1 00:00:06,889 --> 00:00:10,170 Speaker 1: Welcome to Copy Time, a podcast series on Markets and 2 00:00:10,180 --> 00:00:13,789 Speaker 1: Economies from D BS Group Research. I'm Tamur Bank, chief economist, 3 00:00:13,970 --> 00:00:19,229 Speaker 1: welcoming you to our 113th episode. Today, we will connect 4 00:00:19,239 --> 00:00:21,989 Speaker 1: with Washington DC to have a chat with the World 5 00:00:22,000 --> 00:00:26,659 Speaker 1: Bank's Chief economist for South Asia, Dr Francisca Manzor. In 6 00:00:26,670 --> 00:00:30,329 Speaker 1: her role, Francisca is responsible for leading the research program 7 00:00:30,340 --> 00:00:33,299 Speaker 1: on key economic issues in South Asia to inform the 8 00:00:33,310 --> 00:00:35,630 Speaker 1: policy debate and World Bank lending. 9 00:00:36,069 --> 00:00:39,930 Speaker 1: Before this, she was the manager at the Development Economics 10 00:00:39,939 --> 00:00:43,339 Speaker 1: Vice presidency where she spearheaded the flags shape global economic 11 00:00:43,348 --> 00:00:46,689 Speaker 1: prospects report for the World Bank. Prior to joining the bank, 12 00:00:46,700 --> 00:00:50,119 Speaker 1: Francisca worked in the office of the chief economist of 13 00:00:50,130 --> 00:00:53,489 Speaker 1: the European Bank for Reconstruction and Development and at the 14 00:00:53,500 --> 00:00:56,650 Speaker 1: International Monetary Fund where I had the pleasure of being 15 00:00:56,659 --> 00:00:59,810 Speaker 1: her colleague, Francisco and Jorge. Welcome to Kobe time. 16 00:01:00,599 --> 00:01:03,040 Speaker 2: Thank you very much. It's a pleasure to be here. 17 00:01:03,049 --> 00:01:04,040 Speaker 2: Really enjoy. Thank you. 18 00:01:04,470 --> 00:01:07,760 Speaker 1: Great to have you. Uh Let's start with the basic 19 00:01:07,769 --> 00:01:11,949 Speaker 1: general outlook for South Asian economies in 2024 Francisco. 20 00:01:13,790 --> 00:01:16,370 Speaker 2: Yeah, actually South Asia is an interesting region because it's 21 00:01:16,379 --> 00:01:20,190 Speaker 2: a bright spot in the global economy, South Asia as 22 00:01:20,199 --> 00:01:23,040 Speaker 2: a whole is going to grow to be the fastest 23 00:01:23,050 --> 00:01:26,760 Speaker 2: growing region of all the world banks by emerging market 24 00:01:26,769 --> 00:01:30,970 Speaker 2: and developing economy regions. And that's thanks to India Bangladesh 25 00:01:30,989 --> 00:01:34,550 Speaker 2: Nepal Maldives, they're all going to grow more than 4.5% 26 00:01:34,559 --> 00:01:36,790 Speaker 2: which is the growth rate of East Asia and Pacific 27 00:01:36,800 --> 00:01:41,129 Speaker 2: by our forecast. But there are two exceptions, 28 00:01:41,500 --> 00:01:44,589 Speaker 2: Pakistan, Sri Lanka, they're clearly an outlier in that bright 29 00:01:44,629 --> 00:01:47,440 Speaker 2: spots story. And I'm sure we'll come back to that 30 00:01:47,449 --> 00:01:50,889 Speaker 2: but also for India compared to other emerging markets, but 31 00:01:50,900 --> 00:01:53,839 Speaker 2: for themselves, by their own standards, they're going to slow 32 00:01:53,849 --> 00:01:56,680 Speaker 2: that growth represents a slowdown both from last year and 33 00:01:56,690 --> 00:02:00,040 Speaker 2: from pre panem averages. And in Bangladesh, that is in 34 00:02:00,050 --> 00:02:03,139 Speaker 2: part because of balance of payment pressures that we assume 35 00:02:03,150 --> 00:02:04,120 Speaker 2: are going to continue. 36 00:02:06,470 --> 00:02:09,990 Speaker 1: And in the case of India, which you said is 37 00:02:10,000 --> 00:02:13,960 Speaker 1: the brightest spot among the large emerging market economies. Uh 38 00:02:13,979 --> 00:02:17,479 Speaker 1: What are the drivers of that marginal slowdown in growth 39 00:02:17,490 --> 00:02:18,369 Speaker 1: in 2024? 40 00:02:20,300 --> 00:02:25,100 Speaker 2: Uh So it's, it's essentially a slowdown in investment growth 41 00:02:25,110 --> 00:02:28,520 Speaker 2: for both countries. Actually India and Pakistan, sorry, India and 42 00:02:28,529 --> 00:02:31,038 Speaker 2: Bangladesh really stand out in the region as being the 43 00:02:31,050 --> 00:02:34,149 Speaker 2: ones where growth is driven by government, very heavily driven 44 00:02:34,160 --> 00:02:37,729 Speaker 2: by government for both countries to see a steep slowdown 45 00:02:37,740 --> 00:02:39,119 Speaker 2: in private investment 46 00:02:39,979 --> 00:02:43,509 Speaker 2: growth compared to a pre pandemic average. And the public 47 00:02:43,520 --> 00:02:46,138 Speaker 2: investment growth has been well above the emerging market and 48 00:02:46,149 --> 00:02:50,750 Speaker 2: developing economy averages. And that, of course, then raises the question, 49 00:02:50,758 --> 00:02:53,889 Speaker 2: how long can that be sustained with the fiscal challenges? 50 00:02:53,899 --> 00:02:55,899 Speaker 2: I'm sure we'll come back to it. But for both 51 00:02:55,910 --> 00:02:58,369 Speaker 2: of them, that's a question. How long can growth be 52 00:02:58,380 --> 00:03:00,600 Speaker 2: so heavily driven by governments? 53 00:03:01,538 --> 00:03:04,279 Speaker 1: You know, Francisco? This really sort of puzzles me to 54 00:03:04,288 --> 00:03:08,139 Speaker 1: some extent, especially your point about private investment because with 55 00:03:08,149 --> 00:03:11,860 Speaker 1: respect to India, headlines are all about, this is India's century, 56 00:03:11,869 --> 00:03:15,990 Speaker 1: this is India's moment to shine its pocket of geopolitical advantage. 57 00:03:16,139 --> 00:03:19,570 Speaker 1: And we hear about companies from the West companies from 58 00:03:19,580 --> 00:03:23,168 Speaker 1: other parts of Asia investing in Indian manufacturing. But then 59 00:03:23,179 --> 00:03:26,119 Speaker 1: when I see the FD I number, it's the same 60 00:03:26,130 --> 00:03:27,460 Speaker 1: number for 61 00:03:27,788 --> 00:03:31,800 Speaker 1: the last decade as a share of GDP, 1.5% of GDP, 2% 62 00:03:31,809 --> 00:03:34,520 Speaker 1: of GDP in dollar terms used to be 30 40 63 00:03:34,529 --> 00:03:37,690 Speaker 1: billion now 5060. But the no GDP has expanded so 64 00:03:37,699 --> 00:03:40,919 Speaker 1: much that a share of GDP. India's FD I story 65 00:03:40,929 --> 00:03:45,429 Speaker 1: doesn't look interesting or different at all. From past trend. You, 66 00:03:45,440 --> 00:03:46,690 Speaker 1: you have any view on that issue? 67 00:03:47,759 --> 00:03:51,259 Speaker 2: Yeah, the I guess it takes a lot more 68 00:03:52,119 --> 00:03:56,449 Speaker 2: than the government campaign to raise foreign direct investment and 69 00:03:56,460 --> 00:04:00,330 Speaker 2: private investments, not just foreign direct investment, it's domestic private 70 00:04:00,339 --> 00:04:04,419 Speaker 2: investment too. I mean, whatever restricts domestic private investment is 71 00:04:04,429 --> 00:04:07,050 Speaker 2: also going to discourage foreign investors and that's the whole 72 00:04:07,059 --> 00:04:10,009 Speaker 2: business environment. So we don't, we haven't done any, any 73 00:04:10,020 --> 00:04:14,009 Speaker 2: particular analysis to pinpoint what, what is the the biggest culprit. 74 00:04:14,259 --> 00:04:15,910 Speaker 2: But there are many things that come to mind the 75 00:04:15,919 --> 00:04:18,839 Speaker 2: restrictions on land. It's very difficult to buy and sell land. 76 00:04:19,079 --> 00:04:22,160 Speaker 2: Uh Heavy restrictions on labor, 77 00:04:22,910 --> 00:04:24,959 Speaker 2: especially for the bigger companies that would be the ones 78 00:04:24,970 --> 00:04:27,719 Speaker 2: attracting FT I the the uh 79 00:04:28,130 --> 00:04:31,750 Speaker 2: it's, it's not easy, it's not easy to integrate into 80 00:04:31,760 --> 00:04:34,649 Speaker 2: the global economy, that whole region. Actually, that is something 81 00:04:34,660 --> 00:04:37,988 Speaker 2: we saw has import restrictions that go well above the 82 00:04:38,000 --> 00:04:41,558 Speaker 2: emerging market and developing economy, average import and export tradition, 83 00:04:41,570 --> 00:04:45,619 Speaker 2: old fashioned import and export restrictions in this region are 84 00:04:45,690 --> 00:04:49,190 Speaker 2: way more than elsewhere for that goes back to Bangladesh, 85 00:04:49,200 --> 00:04:51,670 Speaker 2: as well as Sri Lanka and Pakistan, very heavy use 86 00:04:51,678 --> 00:04:53,149 Speaker 2: of foreign exchange restrictions. 87 00:04:53,799 --> 00:04:57,149 Speaker 2: These are exactly the kinds of things that will discourage 88 00:04:57,160 --> 00:04:59,940 Speaker 2: domestic investment and they discourage foreign investment. 89 00:05:00,910 --> 00:05:05,289 Speaker 1: Absolutely. Uh So let's talk a little bit about the 90 00:05:05,299 --> 00:05:09,290 Speaker 1: the three countries in South Asia which now have IMF 91 00:05:09,299 --> 00:05:11,619 Speaker 1: supported programs. Of course, when we say IMF supported programs, 92 00:05:11,630 --> 00:05:14,130 Speaker 1: we also mean that the World Bank plays an integral 93 00:05:14,140 --> 00:05:17,049 Speaker 1: role in these programs as well. So namely Bangladesh, Sri 94 00:05:17,059 --> 00:05:20,410 Speaker 1: Lanka and Pakistan, you mentioned earlier that in the case 95 00:05:20,420 --> 00:05:22,558 Speaker 1: of Bangladesh, clearly, you know, it sets a balance of 96 00:05:22,570 --> 00:05:26,750 Speaker 1: payments issue. Uh but just maybe characterize all three sequentially 97 00:05:26,760 --> 00:05:28,290 Speaker 1: for us, Bangladesh, Ri Lanka, Pakistan, 98 00:05:30,290 --> 00:05:32,589 Speaker 2: all of them have balance of payment issues. But Bangladesh 99 00:05:32,600 --> 00:05:33,809 Speaker 2: is the one that's still growing. 