Global Economic Prospects- 2011

Remittances expanded by 17 per cent in dollar terms in 2010 supported in part by vibrant growth in India, a key source-country for Nepali remittances, according to Global Economic Prospects (GEP) 2011 report released on 8th June 2011 by the World Bank (WB).

The bank flagship report on world economy GEP has projected that Pakistan and Nepal are expected to lag behind in economic progress in the South, given continued political challenges and associated macro-policy slippage.

The GEP 2011 pointed out that the region’s relatively strong projected growth path - reaching 7.9 percent in 2013 as compared with the 6.0 percent average from 1998 through 2007 (compound growth rate) - is projected to be led by India, Sri Lanka and Bangladesh, where acceleration of investment activity is expected to support higher growth outturns. In contrast, Pakistan and Nepal are expected to lag, given continued political challenges and associated macro-policy slippage. Indeed, GDP growth in Pakistan is not projected to recover to above the pre-crisis decadal average of 5.0 percent during the forecast period.

Nepal had received Rs 231.72 billion in remittance in 2009-10 and in the nine months of the current fiscal year, it has already received Rs 181.84 billion. “Worker remittance inflows to South Asia rose by 8.2 per cent in 2010 to $81billion, helping to offset sizeable trade deficits,remaining a critical source of foreign exchange,”the mulatilateral agency’s report said.

However, when measured in local currency terms, remittances inflows to the region grew by only 4.1 per cent in 2010, while high inflation rates meant that the real value of the inflows declined by 3.9 per cent. The pick-up in dollar value of remittances was strongest in Sri Lanka, where it increased by 24 per cent in 2010, reflecting increased inflows through official channels and the boost inconfidence following the end of the civil war.

In India, the uptick in the dollar value of remittances inflows was more modest (7.4 per cent), reflecting larger shares of Indian migrants in high-income countries that have yet to fully recover from the financial crisis.

Elsewhere in the region, remittances inflows moderated sharply in 2010 — in dollar terms — by 2.7 per cent in Bangladesh, following 19.4 per cent growth in 2009, the report said, adding that the deceleration appears to partly reflect a delayed impact of the decline in the net outflow of migrants, which nearly halved during the first half of 2009 and continued to decline in 2010 and into early-2011.

Similarly, South Asian current account deficit deteriorated in early 2011, reflecting higher oil import bills and strong, albeit moderating, import volume growth.

Helping to contain the deterioration in external balances, the region recorded strong export volume growth in early-2011 — led by India, Pakistan and Sri Lanka — supported by strong external demand from China, the report added.

During calendar year 2011, the regional current account deficit is projected to expand to 2.8 per cent as a share of GDP from 2.4 per cent in 2010. “It reflects a projected shrinking of Bangladesh’s current account surplus, due to a stronger pace of growth in imports over exports, falling terms of trade — driven by rising international food and fuel prices — and a major slowdown in worker remittances receipts.”

Meanwhile, FDI to the region has fallen and regional current account deficit is expected to continue to be covered by significant foreign exchange reserve holdings, particularly in India, and sustained capital inflow.

Nepal experienced a moderation in activity in early-2011, it said, adding that ongoing political uncertainty attached to the post-conflict transition to a new government has extended into its fourth year, with law and order problems, continued extensive infrastructure bottlenecks — particularly widespread load-shedding and unreliable power delivery — projected to limit real GDP growth to 3.5 per cent.

"Globally, GDP is expected to grow 3.2 percent in 2011 before edging up to 3.6 percent in 2012.

"But further increases in already high oil and food prices could significantly curb economic growth and hurt the poor."

The bank predicted economic growth in developing countries will slow to around 6.3 percent each year from 2011 to 2013, from 7.3 percent in 2010.

High-income countries will see growth slow to 2.2 percent in 2011, from 2.7 percent in 2010, before picking up to 2.7 percent in 2012 and 2.6 percent in 2013, it said.