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Asian Economy: Overview, Growth & Development

Govt revises economic growth target

The government has revised the economic growth target for the ongoing fiscal by 1.49 percentage points to 7.01 percent.

Though the government had anticipated economic growth of 8.5 percent in fiscal 2019-20, the Ministry of Finance has lowered the economic growth projection based on the budget implementation trend of the first three months of the fiscal.Asiapic1

MoF officials said the revised economic growth projection, which was made public today, was primarily backed by anticipation of low agricultural growth in 2019-20 and government expenditure failing to gather pace.

Following the projected fall in production of paddy this year due to faulty Garima seeds, the government expects a drop in overall agricultural output in this fiscal as paddy has a major stake in total agricultural production. The drop in agriculture output is also expected to hit the entire economy, as it has 28.5 percent stake in the country’s gross domestic product value.

The government has also not been able to improve its capital expenditure, indicating low pace of development and economic activities across the country. In the first three months of the current fiscal, the government managed to spend merely 5.78 percent or Rs 23.97 billion of the Rs 408 billion allocated under capital expenditure for the current fiscal.Asiapic2

“All these factors show that we will not be able to meet the economic growth target initially projected for 2019-20,” said an official at MoF seeking anonymity.

Indonesia swings back to trade surplus in October

Indonesia posted a surprise swing to a trade surplus in October due to a slower-than-expected drop in exports, data from the statistics bureau showed on Friday.

Southeast Asia’s largest economy recorded a trade surplus of US$161.3 million in October, the data showed, compared with the median forecast in a Reuters poll of a deficit of US$280 million.

Indonesia had a trade deficit of US$164 million in September, and a surplus of US$112 million in August.

Exports in October amounted to US$14.93 billion, down 6.13 percent on-year, as shipments of oil and gas dove 40percent. The poll had expected an 8.38 percent drop in the overall exports.

October imports dropped 16.39 percent annually, the sharpest in five months, to US$14.77 billion. The drop was roughly in line with the poll’s prediction of a 16 percent fall.

Reverberating effects of explosive violence on agriculture in Afghanistan

Agriculture in Afghanistan is big business. Today, it accounts for 25percent of Afghanistan’s GDP, and is the second largest sector of the economy after services. Even in our current world of urbanisation, the majority of the population still live in rural areas, and agricultural labour is critical for livelihoods. Across the country, agricultural work employs some 40percent of the total labour force and more than half of the rural workforce.

However, despite its seeming importance, present day agriculture in Afghanistan is a shell of its former self. Its production stands at half that of its pre-1979 level. Four decades of war have severely hampered what is considered to be ‘the backbone’ of Afghanistan’s economy.

In the 1970s, Afghanistan was a leading international supplier of horticultural products; with earnings from the sector accounting for 48percent of total export revenues. During this period, annual exports averaged around US$600 million, of which 30percent was dried fruits and 70percent fresh fruits. This landlocked country in Asia was almost self-sufficient in wheat.

But following its invasion by the Soviet Union (1979-1992), and the US-led coalition (2001-present), not to mention its own civil wars, the agricultural sector has stagnated, as its share of GDP fell from 71percent in 1994 to 24percent in 2013. During this time, Afghanistan’s wheat and seed industry was completely destroyed. Today, farmers are dependent upon imports of both wheat and wheat seed.


The US and China clash over key trade issues

President Donald Trump displayed pomp and conviction as he announced the first stage of an interim trade agreement with China in October. But weeks later, the terms of that agreement have appeared increasingly uncertain.

Negotiators have hit several major roadblocks since the announcement of the unofficial agreement, which Trump said included unspecified commitments on issues at the center of the dispute that began in early 2018. The Chinese Commerce Ministry said on Thursday that it still expected the US to lift punitive tariffs on its imports, which Trump has sharply rejected.

“China has emphasized many times that the trade war began with additional tariffs and should end with the cancellation of additional tariffs,” a ministry spokesman, Gao Feng, said in a briefing, adding that the degree of duty cancellation should reflect the “importance” of a deal.