100 00:05:34,670 --> 00:05:39,320 Speaker 2: It's actually growing remarkably well given the the the pressures, 101 00:05:39,329 --> 00:05:42,519 Speaker 2: no we are expecting 5.5 to to 6%. Now in 102 00:05:42,529 --> 00:05:45,368 Speaker 2: that range, that's the growth we expected. But this year, 103 00:05:45,380 --> 00:05:48,040 Speaker 2: the coming year and the year after that is a 104 00:05:48,049 --> 00:05:52,808 Speaker 2: slowdown and we expect these foreign exchange restrictions to continue 105 00:05:52,910 --> 00:05:57,010 Speaker 2: despite the staff level agreement on the first review last month. 106 00:05:57,019 --> 00:06:01,040 Speaker 2: And despite the increase in monetary policy rates last month, 107 00:06:01,540 --> 00:06:05,000 Speaker 2: import restrictions, we expect them to continue at least until 108 00:06:05,238 --> 00:06:08,260 Speaker 2: early next year into next year. And the foreign exchange 109 00:06:08,269 --> 00:06:12,040 Speaker 2: pressures that are seem to be not easing 110 00:06:13,029 --> 00:06:16,390 Speaker 2: are also expected to continue. So the the the reserve data, 111 00:06:16,399 --> 00:06:18,579 Speaker 2: the latest published reserve data from October, it shows a 112 00:06:18,589 --> 00:06:23,329 Speaker 2: relentless decline, the exchange rates depreciating. So clearly, there is 113 00:06:23,339 --> 00:06:25,929 Speaker 2: an underlying pressure that's just not going away despite these 114 00:06:25,940 --> 00:06:27,600 Speaker 2: policy actions in October 115 00:06:28,299 --> 00:06:32,440 Speaker 2: and there is maybe maybe things will change dramatically next year. 116 00:06:32,500 --> 00:06:34,809 Speaker 2: But for now, our assumption is that they're not changing 117 00:06:34,820 --> 00:06:37,279 Speaker 2: dramatically next year. And of course, you see that 118 00:06:37,940 --> 00:06:40,730 Speaker 2: where you expect to see it, no private investment growth, 119 00:06:40,738 --> 00:06:43,459 Speaker 2: private investment growth is now 1.5% compared to what it 120 00:06:43,470 --> 00:06:46,920 Speaker 2: used to be before the pandemic 9% per year. It's 121 00:06:46,928 --> 00:06:48,359 Speaker 2: really a dramatic difference. 122 00:06:49,220 --> 00:06:51,959 Speaker 2: So really what's propping up growth for now is the government, 123 00:06:51,970 --> 00:06:53,399 Speaker 2: it's a government investment, 124 00:06:54,320 --> 00:06:56,500 Speaker 2: heavy use of government investment and consumption to 125 00:06:57,880 --> 00:07:00,320 Speaker 2: right. That's bangla dish. That's right. Yeah, 126 00:07:01,510 --> 00:07:05,269 Speaker 2: Pakistan Sri Lanka, the story is different. So they're obviously 127 00:07:05,279 --> 00:07:08,690 Speaker 2: not the bright spot of the global economy. They're really 128 00:07:08,700 --> 00:07:12,809 Speaker 2: the exception to that regional narrative. For both of them, 129 00:07:12,820 --> 00:07:15,850 Speaker 2: we expect growth just below 2% next year and just 130 00:07:15,859 --> 00:07:19,040 Speaker 2: above 2% the year after and for both of them, 131 00:07:19,049 --> 00:07:21,010 Speaker 2: that's a far cry from what it used to be 132 00:07:21,019 --> 00:07:24,059 Speaker 2: 4 to 5% before the pandemic. So it's really a 133 00:07:24,070 --> 00:07:27,739 Speaker 2: completely different ball game, but at least it's an end 134 00:07:27,750 --> 00:07:28,720 Speaker 2: to the recessions. 135 00:07:29,130 --> 00:07:32,170 Speaker 2: And the reason it's an end to the recessions is 136 00:07:32,179 --> 00:07:35,929 Speaker 2: not because of this fantastic new wave of strength. It's 137 00:07:35,940 --> 00:07:38,179 Speaker 2: because of all these other shocks from last year that 138 00:07:38,190 --> 00:07:38,869 Speaker 2: are receding. 139 00:07:39,899 --> 00:07:42,859 Speaker 2: That's what's driving the recovery. So for both of them, 140 00:07:42,869 --> 00:07:46,369 Speaker 2: that's heavy use of import and foreign exchange restrictions that 141 00:07:46,380 --> 00:07:49,420 Speaker 2: have now been unwound recently. So that's going to help 142 00:07:49,429 --> 00:07:52,559 Speaker 2: growth a bit along for Pakistan's obviously the floods, the 143 00:07:52,570 --> 00:07:55,390 Speaker 2: recovery from the floods that's going to help growth along 144 00:07:55,450 --> 00:07:59,299 Speaker 2: for uh and for, for Sri Lanka, the equivalent would 145 00:07:59,309 --> 00:08:01,920 Speaker 2: be the recovery in tourism that seems to be underway. 146 00:08:02,029 --> 00:08:04,399 Speaker 2: And the return of remittances also at least through the 147 00:08:04,410 --> 00:08:08,630 Speaker 2: documented channels, which kind of, I really receded last year. 148 00:08:08,980 --> 00:08:13,079 Speaker 2: So it's, it's it's less of really strong growth. It's 149 00:08:13,089 --> 00:08:17,929 Speaker 2: more a shocks, negative shocks just subsiding finally. And that's 150 00:08:17,940 --> 00:08:18,920 Speaker 2: giving the recovery, 151 00:08:20,200 --> 00:08:23,730 Speaker 1: you know, if I may touch on that issue about remittances. 152 00:08:23,739 --> 00:08:26,399 Speaker 1: So I I read this in the context of Bangladesh 153 00:08:26,410 --> 00:08:28,339 Speaker 1: and I've also read this in the context of Pakistan 154 00:08:28,570 --> 00:08:31,769 Speaker 1: that the authorities always are very keen to get the 155 00:08:31,779 --> 00:08:35,939 Speaker 1: remittances through the formal channel. Uh and, and they think that, 156 00:08:35,950 --> 00:08:38,549 Speaker 1: you know, it coming through the informal channel somehow undermines 157 00:08:39,059 --> 00:08:41,218 Speaker 1: monetary policy or exchange rate controls. 158 00:08:42,000 --> 00:08:43,869 Speaker 1: Tell me if I'm being naive, I mean, as far 159 00:08:43,880 --> 00:08:46,409 Speaker 1: as I'm concerned, it doesn't really matter if the money 160 00:08:46,419 --> 00:08:48,890 Speaker 1: comes in through the formal informal channel as long as 161 00:08:48,900 --> 00:08:51,679 Speaker 1: it comes in because it creates a claim on domestic 162 00:08:51,690 --> 00:08:54,450 Speaker 1: currency because there is a counterpart foreign currency that is 163 00:08:54,460 --> 00:08:57,500 Speaker 1: being transferred. Uh Am I, am I getting something wrong here? 164 00:08:57,510 --> 00:09:00,299 Speaker 1: Do we want to force all the remittances to come 165 00:09:00,309 --> 00:09:02,619 Speaker 1: to the formal channel or does it really not matter? 166 00:09:03,109 --> 00:09:05,090 Speaker 2: Well, I guess it would make a difference to financial 167 00:09:05,099 --> 00:09:08,849 Speaker 2: intermediation order to reserve the the foreign currency position of banks. 168 00:09:08,859 --> 00:09:10,619 Speaker 2: If it goes through formal channels, you will see it 169 00:09:10,630 --> 00:09:12,690 Speaker 2: in some bank balance sheet, either the central banks or 170 00:09:12,700 --> 00:09:17,369 Speaker 2: the commercial banks. And I guess that makes it easier 171 00:09:17,380 --> 00:09:20,689 Speaker 2: then to manage the formal exchange rates, the official exchange rate. 172 00:09:20,890 --> 00:09:23,250 Speaker 2: But in some sense for growth, you're right. It shouldn't 173 00:09:23,260 --> 00:09:25,650 Speaker 2: make much difference as long as the households get the money, 174 00:09:25,820 --> 00:09:26,570 Speaker 2: they spend it. 175 00:09:26,849 --> 00:09:29,099 Speaker 2: What you do see across the region that I didn't 176 00:09:29,109 --> 00:09:31,709 Speaker 2: see in Europe and Central Asia when I was working there. 177 00:09:31,719 --> 00:09:33,069 Speaker 2: Not to the same extent 178 00:09:33,869 --> 00:09:36,799 Speaker 2: is the tilt in the whole economy 179 00:09:38,280 --> 00:09:41,640 Speaker 2: towards a certain structure. It's almost like there's a Remittance economy. 180 00:09:41,669 --> 00:09:44,939 Speaker 2: You see high consumption growth, you see high real estate growth, 181 00:09:44,950 --> 00:09:49,890 Speaker 2: you see weak export growth. You see uh sort of 182 00:09:49,900 --> 00:09:54,059 Speaker 2: the all the hallmarks of overvaluation. That's that. It's like, 183 00:09:54,070 --> 00:09:56,959 Speaker 2: it's almost like Dutch disease based on remittances. So you 184 00:09:56,969 --> 00:09:59,049 Speaker 2: see that across the region, there are many countries that 185 00:09:59,059 --> 00:10:02,799 Speaker 2: rely very heavily on remittances and you see these pressures 186 00:10:03,080 --> 00:10:07,020 Speaker 2: in a lot of them that's actually very noticeable in 187 00:10:07,030 --> 00:10:07,699 Speaker 2: South Asia. 188 00:10:09,169 --> 00:10:11,468 Speaker 2: Indeed. Indeed. You know, I want to make one more 189 00:10:11,479 --> 00:10:15,260 Speaker 2: point on Pakistan, Sri Lanka. So I in a way, 190 00:10:15,270 --> 00:10:18,718 Speaker 2: I'm telling a good story that bad things are 191 00:10:19,599 --> 00:10:22,599 Speaker 2: over, you know, that things are bad shocks are receding. 192 00:10:23,099 --> 00:10:27,010 Speaker 2: But even that recovery that we're projecting that is a 193 00:10:27,020 --> 00:10:31,440 Speaker 2: knife edge recovery because there's so the the the policy 194 00:10:31,450 --> 00:10:33,260 Speaker 2: buffers are really way for thin, 195 00:10:33,969 --> 00:10:37,150 Speaker 2: both countries still have to finance fiscal deficits on the 196 00:10:37,159 --> 00:10:40,539 Speaker 2: order of 7% of GDP or more. Both countries are 197 00:10:40,549 --> 00:10:44,190 Speaker 2: still going to spend more than half their revenues on 198 00:10:44,469 --> 00:10:45,429 Speaker 2: interest payments. 199 00:10:46,119 --> 00:10:49,409 Speaker 2: Both countries have reserves, foreign reserves, at least in the 200 00:10:49,419 --> 00:10:52,368 Speaker 2: latest data are somewhere around three or less fewer months 201 00:10:52,380 --> 00:10:55,460 Speaker 2: of imports. So there's really no room for anything to 202 00:10:55,469 --> 00:10:55,979 Speaker 2: go wrong. 