Analysing Poverty in South Asia

 

Analysing Poverty in South Asia

PUBLISHED ON SEPTEMBER 3, 2023

 

 SRI LANKA GUARDIAN ESSAYS

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.

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.

What Western Bloc Should Do in the Face of the Sino-Russian Entente?

 

What Western Bloc Should Do in the Face of the Sino-Russian Entente?

PUBLISHED ON AUGUST 26, 2023

 

 DIPLOMACY/SRI LANKA GUARDIAN ESSAYS

DEATH OF MERCENARY LEADER YEVGENY PRIGORZIN

The plane crash that killed mercenary leader Yevgeny Prigorzin and several others, in the eyes of The Economist, on August 23 this year may have repercussions beyond Russia as the dead mercenary leader had dared to challenge the Russian military establishment and had even sent his troops into Russia itself. It is difficult to believe that Prigorzin who finally went to Belarus for refuge at one time was praised by Vladimir Putin for his “successes” against the forces of Ukraine despite Western military support given to beleaguered Ukrainian forces. 

Analysts have pointed fingers towards Putin who could not be physically present at the BRICS summit held recently in South Africa as the International Court of Justice has issued an arrest warrant accusing him of being responsible for war crimes in Ukraine. Putin committed the “war crime” of overseeing the unlawful abduction and deportation of children from Ukraine to Russia.

Inside Russia, however, Putin is acclaimed for his “revenge” against Prigorzin for his defiance of the military establishment and of Putin himself. Prigorzin’s death, therefore, was well deserved and Putin became a hero who would not tolerate any defiance of his order, more so when the military establishment was carrying out his instructions. It appears to some that Putin has become friendless and some analysts would describe Russia as a vassal state of China.

ECONOMIC DECLINE OF CHINA AND ITS IMPLICATIONS

But then China itself is in decline having reached its peak in growth. High levels of unemployment among young people could be a powder keg. Making matters worse, time is not on China’s side, as a shrinking and aging population will be an additional drag on economic growth and productivity. Chinese leaders tend to resist policy change, as it suggests a degree of fallibility that could be seen as weakness and invite challenges by political rivals.

For now, they will likely resist doing so, fearing that major economic liberalization could create pressure for liberalizing political reforms. In the eyes of Richard Haas,  the simplest and most likely way would be to accelerate efforts to alter the status quo in Taiwan. The regime could embrace even more aggressive nationalism, rather than economic growth, as its source of legitimacy. This path could well prove tempting. Some might argue that it would be less difficult and risky than engineering an economic turnaround.

After all, China enjoys the advantages of geography, and its military is far stronger than it was. Moreover, Taiwan and its would-be partners have allowed themselves to grow economically dependent on China, and a politically polarized US has its hands full in supporting Ukraine and lacks the military might and manufacturing base to continue arming Ukraine and fight a war over Taiwan simultaneously. But, as Ukraine demonstrates, wars are unpredictable. China’s military lacks any recent battlefield experience. Taiwan enjoys strong bipartisan support in the US, and economic sanctions levied against China would cripple its economy.

Moreover, the war in Ukraine and China’s aggressive behavior have stimulated defense efforts in and coordination among Japan, South Korea, Australia, and the US. It will be impossible to change China’s dreams, but it is possible to affect its calculations. The goal for the West ought to be to persuade China’s rulers that changing the conversation, that aggression, would be folly, and that their only real choice is economic, between staying the course or changing course. What is certain is that this decision will determine Xi’s legacy, China’s future, and quite possibly the course of history this century.

XI JINPING’S ORWELLIAN STATE

There cannot be a better example of an Orwellian state than Xi-Jinping’s China where he has totally discarded Deng Xioping’s advice to thread silently lest the Western bloc rise up to frustrate China’s rise in the world where she can claim a seat at the table deciding the “rules-based” world that the Western countries had imposed to the detriment of many countries of the world but never to the disadvantage of the Western powers used to rule the world as they thought fit while on many occasions the Western bloc would go against the morality they preached.

 In an article written in Foreign Affairs Adam Posen,   (an American economist and President of the Peterson Institute for International Economics. He became President of the Peterson Institute on January 1, 2013.  He received a Ph.D. in Political Economy and Government from Harvard University, where he was a National Science Foundation (NSF) Graduate Fellow, after graduating from Harvard College in 1988) In a recent article in Foreign Affairs wrote that economic development in authoritarian regimes tends to follow a predictable pattern: a period of growth as the regime allows politically compliant businesses to thrive, fed by public largess. But once the regime has secured support, it begins to intervene in the economy in increasingly arbitrary ways. Eventually, in the face of uncertainty and fear, households and small businesses start to prefer holding cash to illiquid investment; as a result, growth persistently declines.

