South Asia can weather economic crisis: ADB study

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(Xinhua)
Updated: 2009-03-09 11:28

MANILA -- South Asian countries can weather the global financial crisis by taking both short- and long-term measures to stimulate their economies, the Asian Development Bank (ADB) said in a study released on Monday.

The study, titled The Impact of the Global Economic Slowdown on South Asia, said that the subregion has been hit by capital outflows and weaker commodity prices, and faces a sharp slowdown in exports and remittances as the global troubles worsen.

A number of short-term measures have been taken to cushion the impact of the crisis, including monetary easing and fiscal stimulus packages, said the report, adding that there is further room for interest rate reductions, particularly in India and Sri Lanka.

While most countries have little scope for large stimulus packages, given deficit constraints, India, which has introduced two of them, should disburse the funds swiftly for maximum impact, it said.

Governments could consider incentives to encourage overseas workers to remit money home, such as special savings instruments, and they should also discuss currency swap arrangements and other measures to keep their financial systems stable, it added.

In the longer term, South Asian countries need to reduce their fiscal deficits, diversify their economies, step up infrastructure investment and boost intra-regional trade to take up the slack of lower demand from G7 nations, according to the study.

"While some countries in South Asia have had relatively less exposure to the crisis from the adverse impacts of capital flows, more than half of the 900 million people in developing Asia who survive on $1.25 a day live in the subregion, so any tempering of growth is a serious cause for concern," said ADB President Haruhiko Kuroda.