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Why does South Asia remain one of the world's most impoverished regions?

Courtesy: World Bank

For the past decade, South Asia has been among the world's fastest growing regions. Yet it remains among the most impoverished. With half a billion of its people living on less than a dollar a day, the region is home to 40 percent of the world's poor.

The incidence of poverty throughout South Asia has changed little over the past decade both a cause and consequence of the region's low level of human development, and in particular the low status afforded to women. Despite improvements in education and health services, South Asia still has the world's highest adult illiteracy rate (35 percent of men and 59 percent of women) and one third of the world's maternal deaths. More than half of the region's children under 5 years are malnourished. Environmental degradation, inadequate infrastructure, and social exclusion are among the many other obstacles to future growth and poverty reduction

Sustained economic growth is critical for reducing poverty in South Asia. After years of inward looking economic policies and tight regulation, sweeping reforms in the 1990s led to a period of accelerated growth. South Asia's GDP growth rate reached 5.4 percent in 1999, making it the fastest growing developing region for the second consecutive year. This achievement, despite a climate of regional and national political instability, is an indication of South Asia's potential dynamism. However higher, and sustained growth, with more equitable distribution of benefits, is essential to substantially reduce the number of poor people in the region.

In the 1990's, South Asian nations also began taking measures to reduce tariffs, remove trade barriers, and dismantle restrictions on domestic and foreign private investment. However increases in conflict and political instability, which intensified in the past year, have limited the region's ability to attract the foreign investment critical to growth and poverty reduction. Tensions between Pakistan and India over Kashmir continue to take a toll on lives, command large defense expenditures, and keep G7 sanctions in place following nuclear weapons tests in 1998, while a military coup in Pakistan in October 1999 created further uncertainties. Elsewhere in the region, a sharp escalation in the scale of the Sri Lankan civil conflict caused an interruption in renewed mediation efforts; political strikes continue in Bangladesh, costing the economy an estimated US$60 million for each day lost; and political instability continues in Nepal. As a result, South Asia still receives only 1 percent of the total gross capital market flows to developing countries.

South Asia's long-term economic prospects will hinge upon much needed reforms in the key sectors of banking, power, and infrastructure, and commitments to lower remaining trade barriers, improve public spending, and reform state enterprises. Improved governance, including stronger regulatory reforms and increased transparency, is a critical challenge for the region if it is to achieve its long-term development goals. With greater political stability, accompanied by a commitment to sustained reforms, South Asia could be a region of considerable promise as it begins the new millennium.

SOUTH ASIA AND THE WORLD BANK GROUP

The World Bank provides a combination of financing, advice and technical assistance with emphasis on three key dimensions: (i) the need for sound economic policies to promote growth (ii) the importance of institutional development, supporting good governance, and policies supporting poverty reduction and human development, in order to achieve equitable distribution of the benefits of growth, and (iii) a holistic approach to address multidimensional poverty, reaching across sectoral boundaries and engaging governments, other country partners and donors in a coordinated effort to ensure maximum impact on poverty reduction.

Following Africa, South Asia is the largest regional recipient of concessional lending from the International Development Association (IDA), the World Bank's affiliate that provides interest free loans to the world's poorest countries.

The region includes some of the Bank's oldest and largest borrowers. India, Pakistan, Afghanistan, and Sri Lanka have been members since the 1950s. Nepal became member in 1961, followed by Bangladesh in 1972, the Maldives in 1978, and Bhutan in 1981.

India is the largest single recipient of World Bank assistance, with cumulative lending over $53 billion at the end of fiscal year 2000 (FY00). Pakistan, with around $12 billion, and Bangladesh with around $9 billion, have received substantial amounts and the Bank also has active programs in Sri Lanka, Nepal, Bhutan, and the Maldives.

Lending Commitments

In FY00, new World Bank lending commitments to South Asian countries was $2.1 billion for 21 projects. This includes $1.2 billion in IDA credits and $934 million in market based loans from the International Bank for Reconstruction and Development (IBRD).

India was the World Bank's largest borrower in FY00 with new commitments totaling $1.8 billion ($866 million in IDA credits and $934 million in IBRD loans) for 11 projects. Bangladesh received $172 million (all IDA credits) for four projects; Sri Lanka, $45 million in IDA credits for two projects; Nepal, $55 million in IDA credits for one project; Bhutan $22 million in IDA credits for two projects, and Maldives, $18 million in IDA credits for one project. There was no new lending to Pakistan in FY00, however the Bank continued to engage in high level policy dialogue with the new government on a wide range of macroeconomic and structural issues.