203 00:10:56,960 --> 00:11:00,439 Speaker 2: So it's really a knife edge kind of baseline scenario 204 00:11:00,450 --> 00:11:02,260 Speaker 2: where you can think of many ways 205 00:11:03,159 --> 00:11:05,699 Speaker 2: in which the recovery can be delayed. Even this, this 206 00:11:05,710 --> 00:11:08,299 Speaker 2: kind of muted anemic recovery can be derived. 207 00:11:09,299 --> 00:11:11,750 Speaker 1: Can I add, add one more point to that issue 208 00:11:11,760 --> 00:11:14,968 Speaker 1: of nice edge uh in the three fragile countries that 209 00:11:14,979 --> 00:11:17,359 Speaker 1: we talked about, you know, particularly Sri Lanka, Pakistan, but 210 00:11:17,369 --> 00:11:20,440 Speaker 1: also to the extent of Bangladesh in all three countries 211 00:11:20,450 --> 00:11:24,079 Speaker 1: under if conditionality, exchange controls have been eased to some 212 00:11:24,090 --> 00:11:27,780 Speaker 1: extent and exchange rates have weakened substantially, we should also 213 00:11:27,789 --> 00:11:30,150 Speaker 1: create a pass through risk for inflation and so on. 214 00:11:30,369 --> 00:11:33,919 Speaker 1: Um So do you think that allowing this exchange to 215 00:11:33,929 --> 00:11:36,799 Speaker 1: sort of freely float could run the risk of 216 00:11:37,239 --> 00:11:41,750 Speaker 1: exchanges overshoot and then creating like a 1997 type Southeast 217 00:11:41,760 --> 00:11:46,409 Speaker 1: Asian crisis uh dynamic where corporate balance sheet gets stressed 218 00:11:46,419 --> 00:11:48,939 Speaker 1: because they have dollar payables and the exchange rate then 219 00:11:48,950 --> 00:11:52,419 Speaker 1: starts becoming a bit vicious cycle. Uh I, I've not 220 00:11:52,429 --> 00:11:56,789 Speaker 1: really seen much concern expressed in that regard. Uh Do 221 00:11:56,799 --> 00:11:58,890 Speaker 1: you not consider that as a risk? Especially since you 222 00:11:58,900 --> 00:12:01,059 Speaker 1: said that the recovery is on a knife's edge and 223 00:12:01,070 --> 00:12:03,619 Speaker 1: other things can go wrong, couldn't they all then manifest 224 00:12:03,630 --> 00:12:04,799 Speaker 1: into an exchange rate crisis? 225 00:12:07,000 --> 00:12:07,618 Speaker 2: Ok. So 226 00:12:08,349 --> 00:12:12,929 Speaker 2: we haven't done any research on this but from, from 227 00:12:12,940 --> 00:12:16,739 Speaker 2: the literature, I do, it seems that when exchange rate 228 00:12:16,750 --> 00:12:19,049 Speaker 2: crisis happen, you do get this overshoot and it's a 229 00:12:19,059 --> 00:12:21,409 Speaker 2: difficult one to manage. No, and that that's the logic 230 00:12:22,090 --> 00:12:24,859 Speaker 2: for trying to contain it, you know, with, with, with 231 00:12:24,869 --> 00:12:27,829 Speaker 2: a policy action um 232 00:12:28,500 --> 00:12:30,030 Speaker 2: over the longer term, 233 00:12:31,299 --> 00:12:34,419 Speaker 2: I guess what we have seen with the exchange rate 234 00:12:34,429 --> 00:12:38,780 Speaker 2: crisis is that the output losses at least in the 235 00:12:38,789 --> 00:12:42,359 Speaker 2: Islam and Valencia time type of exchange rate crisis. 236 00:12:43,080 --> 00:12:46,330 Speaker 2: That don't come with financial crisis, financial system crisis or, 237 00:12:46,340 --> 00:12:50,340 Speaker 2: or government debt crisis, those are fewer output losses over 238 00:12:50,349 --> 00:12:54,119 Speaker 2: the longer term than the crises that are multiple. So 239 00:12:54,130 --> 00:12:56,369 Speaker 2: where you've got the, the financial system involved, where you've 240 00:12:56,380 --> 00:12:59,599 Speaker 2: got the government involved. But yeah, I, 241 00:13:01,190 --> 00:13:05,770 Speaker 2: I would coco on your instinct there. But I'm not, 242 00:13:05,780 --> 00:13:08,589 Speaker 2: I haven't, we haven't done any research, any particular recession, 243 00:13:09,320 --> 00:13:12,270 Speaker 1: right. But just from that instinct perspective, I guess one 244 00:13:12,280 --> 00:13:15,569 Speaker 1: could argue that Bangladesh is slightly less 245 00:13:15,849 --> 00:13:18,739 Speaker 1: uh fragile in Sri Lanka and Pakistan because there is 246 00:13:18,750 --> 00:13:21,989 Speaker 1: not much of an element of foreign currency debt, especially 247 00:13:22,000 --> 00:13:24,369 Speaker 1: in the commercial market, which unfortunately, in the case of 248 00:13:24,380 --> 00:13:26,510 Speaker 1: Sri Lanka and Pakistan, there is substantial and there's all 249 00:13:26,520 --> 00:13:30,739 Speaker 1: these restructuring needs. So related to this Francisca, you've several 250 00:13:30,750 --> 00:13:33,710 Speaker 1: times already mentioned the role of government in South Asia 251 00:13:34,109 --> 00:13:37,000 Speaker 1: and the fact that high investment tends to be driven 252 00:13:37,010 --> 00:13:40,039 Speaker 1: by impetus from the government. So let's talk about the 253 00:13:40,049 --> 00:13:43,559 Speaker 1: fiscal situation. How much of a hit did this region 254 00:13:43,570 --> 00:13:47,319 Speaker 1: take during the pandemic? And with all these financial crisis 255 00:13:47,330 --> 00:13:49,520 Speaker 1: going on, where do we stand with respect to the 256 00:13:49,530 --> 00:13:51,679 Speaker 1: fiscal situation in the region? 257 00:13:52,479 --> 00:13:55,020 Speaker 2: Yeah. So just like the region is a bright spot, 258 00:13:55,030 --> 00:13:57,150 Speaker 2: the outline in the global economy is also an outline 259 00:13:57,159 --> 00:14:00,109 Speaker 2: on the on the fiscal challenges. It is the region 260 00:14:00,119 --> 00:14:04,409 Speaker 2: with the highest government debt levels of all regions, 86% 261 00:14:04,419 --> 00:14:07,880 Speaker 2: of GDP on average, that compares with an emerging market 262 00:14:07,890 --> 00:14:10,569 Speaker 2: developing average of 60% of GDP. So it's really well 263 00:14:10,580 --> 00:14:13,460 Speaker 2: above and it's not just a few big countries, it's 264 00:14:13,489 --> 00:14:16,260 Speaker 2: almost all of them. With the exception of Bangladesh and Nepal, 265 00:14:16,270 --> 00:14:19,869 Speaker 2: all the others have debt levels above the emerging market 266 00:14:19,880 --> 00:14:21,219 Speaker 2: and developing economy average. 267 00:14:21,820 --> 00:14:26,429 Speaker 2: And even in Bangladesh about by the latest real projections, 268 00:14:26,440 --> 00:14:28,539 Speaker 2: about a quarter of revenues are going to be spent 269 00:14:28,549 --> 00:14:30,929 Speaker 2: on interest spending. So maybe the debt level is not 270 00:14:30,940 --> 00:14:32,140 Speaker 2: high but it's expensive. 271 00:14:33,150 --> 00:14:35,989 Speaker 2: That's one aspect of the fiscal challenge in the region. 272 00:14:36,000 --> 00:14:39,119 Speaker 2: The other aspect is revenue ratio. It's extraordinary how low 273 00:14:39,130 --> 00:14:39,539 Speaker 2: they are 274 00:14:40,190 --> 00:14:43,520 Speaker 2: every single country in the region other than Bhutan has 275 00:14:43,530 --> 00:14:46,909 Speaker 2: a lower revenue to GDP ratio than the emerging market. 276 00:14:46,919 --> 00:14:51,030 Speaker 2: And developing economy average in uh Sri Lanka and Bangladesh, 277 00:14:51,090 --> 00:14:55,960 Speaker 2: the order of 8% of GDP in India is below 20% 278 00:14:55,969 --> 00:14:56,690 Speaker 2: of GDP. 279 00:14:57,090 --> 00:15:01,309 Speaker 2: It's in Pakistan is around 12% of GDP. Compared with 280 00:15:01,320 --> 00:15:05,809 Speaker 2: the emerging market. Developing economy averages almost 30% of GDP. 281 00:15:05,989 --> 00:15:09,020 Speaker 2: They are way below. And with this kind of low 282 00:15:09,030 --> 00:15:11,890 Speaker 2: revenue ratio, it's hard to run an efficient government. It's 283 00:15:11,900 --> 00:15:12,669 Speaker 2: very difficult 284 00:15:13,739 --> 00:15:17,200 Speaker 2: to finance public investment, it's very difficult to finance all 285 00:15:17,210 --> 00:15:20,380 Speaker 2: the other things that governments should be financing. So that 286 00:15:20,390 --> 00:15:24,869 Speaker 2: that is a cross cutting concern. And in some countries, 287 00:15:25,030 --> 00:15:28,169 Speaker 2: it's already already in debt default. And in a way, 288 00:15:28,179 --> 00:15:32,020 Speaker 2: it's not a surprise because we, we actually assembled a 289 00:15:32,030 --> 00:15:34,380 Speaker 2: data set of all the debt defaults. We could find 290 00:15:34,390 --> 00:15:36,840 Speaker 2: 170 plus since 1979. 291 00:15:37,989 --> 00:15:39,969 Speaker 2: And you can see that two thirds of them happened 292 00:15:39,979 --> 00:15:43,289 Speaker 2: in countries like this in countries that had above median 293 00:15:43,299 --> 00:15:47,049 Speaker 2: government debt ratios. And they happened at times like this 294 00:15:47,059 --> 00:15:47,570 Speaker 2: as well, 295 00:15:48,270 --> 00:15:51,020 Speaker 2: which is two thirds of them happened either in the 296 00:15:51,030 --> 00:15:54,169 Speaker 2: year that the US monetary policy rate is tightening stopped 297 00:15:54,179 --> 00:15:57,440 Speaker 2: to end it, the tightening cycle ended or the year afterwards. 298 00:15:58,090 --> 00:16:02,729 Speaker 2: In fact, we we estimate that the 3.5% point increase 299 00:16:02,739 --> 00:16:05,700 Speaker 2: in the US PET funds rate. So on the order 300 00:16:05,710 --> 00:16:10,020 Speaker 2: of what happened since early 2022 raises the probability of 301 00:16:10,030 --> 00:16:13,609 Speaker 2: default by almost half. So it's no surprise that 302 00:16:14,440 --> 00:16:16,010 Speaker 2: the countries that have high out 303 00:16:16,830 --> 00:16:20,440 Speaker 2: are defaulting. Now, this is the time when the largest 304 00:16:20,450 --> 00:16:25,090 Speaker 2: number of emerging markets is in debt distress since 2000. 