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"This improvement in growth prospects is premised upon a return to normal weather patterns, an improvement in political stability and regional security aspects thereby facilitating faster implementation of reforms, and a recovery in world trade volumes."

NEW DELHI, Dec. 12

FUTURE prospects for the South Asian region are brighter than before. According to a new World Bank report, `Global economic prospects and the developing countries 2003: Investing to unlock global opportunities', South Asia should be able to achieve an average GDP growth of 5.4 per cent in 2003 and 5.8 per cent in 2004.

This is a distinct improvement over the `Global economic prospects 2002' forecast of 5.3 per cent GDP growth which was later revised down to 4.6 per cent for the year in view of the recent global economic slowdown, adverse weather conditions as also internal and external security concerns.

According to Mr Sadiq Ahmed, World Bank South Asia's Chief Economist, "This improvement in growth prospects is premised upon a return to normal weather patterns, an improvement in political stability and regional security aspects thereby facilitating faster implementation of reforms, and a recovery in world trade volumes."

Releasing the latest report at a press briefing here, senior economists with the World Bank noted that, according to the report, the sluggish global economic outlook, with slower growth in the next 12-18 months than previously anticipated, would impede poverty reduction in the developing countries.

And thus, what is becoming increasingly urgent is action to remove barriers to trade and investment that hurt the poor in developing countries.

Noting that uncertainties in global financial markets have sapped the momentum of the modest recovery that began in late 2001, the report outlines the steps that rich and developing countries can take in the current uncertain environment to increase growth rates and speed up poverty reduction in developing countries.

After an exceptionally slow growth phase in 2001 and 2002, global GDP, according to the report, is now expected to rise by 2.5 per cent in 2003, higher than in the previous two years but still way below the 3.8 per cent expansion recorded in 2000 and marked below the long-term potential growth rates.

In such a scenario, the report warns that the global rebound might quickly lose momentum and there is a significant risk that the world could slip back into recession.

According to the latest forecast, high income countries are expected to grow at about 2.1 per cent in 2003 while, on an average, developing countries will grow considerably faster, at 3.9 per cent. The regional differences are wide, with East Asia leading the pack at 6.1 per cent, followed by South Asia at 5.4 per cent while other regions are expected to grow at less than 4 per cent. Outside of Asia and Eastern Europe, growth rates in most developing countries are too low to generate a marked reduction in poverty.

The report notes that as a consequence of the sagging global economy, private capital flows to the developing countries have reduced. Net commercial bank lending has turned negative while foreign direct investment (FDI) flows to developing countries have slumped since their peak in 1999.

Private foreign investment in infrastructure, for instance, is down 25 per cent in developing countries from the 1997 levels. The reason is that investors are becoming averse to long-term projects even as accounting scandals in industrialised countries have driven major players such as Enron and WorldCom from the market.

Not only is there less investment, but investors also are more discriminating and, as a result, investment in developing countries is being redirected to countries with better investment climates.

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