The South Asia lending portfolio of ongoing projects, as of July 1, 2000, includes 148 operations valued at nearly $17.8 billion. The largest portion of this lending (in dollar terms) was for rural development programs, accounting for 22 percent of the portfolio. This was followed closely by the energy and infrastructure sectors, each accounting for around 20 percent. Social sector lending for population, health, and nutrition (17 percent) and education (12 percent) represent an expanding part of the portfolio.

Fighting poverty at the grassroots level

As part of a Bank wide trend, the South Asia Region has placed increasing emphasis on listening, learning and collaborating at the local level and helping to design projects which both involve and benefit those most in need. The region has placed growing emphasis on involving local communities in the planning, financing, and operation of development projects. With NGO support, projects in areas such as agriculture, urban water supply and microcredit funds are encouraging local level initiatives to ensure that poor and marginalized groups can participate in the employment and income opportunities generated by growth. The Bank is supporting several new and ongoing initiatives aimed directly at poverty reduction at the local level. For example,

To help poor communities in India direct their own development, in FY00 the Bank approved the Rajasthan and Andhra Pradesh District Poverty Initiative projects, which test a direct approach to improving the living standards of the poor through small scale subprojects which are chosen, designed and implemented by local communities. The projects also aim to increase the voice of these communities to enable them to receive better service from district and subdistrict governmental and nongovernmental agencies.
The ongoing Bangladesh Poverty Alleviation Microcredit Project channels funds to a quasigovernment poverty foundation, which provides training and lends to promising small and medium NGOs that provide small loans to the poor for income generating self-employment activities. The project has helped more than 100 NGOs extend microcredit to an estimated 1.2 million poor, mostly women borrowers.
A similar microcredit project for Pakistan was approved in 1999. The Pakistan Poverty Alleviation Fund project provides microcredit to individuals, and grants for small scale development projects for some of Pakistan's poorest communities. The Fund is managed through a public and private sector partnership and loans and grants are administered by NGOs which place substantial focus on women in development.

Emphasizing Human Development

The World Bank's support for the social sectors (education, nutrition, and health) in South Asia has increased in the last decade, and focuses on three central elements: improving the coverage and quality of services; promoting efficiency and cost effectiveness and expanding community participation in project design. The Bank's social sector projects place special emphasis on women and children.

In Pakistan, the Bank is supporting the government's Social Action Program, its main vehicle for improving basic services such as health, education and water supply, along with a separate health project in the northern part of the country.

In India, the Bank is supporting health systems development and reforms in several states; national efforts to fight diseases with significant public health impact, family welfare, reproductive and child health, and nutrition projects.

The Bank has also provided two IDA credits to support India's National AIDS Control Program in collaboration with the World Health Organization, other donors and UNAIDS. Through its general health projects and dialogue with other South Asian countries, the Bank is focusing on HIV/AIDS as a major public health and development issue. In India, the Bank is supporting the country's ongoing program to reduce the growth of HIV infection and strengthen capacity to respond to the epidemic through information awareness efforts, focused interventions promoting behavior change, voluntary testing and counseling, and reducing transmission by blood transfusions and occupational exposure. Bangladesh is developing, with World Bank assistance, a project that will help the country invest in cost-effective prevention, which aims at maintaining low prevalance of HIV.

In Bangladesh, the Bank is supporting government efforts to reduce malnutrition in women and children, while the Bank assisted Health and Population Project is supporting healthcare reforms, expanding access to essential services for the poor, improving maternal and child health, reducing the burden of infectious disease, and improving family planning services.

Similarly, other health programs are benefiting millions of families in Nepal and Sri Lanka.

In the education sector, the Bank's strategy emphasizes outcomes and learning achievements that are valued by markets and society. The focus on primary education remains a high priority . Working with governments and other stakeholders to build capacity for more effective programming, better resource allocation, and reform of higher education are other key areas.

The Bank is currently providing assistance to Pakistan's Northern Education Project, which aims to improve the quality of education and expand enrollment, especially for girls, in the disadvantaged and remote mountainous regions. The project is also fostering community involvement in school management, and is expected to benefit more than one million elementary school aged children.

In Bangladesh, the Bank is supporting operations to improve the quality of primary education, increase female enrollment at the secondary level, and provide informal education to promote literacy. The Bank is also sponsoring education projects in India, Bhutan, Nepal, and Sri Lanka.

