outreach to borrowers

üWiden scope for pension funds (a potential vehicle for enhanced savings mobilization and domestic investment)

üBuild capacity in and enhance oversight of MFIs.


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B. Action Points for Donors

1. Capacity building for public resource mobilization

ü They need to see their own role as more than channels for aid delivery. More rational approach to trade liberalization and tariff reduction needed

ü End tax exemption on aid funded goods and services (donors presence creates sub-economies)

ü Aid should aim at stimulating public resource mobilization

ü Donors can play vital role in finding out new types of taxes and diversifying revenue base through their efforts in building land registries and carrying out local censuses (e.g., property tax).


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ü Provide upfront investment in building credit reference bureaus and creating creditor databases

ü Assist in developing land and property registration systems – a prerequisite for development of a coherent housing finance system and mortgage markets

ü Assist in designing pension systems and pension reform (major untapped source of long-term financing)

ü Assist building financial system to revert and prevent capital flight

ü Provide technical assistance in building efficient development banks

ü Play constructive role in helping better harness and manage SDLDC’s resource (rents) revenue (e.g., royalty and revenue sharing mechanisms: “fair deals”)

ü Underwrite (some) costs and support necessary infrastructure to introduce a basic form of small business and micro enterprise registration.


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3. Direct aid

ü Implement commitments to untie aid to significantly increase value of aid

ü Comply with MDG-8 commitment of “partnerships for development” (provide 0.1%-0.2% GNI to SDLDCs as ODA)

ü Encourage increased non-official flows, including investment flows

ü Ensure accelerated progress towards full cancellation of outstanding debt owed by SDLDCs

ü Direct ODA to key economic infrastructures with large spillovers

ü Facilitate financing and transfer of environmentally sound technologies to SDLDCs

ü Assist SDLDCs to mitigate and adopt to climate change.


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Thank you!

Documents

Abul Barkat, Ph - UN ESCAP...1 Abul Barkat, Ph.D Professor & Chair, Department of Economics, Dhaka University, Dhaka, Bangladesh (email: [email protected]) Bangkok, Thailand: 14-16