Tracking inflation in South Asia

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Offline fatema nusrat chowdhury

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Tracking inflation in South Asia
« on: February 25, 2015, 03:21:44 PM »
In the preface of Managing Food Price Inflation in South Asia, Sadiq Ahmed, vice chairman of the Policy Research Institute, and Hans GP Jansen, senior agriculture economist for the World Bank's South Asia, say the immediate concern of political economy in the region has been to 'stabilise domestic food prices and lower inflation'. This concern is easy to see when one looks at the adverse consequences for poverty reduction. Here is more on the book that compiles articles from 12 contributors.


The surge in global commodity prices during 2004-08 presented a tremendous development challenge to South Asian countries. On a net basis, South Asia is estimated to have suffered a cumulative income loss equivalent to some 9.6 percent of GDP between January 2003 and April 2008. Although much of the income loss resulted from the hike in energy prices, the surge in food prices created a tremendous adverse social impact in South Asia, although India was largely able to limit this increase through a combination of timely interventions using stock management and public food distribution. Net food importing countries like Afghanistan, Sri Lanka and Bangladesh suffered the most from the food price crisis.

The adverse effect of the rise in global commodity prices on macroeconomic balances has been substantial. South Asian countries have seen a sharp increase in fiscal deficits and a worsening in the balance of payments. The rate of inflation surged and for the first time in South Asia's history all countries simultaneously experienced double digit inflation rates, with 20 plus rates in Afghanistan, Pakistan and Sri Lanka. In all countries, the immediate political economy concern was to stabilise domestic food prices and lower inflation in order to limit poverty increases. The share of food consumption in total consumption is extremely high in South Asia, averaging nearly 50 percent as compared to 17 percent in USA. It is even higher for the poor who are also mostly net food buyers and as a result have been hurt most by the increase in food prices.

While much of the immediate policy focus has been on food price stabilisation, especially for wheat and rice, the implications of the various policies used for short-term price stabilisation for longer-term supply response, growth, economic efficiency and fiscal sustainability have not always been analysed or thought through. South Asian countries have also intervened to put in place various safety net programmes to protect the poor. The efficiency and effectiveness of these schemes in terms of outcomes and consistency with fiscal sustainability in an environment of external shocks and tight fiscal space vary significantly across individual countries.

To understand the implications of the food crisis for South Asia a conference was organised in November 2008 in Dhaka. The main objective of the conference was to provide a forum for exchanging experiences and analysis to help policymakers to position themselves on how to respond effectively to be global price crises over the longer term. Representatives from six South Asian countries -- Afghanistan, Bangladesh, India, Nepal, Pakistan and Sri Lanka -- participated in the conference on November 15-16, 2008. Bangladesh as the host country participated with full strength including high level policymakers, political representatives, academics, business, media and the donor community. In addition, experts from the World Bank and International Food Policy Research Institute participated in the conference as resource persons. The conference was jointly sponsored by the World Bank Institute, the South Asia Region of the World Bank and the Bangladesh Power and Participation Research Centre (PPRC). The latter served as the local host for the conference.

The papers included in the book reflect what was presented at the conference by the authors from the region. The book is divided into two parts. Part I provides the regional context of the key issues in managing food prices in South Asia. The first chapter by Sadiq Ahmed provides the macroeconomic context of the food price inflation challenge and implications for policy reforms. The second chapter by Tara Vishwanath and Umar Serajuddin discusses the poverty impact of rising food prices. Chapter 3, written by Mansoora Rashid and Celine Ferre, lays out the issues in designing sound safety net programs in South Asian countries based on experiences within the region and elsewhere. Chapters 4-9 contain six country studies prepared by local scholars. Part 2 also provides an epilogue that cautions against the unrealistic optimism that a decline in food prices implies an end to the global food management problems and the related policy agenda.

Besides the book, the World Bank performed additional analyses of what was happening during the food crisis and potential solutions. The resulting sector report includes an analysis of the potential of regional cooperation to mitigate price increases; and a simulation of the extent to which reactions of consumers and producers to price increases may dampen the negative poverty impact. Important conclusions are that regional cooperation will need to go beyond SAFTA to impact food prices, and that continuing public investments are needed to enable producers to benefit from higher food prices.

The analyses of the book and the sector report are now again becoming increasingly relevant. Global food and commodity prices are on the upswing once more. Food price inflation has surged in all South Asian economics and poses similar challenges for poverty reduction and human welfare as earlier. The relapse of food price increases suggest that the unfinished policy agenda needs to be carefully reviewed and actions taken on a more sustainable basis than simply to try to ward off the immediate political risks associated with rising food prices.