XI-JINPING CHANGES POLICIES OF DENG HIAOPING

Since Deng Xiaoping began the “reform and opening” of China’s economy in the late 1970s, the leadership of the Chinese Communist Party deliberately resisted the impulse to interfere in the private sector for far longer than most authoritarian regimes have. But under Xi, and especially since the pandemic began, the CCP has reverted toward the authoritarian mean.

In China’s case, the virus is not the main cause of the country’s economic long COVID: the chief culprit is the general public’s immune response to extreme intervention, which has produced a less dynamic economy. This downward cycle presents U.S. policymakers with an opportunity to reset the economic leg of Washington’s China strategy and to adopt a more effective and less self-harming approach than those pursued by the Trump administration and—so far—the Biden administration. 

RICHARD HAAS ADVISES US TO TONE DOWN ANTI-CHINA POLICY

Richard Haas advises the U.S. in particular to tone down its anti-China policy Compared with the United States’ current economic strategy toward China, which is more confrontational, restrictive, and punitive, the new approach would lower the risk of a dangerous escalation between Washington and Beijing, and it would prove less divisive among U.S. allies and developing economies. This approach would require communicating that Chinese people, savings, technology, and brands are welcome in the United States; the opposite of containment efforts that overtly exclude them.

Several other economies, including Australia, Canada, Mexico, Singapore, the United Kingdom, and Vietnam, are already benefiting from inflows of Chinese students, businesses, and capital. In so doing, they are improving their own economic strength and weakening the CCP’s hold at home. That effect would be maximized if the United States followed suit. If Washington goes its own way instead—perhaps because the next U.S. administration opts for continued confrontation or for greater economic isolationism—it should at the very least allow other countries to provide off-ramps for Chinese people and commerce, rather than pressuring them to adopt the containment barriers that the United States is installing. 

SINO-SOVIET ENTENTE WITH “NO LIMITS”

What the US in particular has to understand is that its assumption that a rich China would necessarily come out of the Sino-Russian entente that is determined to demonstrate that an illiberal regime is better suited to reach the needy before the democrats can is a wrong assumption. It would be wiser to understand that with the arrival of Xi Jinping has completely changed the policies of Deng Xiaoping and the Western expectation of a rich China would bring about a pro-democracy aspiration among the Chinese people. Even a brilliant President like Barak Obama suffered from the illusion that helping China’s entry into the rule-based international system would change China from the inevitable path that all illiberal leaders take.

Over varying periods, Hugo Chávez and Nicolás Maduro in Venezuela, Recep Tayyip Erdogan in Turkey, Viktor Orban in Hungary, and Vladimir Putin in Russia have all gone down this well-worn road. When an entrenched autocratic regime violates the “no politics, no problem” deal, the people have no alternative but to follow the path laid down by the Communist Party of China as no other alternative is available.

 

China's President Xi Jinping with Russia's President Vladimir Putin. Photo Credit: Kremlin.ru

What Western Bloc Should Do In Face Of China-Russia- Entente? – OpEd

 August 25, 2023  0 Comments

By Ambassador Kazi Anwarul Masud

The plane crash that killed mercenary leader Yevgeny Prigorzin and several others, in the eyes of The Economist, on August 23 this year may have repercussions beyond Russia as the dead mercenary leader had dared to challenge the Russian military establishment and had even sent his troops into Russia itself.

Analysts have pointed fingers towards Putin, who could not be physically present at the BRICS summit held recently in South Africa as the International Court of Justice has issued an arrest warrant accusing him of being responsible for war crimes in Ukraine. Putin committed the “war crime” of overseeing the unlawful abduction and deportation of children from Ukraine to Russia. Inside Russia, however, Putin is acclaimed for his “revenge” against Prigorzin for his defiance of the military establishment and of Putin himself. Prigorzin’s death, therefore according to Putin’s supporters, was well deserved and Putin became a hero who would not tolerate any defiance of his order, more so when the military establishment was carrying out his instructions. Others suggest that Putin has no friends, and some analysts would describe Russia as a vassal state of China. 

But then China itself is in decline having reached its peak in growth. High levels of unemployment among young people could be a powder keg. Making matters worse, time is not on China’s side, as a shrinking and aging population will be an additional drag on economic growth and productivity. Chinese leaders tend to resist policy change, as it suggests a degree of fallibility that could be seen as weakness and invite challenges by political rivals. For now, they will likely resist doing so, fearing that major economic liberalization could create pressure for liberalizing political reforms.

In the eyes of Richard Haas, the simplest and most likely way would be to accelerate efforts to alter the status quo in Taiwan. The regime could embrace even more aggressive nationalism, rather than economic growth, as its source of legitimacy. This path could well prove tempting.