305 00:16:25,099 --> 00:16:29,020 Speaker 2: When our data series starts. Basically that particular data series starts. 306 00:16:30,960 --> 00:16:35,450 Speaker 1: And what about the non crisis, but also characterized by 307 00:16:35,460 --> 00:16:37,940 Speaker 1: high debt, which is India, which we have seen in 308 00:16:37,950 --> 00:16:41,969 Speaker 1: the pandemic years. Debt GDP ratio rise substantially as well. 309 00:16:42,090 --> 00:16:45,580 Speaker 1: You were mentioning interest expenditure being a big chunk of 310 00:16:45,599 --> 00:16:48,330 Speaker 1: uh total spending of the government of Bangladesh. I believe 311 00:16:48,340 --> 00:16:49,780 Speaker 1: that's the same situation in India. 312 00:16:50,330 --> 00:16:53,710 Speaker 2: Yes, this is so more than 90% of India's government 313 00:16:53,719 --> 00:16:54,099 Speaker 2: debt 314 00:16:54,900 --> 00:16:58,549 Speaker 2: is domestic to domestic creditors and that is one way 315 00:16:58,559 --> 00:17:01,440 Speaker 2: of reducing that the probability of the default. 316 00:17:02,659 --> 00:17:05,520 Speaker 2: Uh So what we we've done is we've put together 317 00:17:05,530 --> 00:17:10,040 Speaker 2: a sample of all the government debt booms since 1918 318 00:17:10,770 --> 00:17:14,420 Speaker 2: uh in in 64 plus emerging markets and developing economies. 319 00:17:15,218 --> 00:17:18,029 Speaker 2: And we have checked what happens when these booms end. 320 00:17:18,038 --> 00:17:21,178 Speaker 2: How do they end? Was in the year of the boom? 321 00:17:21,188 --> 00:17:23,859 Speaker 2: Turning government debt is beginning to turn or the year afterwards. 322 00:17:23,869 --> 00:17:28,389 Speaker 2: It turns out debt defaults are very rare only. Well, 323 00:17:28,398 --> 00:17:32,427 Speaker 2: that's below 10% in either case, but debt defaults on 324 00:17:32,438 --> 00:17:36,318 Speaker 2: dome on a domestically driven boom are even rarer. The 325 00:17:36,328 --> 00:17:41,739 Speaker 2: probability of a government debt boom, that's domestically financed ending 326 00:17:41,749 --> 00:17:43,958 Speaker 2: in default is only 2%. 327 00:17:44,709 --> 00:17:47,520 Speaker 2: So that's one third of the probability of an externally 328 00:17:47,530 --> 00:17:50,790 Speaker 2: dream debt boom. So that is a way, I mean, 329 00:17:50,800 --> 00:17:55,369 Speaker 2: financing domestically is a way of avoiding debt default. The 330 00:17:55,380 --> 00:17:59,790 Speaker 2: problem is the cost that comes with it and that 331 00:17:59,800 --> 00:18:03,030 Speaker 2: we we we we split our sample into countries with 332 00:18:03,040 --> 00:18:08,000 Speaker 2: above median and below median government uh domestic shares of 333 00:18:08,010 --> 00:18:08,688 Speaker 2: government debt. 334 00:18:08,900 --> 00:18:12,530 Speaker 2: And you find significantly that interest rates are a percentage 335 00:18:12,540 --> 00:18:15,310 Speaker 2: point higher effective interest rates on government debt. And that 336 00:18:15,319 --> 00:18:18,920 Speaker 2: is tricky to the whole economy. Maturities are two years lower. 337 00:18:19,500 --> 00:18:22,219 Speaker 2: And what's perhaps most suspicious is that the share of 338 00:18:22,229 --> 00:18:26,339 Speaker 2: bank lending to governments is 6% point higher and to 339 00:18:26,349 --> 00:18:30,189 Speaker 2: private sector, 6% point lower. So there's a clear sense 340 00:18:30,199 --> 00:18:31,760 Speaker 2: of the the government borrowing, 341 00:18:32,630 --> 00:18:35,800 Speaker 2: pushing out the private sector and raising borrowing costs for 342 00:18:35,810 --> 00:18:37,770 Speaker 2: everyone but the whole private sector 343 00:18:38,640 --> 00:18:41,699 Speaker 2: and that's exactly what's happening in South Asia too, South Asia. 344 00:18:41,709 --> 00:18:45,489 Speaker 2: You also see that uh interest spending is is more 345 00:18:45,500 --> 00:18:46,739 Speaker 2: than a percentage point higher. 346 00:18:47,410 --> 00:18:49,989 Speaker 2: Uh the interest effective interest rates on government is more 347 00:18:50,000 --> 00:18:52,728 Speaker 2: than a percentage point higher than in the average emerging 348 00:18:52,739 --> 00:18:56,729 Speaker 2: market of the developing economy. The debt maturities are more 349 00:18:56,739 --> 00:19:00,270 Speaker 2: than two years lower than in the average. And uh 350 00:19:00,280 --> 00:19:05,468 Speaker 2: the share of bank credit to governments is also higher 351 00:19:05,479 --> 00:19:08,010 Speaker 2: than elsewhere. And that of course means that the private 352 00:19:08,020 --> 00:19:09,849 Speaker 2: sector is lower than elsewhere. So you there is a 353 00:19:09,859 --> 00:19:12,949 Speaker 2: real cost to this which is borne by the private 354 00:19:12,959 --> 00:19:13,349 Speaker 2: sector 355 00:19:14,530 --> 00:19:18,389 Speaker 2: to reduce the government, the probability of default of the 356 00:19:18,400 --> 00:19:19,229 Speaker 2: public sector. 357 00:19:21,810 --> 00:19:25,949 Speaker 1: Uh Francisca, there are many structural reasons why, you know, 358 00:19:25,959 --> 00:19:29,000 Speaker 1: countries run large deficits. You've already touched up on a 359 00:19:29,010 --> 00:19:31,780 Speaker 1: few of them, you know, having a very low revenue base, 360 00:19:31,790 --> 00:19:34,139 Speaker 1: sort of, you know, necessitate some degree of deficit spending. 361 00:19:34,380 --> 00:19:36,790 Speaker 1: Uh in some cases, the private sector is not large 362 00:19:36,800 --> 00:19:38,669 Speaker 1: enough and the government is sort of forced to carry 363 00:19:38,680 --> 00:19:40,359 Speaker 1: out a lot of things in ideal cases, you would 364 00:19:40,369 --> 00:19:42,640 Speaker 1: like the private sector to do. But I just want 365 00:19:42,650 --> 00:19:45,910 Speaker 1: to ask you your view on the cyclical aspect, which 366 00:19:45,920 --> 00:19:48,040 Speaker 1: is in the last three years, we were faced with 367 00:19:48,050 --> 00:19:50,959 Speaker 1: an extraordinary shock and whether it's the US or India, 368 00:19:50,969 --> 00:19:55,420 Speaker 1: everybody saw need for large public sector spending and increase 369 00:19:55,430 --> 00:19:58,089 Speaker 1: in debt ratios. I mean, you're, you're sitting at the 370 00:19:58,099 --> 00:20:01,910 Speaker 1: World Bank. I mean, is there some thinking that perhaps 371 00:20:02,239 --> 00:20:04,959 Speaker 1: there should have been like, you know, more debt, uh, 372 00:20:04,969 --> 00:20:08,639 Speaker 1: grand financing for afflicted countries around the world so that 373 00:20:08,650 --> 00:20:11,290 Speaker 1: the debt situation didn't have to worsen just because they 374 00:20:11,300 --> 00:20:13,099 Speaker 1: had to spend a lot of money during the pandemic. 375 00:20:13,880 --> 00:20:15,680 Speaker 2: Oh, yeah. I think for a lot of countries, especially 376 00:20:15,689 --> 00:20:18,380 Speaker 2: low income countries, they would have been better off with grants. So, 377 00:20:18,430 --> 00:20:21,139 Speaker 2: especially now that interest rates are rising. But you know, 378 00:20:21,150 --> 00:20:24,780 Speaker 2: there are things that countries can do themselves also to reduce, 379 00:20:26,060 --> 00:20:29,930 Speaker 2: to reduce the fiscal pressures when, when when you need 380 00:20:29,939 --> 00:20:32,119 Speaker 2: to use fiscal resources. 381 00:20:32,900 --> 00:20:35,670 Speaker 2: So and take South Asia again, the the debt build 382 00:20:35,680 --> 00:20:38,179 Speaker 2: up in South Asia has been much larger than the 383 00:20:38,189 --> 00:20:42,569 Speaker 2: average emerging market and developing economy. So there is something 384 00:20:42,579 --> 00:20:43,409 Speaker 2: that is 385 00:20:44,589 --> 00:20:48,500 Speaker 2: makes them use fiscal resources much more than the average 386 00:20:48,510 --> 00:20:51,329 Speaker 2: emerging market and developing economy when everyone is using them. 387 00:20:51,630 --> 00:20:53,859 Speaker 1: As you can see that you mean the debt build 388 00:20:53,869 --> 00:20:55,560 Speaker 1: up in the last three years has been much more 389 00:20:55,569 --> 00:20:57,339 Speaker 1: in South Asia than the 2019 390 00:20:58,869 --> 00:21:01,579 Speaker 2: has been. Uh And, and we look at this in 391 00:21:01,589 --> 00:21:05,199 Speaker 2: one specific respect in the in uh when we look 392 00:21:05,209 --> 00:21:06,530 Speaker 2: at what can countries do 393 00:21:06,949 --> 00:21:10,520 Speaker 2: to contain fiscal pressures, cyclical fiscal pressures because of course, 394 00:21:10,530 --> 00:21:13,379 Speaker 2: in a recession, you should be using fiscal stimulus is obvious. No, 395 00:21:13,500 --> 00:21:15,770 Speaker 2: the question is how much fiscal stimulus do you use? 396 00:21:16,130 --> 00:21:19,689 Speaker 2: And uh so the what we looked at then is 397 00:21:19,699 --> 00:21:23,889 Speaker 2: fiscal rules. What can fiscal rules do to prevent an 398 00:21:23,900 --> 00:21:24,930 Speaker 2: excessive use 399 00:21:25,719 --> 00:21:27,819 Speaker 2: of fiscal resources at times of pressure? 