Economic and Social Survey of Asia and the Pacific 2017

Governance and Fiscal Management

Jakarta, Indonesia 9 May 2017

Main messages

• Economic growth is relatively modest but steady, and a mild economic expansion is expected ahead.

• Countries in the region should strengthen domestic and regional drivers of economic growth, given prolonged weakness in external demand and rising protectionist measures

• Effective fiscal management, backed by improved governance, can improve long-term economic prospects and help address social and environmental concerns.

• Given the increasing demands on fiscal policy, how governance affects the mobilization and allocation of fiscal resources warrants greater attention.

• Enhancing transparency and accountability in public fiscal administration is fundamental to improving the quality of governance and achieving better fiscal management.

Economic Outlook and

Quality of Growth

Asia-Pacific economies lead global economic growth at a less rapid, though steady, pace

Growth differential vis-à-vis developed economies is narrowing

Share of developing Asia-Pacific economies is increasing

0

10

20

30

40

50

60

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

Per

cent

age

shar

e of

glo

bal o

utpu

t

Developing Asia-Pacific regionDeveloped global economies

0

1

2

3

4

5

6

7

8

2000s 2010-16 2017-18Baselineprojection

2017-18Alternativescenario

Aver

age

annu

al g

row

th (p

erce

ntag

e)

Developing Asia-Pacific regionDeveloped global economiesGrowth differential (percentage points)

A firm rebound in exports seem unlikely and private investment needs to rise

Export growth has returned to positive territory but remains well below pre-crisis 2008 average

With few exceptions, private investment is not forthcoming

-50

-40

-30

-20

-10

0

10

20

30

Jan-2014 Jan-2015 Jan-2016 Jan-2017

Per

cent

age

China IndiaIndonesia ThailandRussian Federation Average 2000-2007

-5

0

5

10

15

20

25

Per

cent

age

2005-20072013-2015Regional average in 2005-2007Regional average in 2013-2015

A modest economic expansion is expected in 2017 and 2018, with downside risks

Real GDP growth

(Percentage) 2016 2017 2018

Developing Asia-Pacific region 4.9 5.0 5.1

East and North-East Asia 3.8 3.7 3.6

China 6.7 6.5 6.4

South-East Asia 4.5 4.7 4.8

Indonesia 5.0 5.2 5.3

Thailand 3.2 3.3 3.4

South and South-West Asia 5.4 5.6 5.9

India 7.1 7.1 7.5

North and Central Asia 0.1 1.4 1.7

Russian Federation -0.2 1.1 1.4 Pacific island developing economies 2.6 3.1 2.6

Least developed countries 6.0 6.5 6.5

Landlocked developing countries 1.6 3.1 3.6

Small island developing States 2.9 3.4 3.0 -10

-8

-6

-4

-2

0

GD

P

Con

sum

ptio

n

Inve

stm

ent

GD

P

Con

sum

ptio

n

Inve

stm

ent

Scenario 1 Scenario 3

Cha

nges

rela

tive

to b

asel

ine

grow

th

(per

cent

age

poin

ts)

Alternative growth scenario for developing Asia-Pacific economies in 2017

South-East Asia: Economic growth and inflation are likely to pick up slightly

0

2

4

6

8

10

12

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

Real GDP growth (%)

South-East Asia Developing Asia-Pacific region

0

2

4

6

8

10

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

Consumer inflation (%)

South-East Asia Developing Asia-Pacific region

While monetary policy shifts to ‘neutral’, fiscal policy can be used more effectively

Crude oil price and average inflation in selected net commodity importers

Fiscal space depends on interest payment, nominal growth, and tax revenues – case of India

60

65

70

75

80

85

90

-14

-12

-10

-8

-6

-4

-2

0

2

4

6

Deb

t (pe

rcen

tage

of G

DP

)

Per

cent

age

of G

DP

/ Per

cent

age

poin

ts

Interest rate-nominal growth differential (left)

Primary fiscal balance (left)

General government debt (right)

1

2

3

4

5

20

30

40

50

60

70

80

90

100

110

120

Jan-2014 Jan-2015 Jan-2016 Jan-2017

Per

cent

age

Uni

ted

Sta

tes

dolla

rs p

er b

arre

l

Inflation (right-hand side)Crude oil priceProjected average oil priceProjected average inflation (right-hand side)