Some might argue that it would be less difficult and risky than engineering an economic turnaround. After all, China enjoys the advantages of geography, and its military is far stronger than it was. Moreover, Taiwan and its would-be partners have allowed themselves to grow economically dependent on China, and a politically polarized US has its hands full in supporting Ukraine and lacks the military might and manufacturing base to continue arming Ukraine and fight a war over Taiwan simultaneously.

But, as Ukraine demonstrates, wars are unpredictable. China’s military lacks any recent battlefield experience. Taiwan enjoys strong bipartisan support in the US, and economic sanctions levied against China would cripple its economy. Moreover, the war in Ukraine and China’s aggressive behavior have stimulated defense efforts in and coordination among Japan, South Korea, Australia, and the US. It will be impossible to change China’s dreams, but it is possible to affect its calculations.

The goal for the West ought to be to persuade China’s rulers that changing the conversation, that aggression, would be folly, and that their only real choice is economic, between staying the course or changing course. What is certain is that this decision will determine Xi’s legacy, China’s future, and quite possibly the course of history this century. 

Xi Jinping’s Orwellian State

There cannot be a better example of an Orwellian state than Xi Jinping’s China where he has totally discarded Deng Xioping’s advice to thread silently lest the Western bloc rise up to frustrate China’s rise in the world where she can claim a seat at the table deciding the “rules-based” world that the Western countries had imposed to the detriment of many countries of the world but never to the disadvantage of the Western powers used to rule the world as they thought fit while on many occasions the Western bloc would go against the morality they preached. 

In an article written in Foreign Affairs Adam Posen, (an American economist and President of the Peterson Institute for International Economics. He became President of the Peterson Institute on January 1, 2013.  He received a Ph.D. in Political Economy and Government from Harvard University, where he was a National Science Foundation (NSF) Graduate Fellow, after graduating from Harvard College in 1988). In a recent article in Foreign Affairs, Posen wrote that economic development in authoritarian regimes tends to follow a predictable pattern: a period of growth as the regime allows politically compliant businesses to thrive, fed by public largess. But once the regime has secured support, it begins to intervene in the economy in increasingly arbitrary ways. Eventually, in the face of uncertainty and fear, households and small businesses start to prefer holding cash to illiquid investment; as a result, growth persistently declines. 

Since Deng Xiaoping began the “reform and opening” of China’s economy in the late 1970s, the leadership of the Chinese Communist Party deliberately resisted the impulse to interfere in the private sector for far longer than most authoritarian regimes have. But under Xi, and especially since the pandemic began, the CCP has reverted toward authoritarian means. In China’s case, the virus is not the main cause of the country’s economic long COVID: the chief culprit is the general public’s immune response to extreme intervention, which has produced a less dynamic economy. This downward cycle presents U.S. policymakers with an opportunity to reset the economic leg of Washington’s China strategy and to adopt a more effective and less self-harming approach than those pursued by the Trump administration and—so far—the Biden administration.  

Richard Haas advises the U.S. in particular to tone down its anti-China policy Compared with the United States’ current economic strategy toward China, which is more confrontational, restrictive, and punitive, the new approach would lower the risk of a dangerous escalation between Washington and Beijing, and it would prove less divisive among U.S. allies and developing economies. This approach would require communicating that Chinese people, savings, technology, and brands are welcome in the United States; the opposite of containment efforts that overtly exclude them.

Several other economies, including Australia, Canada, Mexico, Singapore, the United Kingdom, and Vietnam, are already benefiting from inflows of Chinese students, businesses, and capital. In so doing, they are improving their own economic strength and weakening the CCP’s hold at home. That effect would be maximized if the United States followed suit. If Washington goes its own way instead—perhaps because the next U.S. administration opts for continued confrontation or for greater economic isolationism—it should at the very least allow other countries to provide off-ramps for Chinese people and commerce, rather than pressuring them to adopt the containment barriers that the United States is installing.  

What the US in particular has to understand is that its assumption that a rich China would necessarily come out of the Sino-Russian entente that is determined to demonstrate that an illiberal regime is better suited to reach the needy before the democrats can is a wrong assumption.

It would be wiser to understand that with the arrival of Xi Jinping has completely changed the policies of Deng Xiaoping and the Western expectation of a rich China would bring about a pro-democracy aspiration among the Chinese people. Even a President like Barak Obama suffered from the illusion that helping China’s entry into the rule-based international system would change China from the inevitable path that all illiberal leaders take. Over varying periods, Hugo Chávez and Nicolás Maduro in Venezuela, Recep Tayyip Erdogan in Turkey, Viktor Orban in Hungary, and Vladimir Putin in Russia have all gone down this well-worn road. When an entrenched autocratic regime violates the “no politics, no problem” deal, the people have no alternative but to follow the path laid down by the Communist Party of China as no other alternative is available.