Full Report - Subregional Office for East and North-East Asia - escap

MACROECONOMIC PERFORMANCE AND POLICY CHALLENGES AT THE SUBREGIONAL LEVEL CHAPTER 2
development plan (2010/11–2015/16), it is envisaged
that subsidies will be completely eliminated within
five years, with the domestic price of energy and
other commodities linked to market prices. Some
major subsidies for consumers were removed but the
Government tried to maintain support for industry and
manufacturing as rates for electricity, water and gas
increase. Consumers were provided cash transfers
to compensate them for losses resulting from the
withdrawal of subsidies. However, the process of
removing the subsidies suffered a setback with
intensification of sanctions related to the country’s
nuclear programme as inflation climbed. The country
operates an oil stabilization fund, which receives
payments when oil revenue is higher than budgeted
and vice versa.
Owing to weaker economic activity, the budget deficit
in Turkey rose to 2% of GDP in 2012 from 1.4%
of GDP in 2011. During the second half of the
year, the Government introduced sharp increases
in indirect taxes and administered prices to contain
the budget deficit.
Widening current account deficits
On the external side, current account balances in
countries of the subregion are in general deteriorating
but deficits are not alarmingly high, partly due to
large remittances from overseas workers (see figure
2.13). Despite depreciation of domestic currencies
against the United States dollar, merchandise trade
deficits are on the rise. The deteriorating current
account situation has left the countries with lower
reserves to fall back on in the event of additional
external shocks to exports and capital inflows.
In India, imports grew much faster than exports
and the current account deficit increased to 4.2%
of GDP in 2011. Owing to global uncertainties,
exports contracted in 2012. Weak external demand
affected exports of engineering goods, gems and
jewellery, textiles and petroleum products, while
imports continued to remain at a high level due to
high prices for crude oil, gold and silver. As a result,
both the trade and current account deficits increased
in 2012. Large current account deficits, despite the
slowdown in economic growth, are symptomatic of
demand-supply imbalances and a pointer to the
urgent need to resolve supply bottlenecks. However,
capital flows have been adequate to cover the
current account deficit thus far.
Pakistan achieved strong export growth at 28% in 2011
and value of total merchandise exports reached $25
billion. Despite the crisis in the euro zone, a major
destination for Pakistan’s exports, the country could
maintain exports at nearly the same level as in the
Figure 2.13. Current account balance in selected South and South-West Asian economies, 2010-2012
Percentage of GDP
15
10
5
0
-5
-10
-15
Bangladesh
Bhutan
India
Iran (Islamic
Republic of)
Maldives
Nepal
Pakistan
Sri Lanka
Turkey
-20
-25
-30
2010 2011 2012
Sources: ESCAP, based on national sources; and International Monetary Fund, International Financial Statistics online database. Available from http://
elibrary-data.imf.org/ (accessed on 30 March 2013).
Note: Data for 2012 are estimates.
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