Widespread poverty and inequality call for enhanced social protection

Social protection financing has increased, but mostly on insurance rather than assistance side

Social protection coverage has expanded, but with substantial variation across countries

0

1

2

3

4

5

6

7

8

9

10

2000 Latest Latest

Total public social protectionexpenditures

For working age,excluding health

Per

cent

age

of G

DP

Asia-Pacific region World

0

5

10

15

20

25

30

35

2000 Latest Legal Effective

Affilitation to contributorypension schemes

Unemployment benefit

Per

cent

age

of w

orki

ng a

ge/ l

abou

r for

ce

Asia-Pacific region World

Environmental costs of production can be internalized through various policy instruments

Energy intensity remains high especially among oil producers and in China

Carbon emissions intensity has declined, but emissions per capita remained high

120

130

140

150

160

170

180

190

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

Kg

of o

il eq

uiva

lent

per

1,0

00 d

olla

rs G

DP

(201

1 P

PP

)

Asia-Pacific region World

0.0

0.5

1.0

1.5

2.0

2.5

3.0

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

Met

ric to

ns o

f car

bon

diox

ide

equi

vale

nt p

er

$100

0 G

DP

Asia-Pacific region World

#CS73

Governance and Fiscal

Management

Governance and development is a two-way relationship

-0.75 -0.5 -0.25 0 0.25 0.5 0.75 1

Percentage of 15-64 age groupwhich did not attent school

Natural resources rent(Percentage of GDP)

Average years of total schoolingof 15-64 age group

Level of economic development

Rule of law Control of corruption Governance

0 20 40 60 80

Least developed countries

Asian landlocked developingcountries

Asia-Pacific least developedcountries

Landlocked developing countries

Africa

Oil exporting countries

Asia-Pacific developing countries

Asia-Pacific small islanddeveloping States

Latin America and Caribbean

Developed countries

Governance index

2005-2014 1995-2004

Governance in different regions of the world: perception based index

Correlation between governance and potential socioeconomic factors in Asia and the Pacific

Governance affects both the allocation and efficiency of public expenditures

0.00

0.02

0.04

0.06

0.08

0.10

0.12

20 40 60 80 100

Defen

se ex

pend

iture

s (p

erce

ntage

of to

tal ex

pend

iture

)

Control of corruption

Estimated impact of governance on public sector efficiency in the health sector

Level of governance and structure of public expenditures

-60 -40 -20 0 20 40 60 80

Kyrgyzstan

Thailand

Maldives

Iran (Islamic Republic of)

Mongolia

Malaysia

Sri Lanka

China

Brunei Darussalam

Turkey

Indonesia

Vanuatu

Armenia

Kazakhstan

Georgia

Estimated efficiency change

Better governance is associated with higher levels of tax revenues

0

5

10

15

20

25

30

35

40

15 25 35 45 55 65 75 85 95

Tax

reve

nue

(per

cent

age

of G

DP)

Governance

Tax revenues and governance in Asia and the Pacific, 2010-2014

Improving governance through transparency and accountability

75

80

85

90

95

100

0 20 40 60 80

Pub

lic s

ecto

r effi

cien

cy in

hea

lth

Financial disclosure (percentage of assessed measures)

Financial disclosure and public expenditure efficiency

0

5

10

15

20

25

30

0 0.2 0.4 0.6 0.8 1

Tax

reve

nue

(per

cent

age

of G

DP

)

e-Government Development Index

E-government and tax revenues

Enhanced transparency and accountability are key to better governance and fiscal management

Takeaway points

• Supported by steady economic growth, Asia-Pacific region is poised to regain its historical position in the global economy .

• There is a need in the region to pay more attention to social inclusiveness and environment sustainability.

• There is room for fiscal policy to play more role in contributing to long-term economic potential, enhancing social protection and addressing environment degradation.

• Proactive fiscal policy highlights the vital role of governance: (i) to mobilize resources effectively; and (ii) use them efficiently.

• Enhanced transparency and accountability is key to improving quality of governance.

Thank you

www.unescap.org/publications/economic-and-social-survey-asia-and-pacific-2017

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