Oct 15, 2012
Global uncertainties have weighed on market confidence and sentiment, impacting South Asian economies, says India's Finance Minister, P Chidambaram.
India's finance minister, P Chidambram, did some loud thinking at the 26th meeting of the International Monetary and Financial Committee (IMFC) in Tokyo last week when he said that the synchronized slowdown following an upward momentum the global economy saw in the early part of the year was not very helpful for the emerging market economies, particularly those in South Asia.
As Chidambram argued for protection of economies in today’s globalised world, he spoke specifically of economies that get affected by turmoil outside their areas of influence saying, “innocent bystanders affected by the crisis, particularly low income countries, are adequately protected and there should be sufficient resources available for them.”
"Growth is faltering across regions, including in emerging market economies," he said, adding that, "Uncertainties in major advanced economies have weighed on market confidence and sentiment."
The global economy, according to Chidambram, has lost the upward momentum seen in the early part of the year and is now experiencing a synchronized slowdown. "Many Euro area economies are, in fact, in recession. By all indications, the global economy is likely to remain weak for a longer period than it was envisaged a few months back."
Speaking of the effect of this on Bangladesh, Chidambram said, “export and import growth rates slowed down following a record increase in FY11 primarily due to ongoing financial and economic strains experienced by major trading partners, particularly the EU countries.”
He said this while speaking of South Asian economies of Bangladesh, Bhutan and Sri Lanka that fell in the constituency of the Indian finance minister in the IMFC scheme of things.
The situation was also witnessed in India. As the minister said, “Global commodity prices, particularly energy prices, pose a major risk to growth and inflation.” The gross fiscal deficit of the federal government, budgeted at 5.1 per cent of GDP is lower than the 5.8 per cent achieved last year, he noted.
On Bangladesh, Chidambram spoke of policy support for reducing supply bottlenecks in power, energy and infrastructure, sustained growth in agriculture and an improved performance in the manufacturing sector.
In the same breath, he spoke of the progress Bangladesh made in improving various socioeconomic indicators including infant, child, and maternal mortality, gender equality and women empowerment, access to safe drinking water and sanitation.
While speaking on Bhutan, he said that the real GDP increased by 11.8 per cent in 2010, a high that he ascribed to ongoing construction works on new hydropower projects. “Medium-term growth prospects remain robust on the back of hydroelectric and construction activities. Bhutanese authorities expect real GDP growth to average 10.6 per cent till 14,” he said.
According to the Indian finance minister, the turmoil in Europe only aggravated the domestic situation in countries like Sri Lanka, whose economy, despite difficult external and domestic challenges, grew by a commendable 7.1 per cent in the first half of 2012 following two years of robust growth of over 8 per cent. “The moderation in the growth rate was due to a combination of global and domestic factors,” Chidambram said. “The weakened global economy adversely affected the export demand, while on the domestic front, coordinated policy measures by the government and the central bank early 2012 to address imbalances in the external sector and possible inflationary pressures that would arise due to the high credit growth reduced the domestic demand.”
The other notable issue that bothered the Indian minister this constituency was the inflationary pressures that the countries, including India, witnessed in last year.
Chidambram’s statements were particularly revealing as it appeared from his speech at the IMFC that the downward inflationary trends in Bangladesh, Bhutan and Sri Lanka was not matched by India’s.