400 00:21:28,530 --> 00:21:31,649 Speaker 2: And it turns out there's a clear difference between countries 401 00:21:31,660 --> 00:21:34,270 Speaker 2: that have strong fiscal rules and countries that have weak 402 00:21:34,280 --> 00:21:37,420 Speaker 2: fiscal rules beyond South Asia. Just in emerging markets. The 403 00:21:37,430 --> 00:21:39,829 Speaker 2: debt build up was significantly larger 404 00:21:40,609 --> 00:21:44,400 Speaker 2: in countries that had weak fiscal rules than in those 405 00:21:44,410 --> 00:21:46,810 Speaker 2: that had strong fiscal rules. And that's the debt build 406 00:21:46,819 --> 00:21:49,030 Speaker 2: up during the COVID pandemic when everyone had a debt 407 00:21:49,040 --> 00:21:51,770 Speaker 2: build up and they should have had it's, but it's 408 00:21:51,780 --> 00:21:54,550 Speaker 2: been much larger and those weaker fiscal rules. And the 409 00:21:54,560 --> 00:21:56,629 Speaker 2: problem with the countries in South Asia is of course, 410 00:21:56,640 --> 00:21:58,959 Speaker 2: that all their fiscal rules are weak, but at least 411 00:21:58,969 --> 00:22:03,109 Speaker 2: by the IMF definition, the deficit rules are all in the, 412 00:22:03,119 --> 00:22:05,550 Speaker 2: in the weakest quartile by the IMF definition 413 00:22:05,800 --> 00:22:09,500 Speaker 2: and the debt rules are near the, the threshold of 414 00:22:09,510 --> 00:22:12,760 Speaker 2: the weakest quarter. So four countries have debt rules, uh 415 00:22:12,770 --> 00:22:15,129 Speaker 2: a fiscal rules and that's a great thing, but they're 416 00:22:15,140 --> 00:22:18,219 Speaker 2: all on the weekend. So they, they, they don't give much, 417 00:22:18,589 --> 00:22:22,349 Speaker 2: much protection against excessive, excessive use of fiscal policy or 418 00:22:22,359 --> 00:22:23,300 Speaker 2: fiscal stimulus. 419 00:22:24,160 --> 00:22:26,589 Speaker 1: Yeah, that's a terrific insight. And I think it's very 420 00:22:26,599 --> 00:22:30,439 Speaker 1: helpful to those who sort of observe worldwide developments, but 421 00:22:30,449 --> 00:22:32,979 Speaker 1: it really contextualizes some of the issues that we're seeing 422 00:22:32,989 --> 00:22:36,160 Speaker 1: in the case of uh South Asia. Um I wanna 423 00:22:36,170 --> 00:22:40,920 Speaker 1: stay with India just a little longer. Um Again, uh 424 00:22:40,930 --> 00:22:44,079 Speaker 1: talking in terms in the context of the fiscal situation. 425 00:22:44,339 --> 00:22:44,979 Speaker 1: Um 426 00:22:45,420 --> 00:22:50,599 Speaker 1: What is your sense of the sort of consolidation plans 427 00:22:50,839 --> 00:22:53,089 Speaker 1: in the near term? Because the other three countries that 428 00:22:53,099 --> 00:22:54,430 Speaker 1: we're talking about mostly, you know, 429 00:22:55,479 --> 00:22:57,569 Speaker 1: some degree of balance of payment pressure, some degree of 430 00:22:57,579 --> 00:23:00,339 Speaker 1: conditionality with the IMF India doesn't have all this, it 431 00:23:00,349 --> 00:23:03,500 Speaker 1: has to sort of set its own course for fiscal consolidation. 432 00:23:03,510 --> 00:23:07,180 Speaker 1: Uh Are you seeing any encouraging signs in that direction? 433 00:23:07,989 --> 00:23:11,448 Speaker 2: You know, India has actually been quite remarkable this kind, 434 00:23:11,459 --> 00:23:16,250 Speaker 2: this the the the fiscal consolidation that's currently planned. And 435 00:23:16,260 --> 00:23:18,849 Speaker 2: the reason I'm saying that is that it's an election year. 436 00:23:19,219 --> 00:23:22,150 Speaker 2: So we, we did a piece, we did an analysis 437 00:23:22,160 --> 00:23:25,729 Speaker 2: of what happens to fiscal positions during elections in this 438 00:23:25,739 --> 00:23:29,079 Speaker 2: recent South Asia development update and as powerful, of course, 439 00:23:29,089 --> 00:23:29,959 Speaker 2: during election 440 00:23:30,319 --> 00:23:34,290 Speaker 2: in emerging markets as a whole, emerging markets in developing 441 00:23:34,300 --> 00:23:37,139 Speaker 2: countries as a whole, 100 and 50 plus countries, that's 442 00:23:37,150 --> 00:23:42,329 Speaker 2: just what happens in election years. Fiscal deficits widen statistically significantly. 443 00:23:42,989 --> 00:23:45,209 Speaker 2: That's just, that's the way it is, it's been forever. 444 00:23:46,130 --> 00:23:49,169 Speaker 2: Uh and they are not unbound the next year, they're 445 00:23:49,180 --> 00:23:53,469 Speaker 2: not statistically significantly unbound. So this is a lasting ratcheting up. 446 00:23:53,989 --> 00:23:58,030 Speaker 2: That's the pattern among emerging markets and developing economies. India 447 00:23:58,040 --> 00:24:01,369 Speaker 2: breaks this the the budget this year has a considerable 448 00:24:01,380 --> 00:24:06,310 Speaker 2: consolidation in there despite the election year. So that's, that's 449 00:24:06,319 --> 00:24:07,709 Speaker 2: uh that's very encouraging. 450 00:24:09,810 --> 00:24:10,958 Speaker 1: OK. Uh 451 00:24:11,920 --> 00:24:14,859 Speaker 1: keep our fingers crossed and hopefully, you know, that continues 452 00:24:14,869 --> 00:24:16,219 Speaker 1: I do worry a little bit about 453 00:24:16,699 --> 00:24:20,280 Speaker 1: weather related issues and, and how they can start affecting 454 00:24:20,290 --> 00:24:23,169 Speaker 1: some degree of economic activity and by extension tax receipts. 455 00:24:23,180 --> 00:24:26,250 Speaker 1: But I think that in a way leads me to 456 00:24:26,260 --> 00:24:30,750 Speaker 1: my next issue. Uh So Francisco, I read your October report. 457 00:24:30,760 --> 00:24:33,839 Speaker 1: There are two terrific chapters there. Uh And I want 458 00:24:33,849 --> 00:24:36,569 Speaker 1: to sort of, you know, touch on those. So there 459 00:24:36,579 --> 00:24:39,659 Speaker 1: is a chapter on firms in South Asia in the 460 00:24:39,670 --> 00:24:43,469 Speaker 1: context of energy intensity and productivity. Uh Tell us a 461 00:24:43,479 --> 00:24:45,040 Speaker 1: bit more about that chapter. 462 00:24:46,489 --> 00:24:49,770 Speaker 2: Yeah. So the the chapter was motivated 463 00:24:51,000 --> 00:24:51,849 Speaker 2: by, 464 00:24:53,130 --> 00:24:56,949 Speaker 2: by uh by an interest in climate mitigation. 465 00:24:58,130 --> 00:25:00,670 Speaker 2: But for South Asia, in, in the end, it doesn't 466 00:25:00,680 --> 00:25:03,319 Speaker 2: make that much difference if South Asia cuts the GG 467 00:25:03,329 --> 00:25:06,469 Speaker 2: emissions because it, it's a small part of the global picture. 468 00:25:06,810 --> 00:25:10,239 Speaker 2: But what is very clear is that productivity is among 469 00:25:10,250 --> 00:25:13,069 Speaker 2: the lowest in the in in emerging markets and developing 470 00:25:13,079 --> 00:25:16,349 Speaker 2: economies is on par with labor productivity and total factor 471 00:25:16,359 --> 00:25:19,150 Speaker 2: productivity is on par with that of Sub Saharan Africa. 472 00:25:20,000 --> 00:25:22,540 Speaker 2: And you see that for labor productivity, you see that 473 00:25:22,550 --> 00:25:25,939 Speaker 2: also for energy efficiency, another kind of productivity. 474 00:25:26,680 --> 00:25:29,680 Speaker 2: So what we showed is that uh South Asia uses 475 00:25:29,689 --> 00:25:32,180 Speaker 2: twice as much energy for each unit of GDP. 476 00:25:32,869 --> 00:25:36,099 Speaker 2: As a global average. There are, there must be low 477 00:25:36,109 --> 00:25:39,839 Speaker 2: hanging fruit to improve productivity and get the gains in 478 00:25:39,849 --> 00:25:42,010 Speaker 2: terms of air pollution and get the gains in in 479 00:25:42,020 --> 00:25:44,939 Speaker 2: terms of lower import bills and get the gains in 480 00:25:44,949 --> 00:25:46,959 Speaker 2: terms of growth and get the gains. What we show 481 00:25:46,969 --> 00:25:50,400 Speaker 2: also in terms of job creation, that's what motivated him. 482 00:25:51,140 --> 00:25:54,739 Speaker 2: And then we looked at what can uh how can 483 00:25:54,750 --> 00:25:59,050 Speaker 2: that be achieved? How can you encourage terms to become 484 00:25:59,060 --> 00:26:00,239 Speaker 2: more energy efficient? 485 00:26:01,270 --> 00:26:04,660 Speaker 2: And it turns out that firms are actually quite energy 486 00:26:04,670 --> 00:26:07,729 Speaker 2: efficient or they're quite advanced or they're quite quick 487 00:26:08,510 --> 00:26:12,859 Speaker 2: in adopting technologies that are quite basic in energy efficiency. 488 00:26:13,229 --> 00:26:16,540 Speaker 2: This region really stands out in led lights, for example, 489 00:26:16,550 --> 00:26:20,619 Speaker 2: three quarters of firms use led lights, energy efficient lighting 490 00:26:20,630 --> 00:26:22,579 Speaker 2: is the most basic technology you can have. 491 00:26:23,719 --> 00:26:27,619 Speaker 2: What they really lack is in the advanced technologies. So 492 00:26:27,630 --> 00:26:31,949 Speaker 2: for example, programmable thermostats, 7% of firms use them compared 493 00:26:31,959 --> 00:26:35,000 Speaker 2: to something like 12 ish percent for emerging other emerging 494 00:26:35,010 --> 00:26:38,849 Speaker 2: markets and developing economies. So firms are very good at 495 00:26:38,859 --> 00:26:43,609 Speaker 2: the basic technologies, they're much less good at the more 496 00:26:43,619 --> 00:26:47,060 Speaker 2: advanced technologies and that's the step that is needed now. 497 00:26:47,969 --> 00:26:49,149 Speaker 2: So why is that? 498 00:26:50,229 --> 00:26:54,410 Speaker 2: Ok, many reasons. But one of the reasons is that 499 00:26:54,420 --> 00:26:58,938 Speaker 2: maybe the the the information doesn't travel enough quickly enough. 500 00:26:58,949 --> 00:27:01,930 Speaker 2: And we, we show that in a very neat experiment 501 00:27:02,589 --> 00:27:05,899 Speaker 2: that gives a lot of encouragement to policymakers. We give 502 00:27:05,910 --> 00:27:09,698 Speaker 2: a few firms motors and meters. So they get, these 503 00:27:09,709 --> 00:27:13,250 Speaker 2: are garment farms in Bangladesh, 500 plus of them, they 504 00:27:13,260 --> 00:27:16,670 Speaker 2: use sewing machines and they use these very dirty old 505 00:27:16,680 --> 00:27:18,849 Speaker 2: clutch motors. So what we do is we give them 506 00:27:18,859 --> 00:27:22,489 Speaker 2: a new server water that's, that runs very energy efficiently 507 00:27:22,609 --> 00:27:25,260 Speaker 2: and we give them a meter to see, to actually 508 00:27:25,270 --> 00:27:27,869 Speaker 2: monitor how much they're saving. So they think they're going 509 00:27:27,880 --> 00:27:30,719 Speaker 2: to save 30% of their energy and 510 00:27:31,239 --> 00:27:34,079 Speaker 2: that's how much they're willing to pay for for this meter, 511 00:27:34,089 --> 00:27:36,380 Speaker 2: about 30% of the actual market price. 