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Will South Asia make the most of cheap oil?

Markus Kitzmuller's picture

The world economy today presents itself as a diverse canvas full of challenges and opportunities. Advanced economies continue to struggle towards recovery, with the US on its way to tighten monetary policy as the economy picks up while a still weak Eurozone awaits quantitative easing to kick in. At the same time, plunging oil prices have set in motion significant real income shifts from exporters to importers of oil. Astonishingly, amidst all this turmoil, South Asia has emerged as the fastest growing region in the world over the second half of 2014. Led by a strong India, South Asia is set to further accelerate from 7 percent real growth in 2015 to 7.6 percent by 2017, leaving behind a slowing East Asia gradually landed in second spot by China.



While bolstered by record low inflation and strong external positions across the region, the biggest question yet to be addressed by policy makers in South Asia will be how to make the most of cheap oil.
All countries are net oil importers as well as large providers of fuel and related food subsidies, therefore bound to benefit from low oil prices. However, the biggest oil price dividend to be cashed in by South Asia is one yet to be earned, and not one that will automatically transit through government or consumer accounts. The current constellation of macroeconomic tailwinds provides a unique opportunity for policy makers to rationalize energy prices and to improve fiscal policy. Decoupling external oil prices from fiscal deficits may decrease vulnerability to future oil price hikes – something that may very well happen in the medium term. Furthermore, cheap oil offers a great opportunity to introduce carbon taxation and address the negative externalities from the use of fossil fuels.

The World Bank’s latest South Asia Economic Focus (April 2015) titled “Making the most of cheap oil” provides deeper insights regarding South Asia’s diverse policy challenges and opportunities stemming from cheap oil.
A first major realization is that the pass through from oil prices to domestic South Asian economies is as diverse as the countries themselves, thanks to a variety of different policy environments across countries and oil products. This is also reflected in recent dynamics, seeing India taking determined action towards rationalizing fuel and energy prices, even introducing a de facto carbon tax and beginning to reap fiscal and environmental benefits. Other countries have so far shown less or no enthusiasm towards reform, in spite of significant and/or increasing oil dependency (particularly in electricity generation, one of the region’s weak spots). 

Public spaces - not a “nice to have” but a basic need for cities

Sangmoo Kim's picture
The benefits of public spaces in the poorest parts of the world
Source: World Bank Staff

We often think of amenities such as quality streets, squares, waterfronts, public buildings, and other well-designed public spaces as luxury amenities for affluent communities. However, research increasingly suggests that they are even more critical to well-being of the poor and the development of their communities, who often do not have spacious homes and gardens to retreat to.

Living in a confined room without adequate space and sunlight increases the likelihood of health problems, restricts interaction and other productive activities. Public spaces are the living rooms, gardens and corridors of urban areas. They serve to extend small living spaces and providing areas for social interaction and economic activities, which improves the development and desirability of a community. This increases productivity and attracts human capital while providing an improved quality of life as highlighted in the upcoming Urbanization in South Asia report.

Despite their importance, public spaces are often poorly integrated or neglected in planning and urban development. However, more and more research suggests that investing in them can create prosperous, livable, and equitable cities in developing countries. UN-Habitat has studied the contribution of streets as public spaces on the prosperity of cities, which finds a correlation between expansive street grids and prosperity as well as developing a public space toolkit.

The story of one thousand earthquakes

Saurabh Dani's picture
In early 2014 I saw a video circulated by a colleague, wherein someone from Japan had put together all the earthquakes that struck Japan between January 2011 to September 2011, essentially capturing the early tremors, the Great Tohoku earthquake of March 11, 2011 and subsequent aftershocks. It was a compelling visual which brought home the sheer intensity of the earthquake event. While the video was a visual representation of an event, could the same concept be used to create a product that could become a tool for raising awareness to a serious issue?
 
The Story of One Thousand Earthquakes
Over a one-year period from May 2013 to May 2014, there were a total of 1,247 recorded earthquake events of 4.0 magnitude or higher. It's time to get prepared.
 

With over 600 million people living along the fault-line across the Himalayan belt, South Asia’s earthquake exposure is very high. To further compound the problem, South Asia is urbanizing at a rapid pace and a significant growth in mega-cities, secondary and tertiary cities / towns is happening in high risk seismic zones. The region has experienced three large events over the past 15 years, the Bhuj earthquake of 2001, the Sumatra earthquake of 2004 (leading to the Asian tsunami) and the 2005 Kashmir earthquake. While there have been no major earthquakes these past 9 years, the region is akin to a ticking bomb for an earthquake disaster. Keeping this in mind, we mapped a region of 3000 Km radius from the center of India and analyzed earthquake events over a one-year period from May 2013 to May 2014. Only those earthquakes recorded by the United States Geological Survey’s global earthquake monitoring database (USGS) greater than 4.0 magnitude on the Richter scale were considered. We found a total of 1,247 recorded earthquake events. The story of a 1000 earthquakes was born and was a story that needed to be told.

We decided to create a video that would become an awareness tool and effectively communicate the risk the region faces. We deliberately steered away from talking about work being undertaken to reduce seismic risks or policy mechanisms that can be adopted. There are other mechanisms, mediums and opportunities to take that agenda forward. This is a short 90 seconds video and hopefully communicates the urgency of investing resources and efforts into earthquake safety. Increase the volume, enjoy, get scared. and then be prepared!

Why do smaller countries benefit from greater trade with their neighbors?

Sanjay Kathuria's picture
Quay cranes on docks Sri Lanka. Dominic Sansoni/World Bank

The real end winner of NAFTA (North American Free Trade Agreement) is going to be Mexico […]” said then Mexican president Vicente Fox, in 2001. He was referring to Mexico’s gains from trade integration with the USA through NAFTA.

Vicente Fox was right. Mexico has continued to make sustained gains in trade over a 20 year period after signing NAFTA in 1994 with the US, its much larger partner (figure 1).



​Opening up trade is not easy because losses can be immediate, while gains, despite being potentially much larger and more widespread, are often dispersed over time. Producers that may sustain losses from more open imports are often well organized and can hold up reforms quite effectively. Moreover, when one of the countries involved in mutual trade liberalization is disproportionately large, it enables the smaller country lobbies to raise the specter of being swamped by imports from its larger partner.

In the case of South Asia, a history of political differences further complicates deeper trade and economic cooperation within the region. Under these circumstances, opening up trade to neighbors requires strong leadership and a bold vision about the role of trade and regional integration in economic development.

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