S Asia to grow at 7.2%: World Bank

Outsourcing and improved relations with Pakistan to boost rate

The South Asian economy is expected to grow 7.2 per cent in 2004, according to the annual World Bank report, Global Development Finance 2004. The growth rate in the subsequent two years is, however, expected to slow down to 6.7 per cent and 6.5 per cent, respectively.

According to the report released yesterday, outsourcing from Organisation for Economic Cooperation and Development (OECD) countries, software exports from India, new regional trade initiatives, improved relations between India and Pakistan, and continued reforms will contribute to the region's achieving this record growth in 2004.

Propelled by rising consumer and investment demand and good rains in India, South Asia's gross domestic product (GDP) clocked a growth rate of 6.5 per cent in 2003.

In South Asia, worker's remittances brought in $18.2 billion to the region in 2003, up 39 per cent compared to to the previous year. India accounted for almost half of it at $ 8.4 billion.

Globally, the report noted that net private capital flows to developing countries as a whole rebounded to $200 billion in 2003, up 29 per cent from $155 billion in 2002.

But most of the increase remained concentrated in just a few relatively better-off countries like Brazil, China, Indonesia, Mexico and Russia, it said.

Despite the overall increase in capital flows to developing countries, net resource transfers from rich to poor countries remained negative. Also, net official development assistance (ODA) rose by only $6 billion to $58 billion in 2003.

As a whole, the developing countries ran current account surpluses totaling $76 billion, or about 1.1 per cent of GDP. China, India and a few others account for a large proportion of these reserves and have invested large volumes in the financial markets of developed countries.

The increase in capital flows reflected improved global economic growth, which rose from 1.8 per cent in 2002 to 2.6 per cent in 2003, and which is forecast to jump to 3.7 per cent this year.

Developing countries, as a group, grew by an estimated 4.8 per cent in 2003, and are expected to register 5.4 per cent growth in 2004, which would surpass their previous 5.2 per cent record high in 2000.

This new buoyancy is prompted by the easing of fiscal and monetary policies in the rich countries, especially the United States, and by a 10-per cent rise in non-oil commodity prices, upon which many developing countries heavily depend for foreign exchange.

Also, as many developing countries accumulated surpluses and moved to rely on equity finance, they have improved their external liability positions.

Total external debt of the developing countries was 37 per cent of GDP in 2003, down from 44 per cent in 1999.

While overall private flows to developing countries increased in 2003, foreign direct investment declined for the second consecutive year, dropping to $135 billion, down 24 per cent from its 2001 peak of $175 billion.