512 00:27:37,119 --> 00:27:40,130 Speaker 2: But it turns out when you start metering, they're going 513 00:27:40,140 --> 00:27:44,160 Speaker 2: to save 80%. So there's really huge energy savings in 514 00:27:44,170 --> 00:27:49,180 Speaker 2: this for these firms. So in principle grades, experiment would 515 00:27:49,189 --> 00:27:51,930 Speaker 2: be nice to give everyone motors and meters and you 516 00:27:51,939 --> 00:27:54,349 Speaker 2: would get big and efficient energy efficiency gains. But that's 517 00:27:54,359 --> 00:27:59,060 Speaker 2: obviously not feasible. The interesting bit in that experiment is 518 00:27:59,069 --> 00:28:01,389 Speaker 2: that you don't need to give the motors and meters 519 00:28:01,400 --> 00:28:02,510 Speaker 2: to many firms. 520 00:28:02,739 --> 00:28:07,180 Speaker 2: We find that the same share of firms that never 521 00:28:07,189 --> 00:28:09,250 Speaker 2: got a motor meter, the ones in the control group, 522 00:28:09,959 --> 00:28:13,280 Speaker 2: the same share of firms within three months are already 523 00:28:13,290 --> 00:28:15,020 Speaker 2: beginning to adopt that more time meter, 524 00:28:15,609 --> 00:28:16,619 Speaker 1: demonstration effect, 525 00:28:17,150 --> 00:28:21,719 Speaker 2: demonstration effect, news travels firms are efficient. They see again 526 00:28:21,729 --> 00:28:25,910 Speaker 2: somewhere and news travels, they they just they catch on 527 00:28:25,920 --> 00:28:29,379 Speaker 2: to it and they adopt it and it works. So 528 00:28:29,390 --> 00:28:33,250 Speaker 2: this is a very inspiring experiment. So this is one 529 00:28:33,260 --> 00:28:36,420 Speaker 2: way where policy can actually prod firms. 530 00:28:36,699 --> 00:28:40,949 Speaker 2: And then we also do uh a number of other 531 00:28:40,959 --> 00:28:44,010 Speaker 2: things are difficult to measure. So we rely on literature reviews, 532 00:28:44,280 --> 00:28:48,119 Speaker 2: comprehensive literature review, everything anyone has ever written on the 533 00:28:48,130 --> 00:28:51,829 Speaker 2: kind of things that make firms adopt energy efficient technologies. 534 00:28:52,000 --> 00:28:55,239 Speaker 2: And there are two incredibly powerful policies 535 00:28:56,550 --> 00:28:59,300 Speaker 2: and they're both types of regulation, command and control and 536 00:28:59,310 --> 00:29:03,979 Speaker 2: market based regulation. And they really work, they really encourage 537 00:29:03,989 --> 00:29:08,209 Speaker 2: energy efficient technology and adoption. The problem with them is 538 00:29:08,609 --> 00:29:12,319 Speaker 2: that command control type of regulation imposes heavy costs. You 539 00:29:12,329 --> 00:29:15,449 Speaker 2: usually do see output losses, you see productivity losses 540 00:29:16,250 --> 00:29:18,510 Speaker 2: and that's the beauty of market based regulation. You don't 541 00:29:18,520 --> 00:29:18,900 Speaker 2: see it, 542 00:29:19,790 --> 00:29:22,500 Speaker 2: it's a market based regulation that you see the gains 543 00:29:22,510 --> 00:29:23,650 Speaker 2: without having the pain. 544 00:29:25,359 --> 00:29:29,770 Speaker 1: That is very, very inspiring to hear. OK. Um then 545 00:29:29,780 --> 00:29:33,780 Speaker 1: you have this other chapter which is on green jobs 546 00:29:33,790 --> 00:29:36,050 Speaker 1: uh which I don't think is exactly related to the 547 00:29:36,060 --> 00:29:38,819 Speaker 1: firm liver productivity. So talk a little bit about that chapter. 548 00:29:39,560 --> 00:29:41,729 Speaker 2: Yeah, this is kind of the household equivalent of the 549 00:29:41,739 --> 00:29:44,660 Speaker 2: firm level chapter. The first one about energy efficiency. 550 00:29:45,969 --> 00:29:49,349 Speaker 2: And there the main goal was to find out how 551 00:29:49,359 --> 00:29:52,939 Speaker 2: will the energy transition affect South Asia it's going to 552 00:29:52,949 --> 00:29:57,180 Speaker 2: happen globally. So whether it happens by government fiat or 553 00:29:57,189 --> 00:30:01,180 Speaker 2: whether it happens by farms adjusting to global prices is 554 00:30:01,189 --> 00:30:02,189 Speaker 2: going to be underway. 555 00:30:03,000 --> 00:30:05,479 Speaker 2: And what will happen is that you will see polluting 556 00:30:05,489 --> 00:30:09,260 Speaker 2: industries contract and you will see green industries 557 00:30:10,140 --> 00:30:13,810 Speaker 2: expand. Now, the question is how many workers will be affected? 558 00:30:13,819 --> 00:30:16,130 Speaker 2: It turns out it's about 10% of the workers in 559 00:30:16,140 --> 00:30:16,640 Speaker 2: that region, 560 00:30:17,550 --> 00:30:22,479 Speaker 2: 10% of workers in nine. OK. Precisely speaking, 9% of 561 00:30:22,489 --> 00:30:27,449 Speaker 2: workers have pollution intensive jobs in every country in the region. 562 00:30:27,459 --> 00:30:31,449 Speaker 2: Other than India, the number of pollution intensive workers is 563 00:30:31,459 --> 00:30:33,650 Speaker 2: more than the number of green workers. 564 00:30:34,790 --> 00:30:37,099 Speaker 2: And the first question, we always get there, what's green, 565 00:30:37,109 --> 00:30:40,890 Speaker 2: what's pollution intensive? And that is actually beginning to be 566 00:30:40,900 --> 00:30:44,270 Speaker 2: in a consensus. Now, in the academic literature, the green 567 00:30:44,280 --> 00:30:47,859 Speaker 2: workers are the ones that have green tasks. Some these 568 00:30:47,869 --> 00:30:51,170 Speaker 2: are workers and occupations with some sort of green task. 569 00:30:51,310 --> 00:30:54,660 Speaker 2: So that can be recycling, that can be a renewable engineer. 570 00:30:54,739 --> 00:30:57,069 Speaker 2: But that can also be a bicycle repair guide. 571 00:30:57,900 --> 00:31:00,199 Speaker 2: That can be a forest manager. 572 00:31:01,050 --> 00:31:05,540 Speaker 2: It's, it's a broad range of of occupations and the 573 00:31:05,550 --> 00:31:09,500 Speaker 2: pollution intensive industry. Jobs are those that are the most 574 00:31:09,510 --> 00:31:12,689 Speaker 2: common and pollution intensive industries. So yes, those are the 575 00:31:12,699 --> 00:31:16,199 Speaker 2: coal miners but they are also the government workers. There 576 00:31:16,209 --> 00:31:21,189 Speaker 2: are also gosh, I forget the examples in agriculture but there, 577 00:31:21,199 --> 00:31:24,699 Speaker 2: there are still 0.2% of the jobs in agriculture are 578 00:31:24,709 --> 00:31:26,109 Speaker 2: also pollution intensive. 579 00:31:26,900 --> 00:31:30,310 Speaker 2: The I guess the fertilizer that whoever is heavily involved 580 00:31:30,319 --> 00:31:33,920 Speaker 2: in fertilizer also pollution intensive. So it's, it's, it's not 581 00:31:33,930 --> 00:31:38,040 Speaker 2: just agriculture versus non agriculture, it's much broader, these green 582 00:31:38,050 --> 00:31:39,349 Speaker 2: and pollution intensive jobs 583 00:31:40,339 --> 00:31:43,410 Speaker 2: and what we find is, OK, 9% of workers in 584 00:31:43,420 --> 00:31:46,079 Speaker 2: the region as a whole will have to move somewhere 585 00:31:46,199 --> 00:31:48,410 Speaker 2: or at least a good chunk of them because they 586 00:31:48,420 --> 00:31:49,680 Speaker 2: have pollution intensive jobs. 587 00:31:50,390 --> 00:31:53,050 Speaker 2: And these are specific workers and specific regions. 588 00:31:53,750 --> 00:31:57,650 Speaker 2: The workers who are pollution intensive are significantly lower skilled 589 00:31:58,020 --> 00:32:00,890 Speaker 2: and are significantly more likely to be an informal job. 590 00:32:01,099 --> 00:32:03,810 Speaker 2: So it's exactly the workers who find it difficult to move. 591 00:32:04,589 --> 00:32:07,939 Speaker 2: And the green workers workers and green jobs are significantly 592 00:32:07,949 --> 00:32:11,500 Speaker 2: better educated and they are much more likely to be former. 593 00:32:12,250 --> 00:32:14,369 Speaker 2: And on top of that, to add insult to injury, 594 00:32:14,459 --> 00:32:18,329 Speaker 2: they get a wage premium of 7%. A statistically significant 595 00:32:18,339 --> 00:32:22,569 Speaker 2: wage premium of 7%. On top of the higher wages 596 00:32:22,579 --> 00:32:25,260 Speaker 2: they get anyways because they're better educated in, in the 597 00:32:25,270 --> 00:32:26,390 Speaker 2: former jobs. 598 00:32:27,219 --> 00:32:31,459 Speaker 2: So the green workers, I keep telling you these university events, 599 00:32:31,469 --> 00:32:33,689 Speaker 2: I tell all these graduates go for a green job. 600 00:32:33,699 --> 00:32:37,510 Speaker 2: There's 7% waiting for you and it's a pollution intensive 601 00:32:37,520 --> 00:32:40,079 Speaker 2: workers that are the ones who struggle most who will 602 00:32:40,089 --> 00:32:43,739 Speaker 2: struggle most to find jobs. And it's also the pollution 603 00:32:43,790 --> 00:32:48,439 Speaker 2: intensive regions that, that there are eight regions around the 604 00:32:48,449 --> 00:32:50,880 Speaker 2: uh subregions or sub national groups 605 00:32:51,339 --> 00:32:54,449 Speaker 2: in the region that are very heavily expo exposed to 606 00:32:54,459 --> 00:32:58,069 Speaker 2: pollution intensive jobs compared to only four regions that are 607 00:32:58,079 --> 00:33:01,420 Speaker 2: very big on green. So it's these pollution intensive regions 608 00:33:01,430 --> 00:33:02,510 Speaker 2: that are really struggle. 