Supporting Private Investment

To help meet the region's massive infrastructure requirements, the Bank encourages expanding private sector participation in the funding and management of basic infrastructure such as power, telecommunications, natural gas, and transport. The Bank has recently stepped up its support for urban development projects that focus on strengthening urban planning and finance, and improving transport, infrastructure, and other service delivery (particularly for the poor) through involvement of the private sector.

In Pakistan, the Bank has provided support for the commercialization and eventual privatization of portions of the National Power Authority; creation of a Private Sector Energy Development Fund; joint ventures; and the restructuring and privatization of the telecommunication sector. In FY00, the World Bank approved a US$ 500,000 Institutional Development Fund grant to assist the Government of Pakistan with its reform programs in the oil and gas sector. The grant will help Pakistan establish a regulatory framework and an independent regulatory body key prerequisites for eventual privatization of Pakistan's oil and gas utilities.

In India, the new Uttar Pradesh Power Sector Restructuring Project will help establish new legal, regulatory, and institutional frameworks; create new power corporations; and launch preparatory work for privatizing the power distribution business.

Also in India, the new Bank supported Telecommunications Sector Reform Project seeks to promote private investment and competition in the sector by strengthening elements of the policy and regulatory environment.

In Bangladesh, the Bank is helping to build support for fundamental long-term energy sector reform and foster a greater role for the private sector in power generation and distribution and gas exploration and development. The Second Rural Roads and Markets Project is improving rural transport and trade infrastructure by taking advantage of the opportunities presented by the newly commissioned Bangabandhu Jamuna Bridge (the country's largest infrastructure project), which links the northwest region with the rest of the country.

The Bank is also supporting a Private Sector Infrastructure Development Project in Bangladesh, which is providing both funding and technical assistance to promote greater private sector participation in power, gas, water supply, telecommunications, and transportation.

In Sri Lanka, the Private Sector Infrastructure Development Project and the Telecommunications Regulation and Public Enterprise Reform Technical Assistance Project are setting up systems to facilitate private investment in services that before had been provided by the state. The Sri Lanka Energy Services Delivery Project is encouraging the use of environmentally sound renewable energy technologies through the private sector.

In Nepal, the Bank is helping the government to formulate a Power Sector Development Strategy to improve the efficiency and financial viability of the power sector, increase power trade, and promote private sector investment. It is also helping to reduce transportation costs associated with trade by establishing an inland container depot for rail transfers, upgrading depots, and streamlining trade and transit procedures.

The International Finance Corporation (IFC)

The World Bank Group's private sector lending affiliate also invests in private sector development in the region. The IFC's strategy focuses on enhancing competition and improving the quality of goods and services by supporting firms with potential for world class performance. Special emphasis is placed on exports.

The IFC is working to accelerate private participation in infrastructure and is also intensifying its efforts to support private financing of health and education. It is also helping to expand and modernize South Asia's agro-industrial base by supporting firms that focus on export production or efficient import substitution.

In addition, the IFC provides support to strengthen basic financial institutions and emerging capital markets in the region, and to develop more sophisticated equity and local debt markets in economies with established comprehensive financial systems.

Protecting the Environment and Natural Resources

The Bank is supporting efforts by South Asian countries to promote development that is environmentally sustainable and environmental lending as a percentage of the total portfolio has been increasing in recent years.

In India, for example, the Bank is providing assistance to strengthen the monitoring of and compliance with environmental laws and standards, especially focusing on the mining sector, air pollution, and coastal and marine area management. It is also supporting state pollution control boards. In Sri Lanka, the Bank is supporting the Environmental Action Project.

In Nepal, India and Bhutan, the Bank has helped to address deforestation and preserve biodiversity through programs promoting community management of forests. Village communities work with forestry department staff to map out a plan of local forest management that balances conservation with harvesting the forest products they need for their livelihood. In Bangladesh, the Bank and the Global Environment Facility (GEF)1 are supporting environment friendly and sustainable fisheries and shrimp farming.

Moving Closer to Clients

The Bank has continued efforts to improve the quality of its products and services in South Asia, to ensure greater participation of stakeholders in operations, and to work more closely with partners. Five South Asia country directors and 60 percent of World Bank staff working on the South Asia region now do so from the Bank's five country field offices. This has helped foster closer relationships with clients and helped to ensure that the region's cultural, political, and social dimensions are taken into account in the Bank's work. Management of lending and non-lending services has been more evenly divided between headquarters and field offices.
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