Trump has not only pushed back against such a stipulation, but warned this week that further tariff increases could be ahead. White House trade hawks view those tariffs as a key source of leverage, as they attempt to pressure China to change the way it manages its economy.

But China has resisted key US demands, including efforts to scale back the forced transfer of technology, according to The Wall Street Journal. Negotiators have separately clashed over the best way to enforce an agreement, an issue that contributed to a breakdown of nearly a dozen rounds of trade talks in May.

China has also not said whether it would buy up to $50 billion worth of American agricultural products, something the Trump administration touted as part of the agreement. The country could be reluctant to take on that large of an influx, which would be more than double the amount it imported in 2017.

The White House, the Office of the US Trade Representative, and the Chinese Embassy in Washington did not respond to emails requesting comment.

Bhutan’s quest for energy security and development

The rush of water ripped through the valley like an excavator. On August 6, 2019, unusually heavy monsoon rain drenched the mountainside above the Punatsangchhu river in Bhutan, causing an artificial lake to form from the debris buildup. The debris dam burst from the pressure, sending water gushing down the steep hillside.

Boulders the size of buses from the cliffs above lay exposed in the flood zone. All that remained of a concrete bridge were the pillars on either end. Whole trees lay upended in the mud like toothpicks. Downstream, where this usually small river joins the much bigger Punatsangchhu, it was chaos. A block in the river flooded the main highway.

Standing trees had water up to their crowns. The redirected river swamped an equipment storehouse belonging to the Indian company Bharat Heavy Electricals Limited, one of the contractors of the struggling Punatsangchhu-II hydropower project. About 110,000 USD worth of equipment was ruined or washed away towards the Indian border.

As the climate warms, Bhutan may have more seasons of extremes, from floods, intense monsoons, and glacier dam bursts in the summer, followed by winters of drought. Because Bhutan is heavily dependent on rivers—through hydropower—for their own development and to generate revenue from electricity-hungry India, shifts in climate are directly tied with international relations. Many Bhutanese are grappling with how to grow the country in a changing world.

The sudden floods on the Punatsangchhu were likely driven by an extreme monsoon event that is becoming characteristic of a changing climate. They were so strong that a car containing four Indian labourers, who were in Bhutan working on the hydropower projects, was swept away. Officials never recovered the bodies.


Indian tax officials find Modi’s targets too taxing, some quit

India’s tax officials are facing a taxing issue. Prime Minister Narendra Modi’s government wants them to collect 17percent more in direct taxes this year as New Delhi seeks to shore up revenues amid a sharp economic slowdown.

The target has been maintained even though Modi recently approved a massive cut in corporate taxes, which are part of direct taxes, and warned officers not to harass businesses in their drive to collect revenue.

Over a dozen tax officials interviewed by source said they are stuck between a push to meet unrealistic collection targets, which influence their appraisals and transfers, and the fear of being accused of over-zealousness if they crack down on evasion.

Critics say Modi’s demands of his tax officials are symptomatic of the confusion surrounding his government’s economic policies, and that the bungling has contributed to a slowdown in growth.

Twenty-two top-level tax department officers have opted for voluntary retirement so far this year and around 34 did so in 2018, according to data provided by Bhaskar Bhattacharya, vice president of the Income Tax Gazetted Officers’ Association.

Bhattacharya was unable to provide comparative data but said bureaucrats ditching jobs usually considered prestigious and powerful was rare.

“Even seasoned officers after working for 25-30 years cannot take this pressure anymore,” he said. “There are applications for voluntary retirement coming in one after the other despite the fact that there is no voluntary retirement or golden handshake scheme in the department.”

The Central Board of Direct Taxes (CBDT) did not respond to requests for data and comment on the resignations.

The CBDT, the Finance Ministry and the Prime Minister’s Office did not respond to questions about tax targets and alleged harassment by tax officials.

While only a small fraction of the tax department’s few thousand senior officers have quit, several officials in the tax department said the departures provided a snapshot of broader discontent that has also led to internal transfers as well as resignations among lower-level employees.