609 00:33:03,500 --> 00:33:05,890 Speaker 2: And there's just one last aspect to our research that 610 00:33:05,900 --> 00:33:06,439 Speaker 2: we done it 611 00:33:07,089 --> 00:33:09,619 Speaker 2: currently, we know how many workers are with jobs, but 612 00:33:09,630 --> 00:33:12,219 Speaker 2: we don't know what's going to happen. And as the 613 00:33:12,229 --> 00:33:17,469 Speaker 2: closest parallel we looked at past resource booms and resource busts, 614 00:33:17,589 --> 00:33:21,280 Speaker 2: what happened to regions, subnation regions that had a research boom, 615 00:33:21,290 --> 00:33:24,410 Speaker 2: resource bust. And there is actually a large literature. I mean, 616 00:33:24,420 --> 00:33:26,459 Speaker 2: I'm sure we've all heard of the coal mines in 617 00:33:26,469 --> 00:33:29,250 Speaker 2: West Appalachia and we've, we've heard of them in, in 618 00:33:29,260 --> 00:33:33,609 Speaker 2: the UK and Germany, but there's also oil rigs in 619 00:33:33,619 --> 00:33:35,030 Speaker 2: uh Brazil. For example, 620 00:33:35,390 --> 00:33:38,750 Speaker 2: there are large parts of um Latin America that the 621 00:33:38,760 --> 00:33:41,770 Speaker 2: mines opening and closing. And what turns out to be 622 00:33:41,780 --> 00:33:45,500 Speaker 2: the case sir is that the boom gives you temporary 623 00:33:45,510 --> 00:33:49,770 Speaker 2: employment gains, not earnings, employment gains because people flood into 624 00:33:49,780 --> 00:33:53,530 Speaker 2: the region and the bus gives you lasting employment losses 625 00:33:53,540 --> 00:33:56,979 Speaker 2: and earnings losses. They last, they stay and they stay 626 00:33:56,989 --> 00:34:00,010 Speaker 2: more than a generation because that job that is lost 627 00:34:00,020 --> 00:34:00,890 Speaker 2: by mom and dad. 628 00:34:01,520 --> 00:34:06,560 Speaker 2: It means lower skilled kids, lower educated kids, lower income kids. It's, 629 00:34:06,569 --> 00:34:10,590 Speaker 2: it's really lasting losses for these reasons that go through 630 00:34:10,600 --> 00:34:14,580 Speaker 2: busts so big, big challenge for policymakers, big challenge. 631 00:34:15,709 --> 00:34:19,489 Speaker 1: And in terms of that, just expanding on that issue 632 00:34:19,500 --> 00:34:23,179 Speaker 1: of the big challenge for policymakers. Uh South Asia of course, 633 00:34:23,189 --> 00:34:26,250 Speaker 1: has large amount of its energy coming from fossil fuel, 634 00:34:26,260 --> 00:34:30,719 Speaker 1: particularly coal. Um Do you see uh any sort of, 635 00:34:30,729 --> 00:34:33,609 Speaker 1: you know, national strategies in place in terms of 636 00:34:34,100 --> 00:34:36,600 Speaker 1: not just issue of phasing out coal because there, I 637 00:34:36,610 --> 00:34:40,040 Speaker 1: think most countries have made some long term, you know, 638 00:34:40,050 --> 00:34:42,790 Speaker 1: net zero commitments and so on, but those are in 639 00:34:42,800 --> 00:34:44,500 Speaker 1: the 20 sixties and so on. But I'm just talking 640 00:34:44,510 --> 00:34:47,850 Speaker 1: about in the near term dealing with coal phase out 641 00:34:47,860 --> 00:34:50,899 Speaker 1: or dealing with coal sector jobs. Uh Are we seeing 642 00:34:50,909 --> 00:34:52,909 Speaker 1: any encouraging developments at all? 643 00:34:56,239 --> 00:34:59,259 Speaker 2: Maybe the private sector is a more exciting part there 644 00:35:00,100 --> 00:35:02,479 Speaker 2: through all these countries that I visited, there is a 645 00:35:02,489 --> 00:35:04,620 Speaker 2: real hype around renewable energy. 646 00:35:05,449 --> 00:35:06,819 Speaker 2: Is there is 647 00:35:08,320 --> 00:35:12,299 Speaker 2: a really broad based interest in renewable energy from investors, 648 00:35:12,310 --> 00:35:16,449 Speaker 2: from households, from firms everywhere. There is this keenness on 649 00:35:16,459 --> 00:35:18,949 Speaker 2: renewable energy and for, for several reasons, 650 00:35:19,760 --> 00:35:22,159 Speaker 2: one is that in some cases, it's even cheaper than 651 00:35:22,169 --> 00:35:25,909 Speaker 2: the grid energy in some cases, much more reliable because 652 00:35:25,919 --> 00:35:28,820 Speaker 2: the grid is so unreliable. It's, it's a way for 653 00:35:28,830 --> 00:35:32,699 Speaker 2: people to get access to energy that don't have access to, to, 654 00:35:32,709 --> 00:35:35,449 Speaker 2: to the grid. In that sense, it's a, it's a, 655 00:35:35,459 --> 00:35:38,610 Speaker 2: it is full of opportunities and lots of people who 656 00:35:38,620 --> 00:35:41,540 Speaker 2: are looking for them. The other thing that's encouraging 657 00:35:42,219 --> 00:35:46,419 Speaker 2: when you look at the number of jobs in renewable industries, 658 00:35:46,949 --> 00:35:50,820 Speaker 2: those the number of renewable industry jobs in India is 659 00:35:50,830 --> 00:35:53,459 Speaker 2: almost in power with those within the US or in Europe. 660 00:35:53,850 --> 00:35:56,860 Speaker 2: The only country that is really well ahead. Orders of 661 00:35:56,870 --> 00:35:59,919 Speaker 2: magnitude ahead is China, they have much more. But 662 00:36:00,550 --> 00:36:03,840 Speaker 2: the, the, the, the interest or the size of the 663 00:36:03,850 --> 00:36:06,949 Speaker 2: renewable industry at least measured by the number of jobs 664 00:36:06,989 --> 00:36:09,879 Speaker 2: in India. It's just as much as in the big 665 00:36:09,889 --> 00:36:13,810 Speaker 2: advanced economies that is very encouraging. It's a hot new industry. 666 00:36:14,979 --> 00:36:17,229 Speaker 1: It sure is ok. Really? To do that. I I 667 00:36:17,239 --> 00:36:19,360 Speaker 1: want to just, you know, float a thought that I 668 00:36:19,370 --> 00:36:21,299 Speaker 1: have with you and I want to hear your reaction 669 00:36:21,310 --> 00:36:25,699 Speaker 1: to that. Um So recently I've seen quite a few articles, economists, 670 00:36:25,709 --> 00:36:30,020 Speaker 1: financial Times sort of criticizing India for becoming progressively protectionist 671 00:36:30,030 --> 00:36:33,479 Speaker 1: and particularly in the context of green transition that you know, 672 00:36:33,989 --> 00:36:37,399 Speaker 1: the cheapest green energy materials come from China. But now 673 00:36:37,409 --> 00:36:39,520 Speaker 1: there are trade barriers and India sort of using industrial 674 00:36:39,530 --> 00:36:42,600 Speaker 1: policy to create its own green infrastructure and green manufacturing. 675 00:36:43,260 --> 00:36:46,060 Speaker 1: I personally don't have a problem with that because if 676 00:36:46,070 --> 00:36:48,638 Speaker 1: two countries, two of the largest countries in the world 677 00:36:48,719 --> 00:36:51,199 Speaker 1: are using their own resources to subsidize green transition, it's 678 00:36:51,209 --> 00:36:52,560 Speaker 1: great for the rest of the world, we get to 679 00:36:52,570 --> 00:36:55,300 Speaker 1: buy those things for cheap because they're putting excess supply. 680 00:36:55,419 --> 00:36:56,639 Speaker 1: What's your view on that? 681 00:36:57,689 --> 00:37:00,909 Speaker 2: I actually share a lot of this. It's uh it's 682 00:37:00,919 --> 00:37:01,989 Speaker 2: very expensive 683 00:37:02,760 --> 00:37:03,810 Speaker 2: to subsidize 684 00:37:05,399 --> 00:37:08,659 Speaker 2: and many of these projects, subsidies will fail to generate 685 00:37:08,669 --> 00:37:11,219 Speaker 2: any return. So it's, 686 00:37:12,010 --> 00:37:14,939 Speaker 2: it's good. I mean, it's something that the US and 687 00:37:14,949 --> 00:37:18,360 Speaker 2: Europe can afford. Maybe it's a different matter for emerging markets. Well, 688 00:37:18,370 --> 00:37:21,259 Speaker 2: there aren't many emerging markets that can afford these kinds 689 00:37:21,270 --> 00:37:24,790 Speaker 2: of subsidies. And I'm not sure it's the best investment 690 00:37:25,159 --> 00:37:27,530 Speaker 2: for emerging markets to 691 00:37:28,310 --> 00:37:31,909 Speaker 2: double down on these things rather than just wait for 692 00:37:31,919 --> 00:37:34,090 Speaker 2: whatever comes out of the US and out of Europe 693 00:37:34,709 --> 00:37:38,179 Speaker 2: as they're competing with China and, and just gain whatever's take, 694 00:37:38,189 --> 00:37:41,290 Speaker 2: whatever is the cheapest out of this. The other aspect 695 00:37:41,300 --> 00:37:43,770 Speaker 2: to this is also that the region really stands out 696 00:37:43,790 --> 00:37:45,049 Speaker 2: in its uh 697 00:37:45,939 --> 00:37:49,070 Speaker 2: it is controls of all sorts of uh flows of 698 00:37:49,080 --> 00:37:52,800 Speaker 2: the outside world. It has above average import, export controls, 699 00:37:52,989 --> 00:37:57,219 Speaker 2: it has above average foreign currency controls, it has above 700 00:37:57,229 --> 00:38:01,080 Speaker 2: average capital inflow and outflow controls. So already the reflex 701 00:38:01,090 --> 00:38:02,639 Speaker 2: in the region is to control 702 00:38:03,540 --> 00:38:06,169 Speaker 2: to now add to that the fiscal dimension is is 703 00:38:06,179 --> 00:38:08,300 Speaker 2: going to be expensive, expensive. Yeah, 704 00:38:08,760 --> 00:38:11,399 Speaker 1: I I, so we conclude with you. OK. So we've 705 00:38:11,409 --> 00:38:14,679 Speaker 1: talked exclusively about South Asia but Francisco in your career, 706 00:38:14,689 --> 00:38:17,949 Speaker 1: you've done many other things and you've done some broad 707 00:38:17,959 --> 00:38:20,189 Speaker 1: based cross country analysis as well. So earlier this year, 708 00:38:20,199 --> 00:38:22,469 Speaker 1: for example, you co authored a publication with 709 00:38:22,770 --> 00:38:26,830 Speaker 1: Lucia Coti on trade related impediments to growth. So let's 710 00:38:26,840 --> 00:38:28,620 Speaker 1: talk about this in a broader lens because this is 711 00:38:28,629 --> 00:38:30,770 Speaker 1: very issue is very close to our hearts here in 712 00:38:30,780 --> 00:38:33,909 Speaker 1: Southeast Asia because this region is of course very open 713 00:38:33,919 --> 00:38:37,859 Speaker 1: to trade and is feeling the impact of various trade 714 00:38:37,870 --> 00:38:40,020 Speaker 1: barriers going up around the world. So what was your 715 00:38:40,030 --> 00:38:44,260 Speaker 1: key takeaway in that paper on trade related impediments to growth? 