“The level of impatience in the government has gone up … Anyone who has any alternate option says: ‘Why should we stay in the department?'” said one officer who has quit the job and plans to go tend the family farm. He said the stress had “become unbearable.”

“The pressure is getting greater. To achieve our targets we are under pressure, so we do some things that we don’t want to do,” said another tax official in northern India.

The two men asked to remain unnamed for fear of reprisals from the government.

Unorthodox tactics being used by the department included asking companies for advance tax payments, as well as delaying refunds, other tax officials said.

India’s economy grew 5percent year-on-year between April and June, its weakest pace since 2013, and the slowdown could deepen, economists say. They blame the mess partly on the centralisation of power in Modi’s office and lack of debate, leading to ill-conceived policy.

“Even well-meaning people find it very difficult to tell him, ‘This is wrong, let’s do it another way,'” said Sebastian Morris, a senior faculty member at the Indian Institute of Management, Ahmedabad, India’s premier business school.

Conflicting signals on issues ranging from tax policy to the auto sector were confusing, Morris said.

“It’s a madhouse.”

Finance Minister Nirmala Sitharaman has been touring tax offices saying that the revenue target is realistic and therefore collectors “need not overstretch.”


Debt-heavy Sri Lanka seeks Japan’s help and prepares Samurai bond

Sri Lanka’s central bank has turned to Japan to bolster the debt-ridden South Asian island’s flagging international reserves. It is putting the final touches on a plan to issue $500 million in samurai bonds, marking the country’s first foray into the Japanese market.

The yen-denominated bond issue got a shot in the arm after the Japan Bank for International Cooperation agreed to give a 95percent guarantee following negotiations with Sri Lanka’s central bank. The Sri Lankan government has approved three companies — Mizuho Securities, SMBC Nikko Securities and Mitsubishi UFJ Morgan Stanley Securities — as lead managers for the sale.

“The clincher for the samurai bond is JBIC giving a guarantee,” said a person in the financial industry familiar with the matter. “This is the first time Sri Lanka is benefiting from such a third-party guarantee.”

Sri Lanka has received government-to-government loans from Japan for decades, with much of the money going to infrastructure projects such as upgrades to Colombo’s port. Japan holds 10percent of the country’s $55 billion in foreign debt, a share now matched by China, whose loans for a spate of big new projects have virtually made China Sri Lanka’s development banker.

The year began with Sri Lanka securing $2.4 billion from the overseas bond market, which helped lift its foreign reserves to $8 billion. By the end of October, however, they had fallen to $7.8 billion, according to the latest data from the central bank.

Alarm bells are already ringing over the country’s rising public debt, which is estimated at 83percent of gross domestic product. This includes a level of foreign debt among the highest in South Asia. And the clock is ticking: Sri Lanka faces $17 billion in maturing foreign loans and debt servicing between 2019 and 2023.

“The massive debt is the mother of all problems we have,” said Murtaza Jafferjee, managing director of JB Securities, a financial consultancy in Colombo. “The only way to get out of the mess is [for] the GDP to grow faster than debt growth.”


Bangladesh plans debut dollar bond in bid to diversify economy

Bangladesh may enter international debt markets with a dollar-denominated sovereign bond next year, as South Asia’s fastest-growing economy seeks funding to expand beyond its key garment-export industry.

The planned sale would follow the country’s first-ever offshore bond denominated in takas earlier this year, according to Salman Rahman, Prime Minister Sheikh Hasina’s adviser. That note was worth the equivalent of $9.5 million and issued by the World Bank’s investment unit, the International Finance Corp.

“Our government and central bank have been very conservative so far” in terms of foreign debt, Rahman said in an interview in London. “We are now realizing that we have moved forward and we have to start borrowing.”

Funds would be used primarily for improving infrastructure and diversifying the economy, including private-sector projects.

The IFC-issued taka bonds, privately placed in July, mature in 2022 and carry a coupon of 6.3percent. They are also listed on the London Stock Exchange. The repayment of such offshore bonds is in the local currency, meaning investors assume the exchange-rate risk.

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