716 00:38:45,850 --> 00:38:48,620 Speaker 2: So this is a real global trade is a real 717 00:38:48,629 --> 00:38:50,360 Speaker 2: problem for all the countries that are open. And it's 718 00:38:50,370 --> 00:38:53,639 Speaker 2: not just Southeast Asia Bangladesh also for years was very open, 719 00:38:53,649 --> 00:38:56,530 Speaker 2: relies heavily for growth on the export industry, no garments 720 00:38:56,540 --> 00:38:59,590 Speaker 2: in particular, but global trade as a whole has slowed. 721 00:38:59,600 --> 00:39:03,549 Speaker 2: And I'm sure that the culprits are very well well 722 00:39:03,560 --> 00:39:06,219 Speaker 2: known now maturing of global supply chain, a pivot of 723 00:39:06,229 --> 00:39:10,879 Speaker 2: global demand to government away from investment and trade tensions. 724 00:39:11,149 --> 00:39:13,189 Speaker 2: So these are sort of standard three arguments. 725 00:39:13,629 --> 00:39:17,300 Speaker 2: But even so that has reduced the trade elasticity from 726 00:39:17,310 --> 00:39:21,139 Speaker 2: something like 2 to 1 in the until about 2010 727 00:39:21,149 --> 00:39:23,600 Speaker 2: until the global financial crisis to something like 1 to 728 00:39:23,610 --> 00:39:27,158 Speaker 2: 1 ever since then. So every unit of growth will 729 00:39:27,169 --> 00:39:29,719 Speaker 2: just about give you of output growth will give you 730 00:39:29,729 --> 00:39:33,149 Speaker 2: just about one unit of trade growth that's very well established. 731 00:39:33,699 --> 00:39:37,409 Speaker 2: The problem is that going forward, it's the output growth 732 00:39:37,419 --> 00:39:38,449 Speaker 2: that's also slowing. 733 00:39:38,760 --> 00:39:41,169 Speaker 2: And that's a different study that that to try to 734 00:39:41,179 --> 00:39:43,770 Speaker 2: really look at all the drivers of growth, all the 735 00:39:43,780 --> 00:39:46,929 Speaker 2: standard drivers of productivity growth and labor market growth and 736 00:39:47,169 --> 00:39:50,719 Speaker 2: capital investment, all the usual drivers of growth and everyone 737 00:39:50,729 --> 00:39:51,419 Speaker 2: you look at 738 00:39:52,370 --> 00:39:55,239 Speaker 2: points to a slowdown, at least at current trends unless 739 00:39:55,250 --> 00:39:58,290 Speaker 2: there's there's some sort of more productivity miracle maybe charge GT. 740 00:39:58,600 --> 00:40:01,459 Speaker 2: So output growth is going to slow by about half 741 00:40:01,469 --> 00:40:04,540 Speaker 2: a percentage point globally. And you will see that in 742 00:40:04,550 --> 00:40:07,820 Speaker 2: trade growth. So any country that wants to grow on 743 00:40:07,830 --> 00:40:09,830 Speaker 2: growth is going to have it harder. 744 00:40:10,770 --> 00:40:14,070 Speaker 2: Which means the only way you can grow on external 745 00:40:14,080 --> 00:40:17,750 Speaker 2: trade growth on external growth is by gaining market share. 746 00:40:17,790 --> 00:40:20,819 Speaker 2: How can you do that by reducing trade cost and 747 00:40:20,830 --> 00:40:23,979 Speaker 2: trade costs? We didn't realize until we started this. I'm 748 00:40:23,989 --> 00:40:26,409 Speaker 2: sure other people the experts realized, but they're huge. 749 00:40:27,229 --> 00:40:31,469 Speaker 2: An international, the global average is that an internationally traded 750 00:40:31,479 --> 00:40:33,448 Speaker 2: good costs twice as much 751 00:40:34,270 --> 00:40:38,379 Speaker 2: as a domestically, the same good domestically traded. So global 752 00:40:38,389 --> 00:40:42,500 Speaker 2: trade costs are the tariff equivalent of about 100%. And 753 00:40:42,510 --> 00:40:44,610 Speaker 2: that's got very little to do with tariffs 754 00:40:45,300 --> 00:40:49,879 Speaker 2: because even emerging markets, the average tariff is about 77 8% 755 00:40:50,280 --> 00:40:53,419 Speaker 2: compared that to trade costs with tariff equivalent of 100%. 756 00:40:53,550 --> 00:40:58,620 Speaker 2: So these tariff costs and logistics and shipping, large parts 757 00:40:58,629 --> 00:41:03,830 Speaker 2: of it are just logistics and shipping. Uncompetitive. Um 758 00:41:05,300 --> 00:41:08,649 Speaker 2: Yeah, movement of of goods and services of course, have 759 00:41:08,659 --> 00:41:11,040 Speaker 2: these non tariff barriers, not a lot of regulation. That's 760 00:41:11,050 --> 00:41:13,810 Speaker 2: the main thing and services. But in goods, it's all 761 00:41:13,820 --> 00:41:17,479 Speaker 2: about shipping and logistics and border controls and, and so 762 00:41:17,909 --> 00:41:20,080 Speaker 2: signed in the wheels and lack of competition. 763 00:41:20,800 --> 00:41:23,600 Speaker 2: So we've actually done a bunch of regressions and an 764 00:41:23,610 --> 00:41:27,139 Speaker 2: assault experiment. What would happen if a country in the 765 00:41:27,149 --> 00:41:31,419 Speaker 2: worst quartile on shipping, logistics and border restrictions 766 00:41:32,300 --> 00:41:33,790 Speaker 2: moved into the best quartile 767 00:41:34,709 --> 00:41:37,889 Speaker 2: improved all his conditions. So these, these things would improve 768 00:41:37,899 --> 00:41:40,029 Speaker 2: as much as between the lows and a worse and 769 00:41:40,040 --> 00:41:42,429 Speaker 2: the best quarter. And that would could halve 770 00:41:43,520 --> 00:41:47,429 Speaker 2: global trade, uh trade costs or trade costs in that country. 771 00:41:47,679 --> 00:41:50,949 Speaker 2: That that's a very big experiment because I basically take 772 00:41:50,959 --> 00:41:52,659 Speaker 2: something like Sierra Leone to Poland. 773 00:41:53,469 --> 00:41:56,928 Speaker 2: But there there could be big gains from improvements. 774 00:41:58,129 --> 00:41:59,620 Speaker 2: That's the bottom line, 775 00:42:00,250 --> 00:42:03,659 Speaker 1: right? But uh we're not really seeing that are we 776 00:42:04,659 --> 00:42:08,638 Speaker 2: very difficult to do, right. So there are examples, for example, in, 777 00:42:08,649 --> 00:42:13,399 Speaker 2: in West Africa, there have been big examples on digitizing 778 00:42:13,409 --> 00:42:17,300 Speaker 2: borders actually in Guatemala as well. The the idea was 779 00:42:17,310 --> 00:42:20,229 Speaker 2: to get rid of all these border requirements, collapse them 780 00:42:20,239 --> 00:42:23,580 Speaker 2: into a single, single point where you submit all the 781 00:42:23,590 --> 00:42:27,000 Speaker 2: documents and then you share them across the border. And in, 782 00:42:27,010 --> 00:42:30,159 Speaker 2: in both Africa and Latin America and Central America, you 783 00:42:30,169 --> 00:42:33,159 Speaker 2: have seen big improvements than in volume 784 00:42:33,659 --> 00:42:36,929 Speaker 2: number of journeys. I guess the number of journeys and 785 00:42:36,939 --> 00:42:40,040 Speaker 2: volume of journeys, of volume of goods across the border. 786 00:42:41,149 --> 00:42:45,010 Speaker 1: See, this is the beauty of doing cross country research 787 00:42:45,020 --> 00:42:45,770 Speaker 1: and taking 788 00:42:46,300 --> 00:42:49,300 Speaker 1: insights from Latin America and then trying to see its 789 00:42:49,310 --> 00:42:52,899 Speaker 1: implications for South Asia uh Francisco. Such a pleasure to 790 00:42:52,909 --> 00:42:55,299 Speaker 1: have you on this chat. Uh The work that you 791 00:42:55,310 --> 00:42:57,549 Speaker 1: do is deep and broad based. I mean, I don't 792 00:42:57,560 --> 00:42:59,489 Speaker 1: think we can do justice to that in a 30 793 00:42:59,500 --> 00:43:01,850 Speaker 1: 40 minute conversation, but I think you've given us enough 794 00:43:01,860 --> 00:43:05,330 Speaker 1: flavor to sort of, you know, pique the interest of 795 00:43:05,340 --> 00:43:07,000 Speaker 1: our listeners and hopefully some of them will go to 796 00:43:07,010 --> 00:43:09,049 Speaker 1: the World Bank page and check out some of your 797 00:43:09,060 --> 00:43:12,149 Speaker 1: very valuable research work. So again, thank you very much 798 00:43:12,159 --> 00:43:13,199 Speaker 1: for your time and insights. 799 00:43:13,739 --> 00:43:16,489 Speaker 2: Thank you so much. It's such a pleasure to be 800 00:43:16,500 --> 00:43:18,320 Speaker 2: here with you. Thank you very much. 801 00:43:18,770 --> 00:43:21,939 Speaker 1: Great to have you too. Uh Copy Time was produced 802 00:43:21,949 --> 00:43:25,399 Speaker 1: by Ken Delbridge at Sply Studios, Violet Lee and Daisy 803 00:43:25,409 --> 00:43:28,909 Speaker 1: Sharma provided additional assistance. It is for information only and 804 00:43:28,919 --> 00:43:30,310 Speaker 1: does not represent any trade recommendation. 805 00:43:30,979 --> 00:43:34,330 Speaker 1: All 113 episodes of the podcast are available on youtube 806 00:43:34,620 --> 00:43:38,388 Speaker 1: and on all major podcast platforms including Apple Google and Spotify. 807 00:43:38,570 --> 00:43:42,029 Speaker 1: As for our research publications, webinars and live streams, you 808 00:43:42,040 --> 00:43:45,428 Speaker 1: can find them all by Googling D BS research library. 809 00:43:45,600 --> 00:43:46,870 Speaker 1: Have a great day.