Macro-Economic Performance of the ECO Region in 2001

 

 

The ECO region is geographically vast and well endowed with potential economic resources in different fields/sectors, such as agriculture and arable land, energy and mining, human resources, and a vast strategic trading region. Yet, this inherent potential does not manifest itself in the form of reasonable levels of economic and social development in the ECO countries as a group. Despite many unfavourable factors, the economies of the region displayed impressive resilience since 2000. The economies of the member states were slightly affected by the global downturn in 2001 but compared to 2001, GDP growth picked up in the region in 2002. This was mainly on account of the recovery of Turkey from negative growth in 2001 and higher growth in Pakistan and the Islamic Republic of Iran. Growth in the region was achieved on the back of growing investor and consumer confidence that attracted, enhanced external capital to resource-rich economies and facilitated greater macroeconomic stability, particularly exchange rate stability, as production increased and inflation declined virtually in most of the economies of the region.

 

Nevertheless, core development challenge within the region is to ensure productive work and a much better quality of life for almost 360 million inhabitants. On the other hand, significant achievements in economic and human welfare in ECO countries as measured by average human development indicators should be acknowledged. In hindsight, the region has displayed considerable resilience in dealing with the 1997-1998 crisis and in meeting the challenges it posed in both economic and social fields. The implied shortfall in output in the region translates into lower levels of job creation and, through reduced tax yields, new pressures on government budgets. The 2001-2002 slowdown provided another opportunity to fashion new policy responses to promote growth in 2003 and, for the region as a whole, to resume its pace of economic and social development. The immediate policy challenge, therefore, is to regain and sustain the momentum of growth in the region. A point to emphasize is that sustaining the momentum of growth is necessary not merely for its own sake but to provide Governments with the resources to address emerging social issues and problems and alleviate poverty and social distress progressively through the higher levels of employment made possible by durable growth.

 

The ECO as a developing region has to manage to grow at a reasonable pace thus far through a combination of supportive domestic policies and greater international and intraregional trade. Sustaining growth in the region would depend on stimulating domestic demand. Indeed, it is now commonly agreed that the global economy is unlikely to show strong growth until well into 2003 or possibly later. In other words, the growth stimulus from a rebound in world trade and hence from net exports is likely to be moderate among the ECO countries over the next years. In particular, much will depend on the course of commodity and energy prices over the coming months. The economic rebound in late 2002, combined with domestic policies, was expected to lead to a higher pace of growth in the region.

 

On the other hand, it has to be recognized, too, that reforms are an essential, continuing process that needs to be securely anchored in a realistic framework of development strategies in ECO countries. Ten years have passed since the ECO member countries of which Central Asia and Azerbaijan embarked on the transition from a command economy to the establishment of a market system. Over the past decade, two general patterns of transition have materialized. Rapid liberalization, progress in large-scale privatization and sustained macroeconomic stabilization has been coupled with progressive structural reform and institutional change. However, the transition process is not yet complete as they continue to struggle to implement macroeconomic stabilization, basic institutional, and policy reforms. The combination of regional and country programmes would help these different stages of transition and challenges to overcome by these countries of the region. On the domestic front, given the higher or rising levels of public debt in many member countries, a fundamental question is the degree to which fiscal stimulus can be maintained over the medium term without running the risk of getting caught in the debt trap, a situation where debt starts to grow faster than the means to service it. The issue of fiscal sustainability arises in most of the ECO member economies, including those where the budget deficits have historically existed for some time and where public debt, as a ratio of GDP, has risen to a high level.

 

Production and Growth

 

With a total population of about 355.9 million (5.8 percent of the world population), the combined GDP of the ECO countries amounted to US$ 491.2 billion in 2000. This made up only 1.6 percent of the world GDP. The slow recovery achieved by the ECO countries as a group in 1999 accelerated significantly in 2000 with average real GDP recorded 6.1 percent compared to 0.3 percent contraction in 1999. However, due to the weakened world economic activity in late 2000 and combined GDP of the ECO countries dropped to US$ 374.2 billion (1.2 percent of the total GDP of the world) and real output growth declined to 0.4 percent in 2001, but is expected to recover slightly in 2002 and during 2003. The ECO countries maintained the highest average per capita GDP of US$ 1,468 in 2000. However, the figure decreased slightly in 2001 to reach US$ 1,112. At the individual country level, Tajikistan was the country with the lowest per capita GDP (US$171) in 2001, while Turkey was the one with the highest (US$ 2,230) in the same year.

 

 TABLE 1: ECO Countries GDP and per capita GDP*

 

1997

1998

1999

2000

2001

GDP (billion US $)

390.6

421.3

431.6

791.2

374.5

As % of World

1.3

1.4

1.4

1.6

1.2

Per capita GDP (US $)

1,225

1,297

1,305

1,468

1,112

GDP growth rate (%)

5.1

3.4

-0.3

6.1

0.4

Developing countries

5.8

3.5

3.9

5.7

4.0

(*) The figures do not include data for Afghanistan.

Sources:  World Development Report 2003, World Bank, ECO Secretariat database.

 

Throughout the period under consideration (1997-2001), the ECO countries achieved the highest average real GDP growth rate of 6.1 percent in 2000. This rate was comparably higher than the average rate of the developing countries in that year. However, the growth performance of the region, particularly affected by negative growth of Turkey (7.5), slowed down steadily in the following year in which the average real GDP growth rate fell to 0.4 percent in 2001. In general, similar trends were observed in developing countries.

 

Overall (except 1999 and 2001), it appears that the ECO countries performed quite similar to the developing countries even during 1998 when the Asian financial crisis reached its peak. Yet, the recovery in the year 2000 was stronger in the groups of ECO countries (except Pakistan and Uzbekistan). This means that, the ECO members were able to benefit enough from the strengthening of world economic activity in that year.

 

Changes in the growth pattern of the member states economies over the years have brought corresponding changes in the employment structure, though agriculture sector remained the largest employer (39.6 percent) in the region.  The performance of labour market in the region compared to previous year increased by 1.0 percent and accounted to 122.5 million (4.2 percent of total world) in 2000. However, average unemployment rate of the ECO region in 2000 increased to 7.7 percent, compared to the level of previous year of 7.1 percent.

 

Inflation

 

Price stability and low levels of inflation rates are essential factors for maintaining macroeconomic stability in the economy. The governments of ECO countries paid special attention and applied different fiscal and monetary policies over the last decade to control inflation and maintain price stability in their economies. Because of these efforts, the average rates of inflation have fallen considerably, particularly in the second half of the 1990s.

 

As may be seen from Table 2, the average inflation rate in the developing countries declined to 10.0 percent in 1997 and further to only 5.7 percent in 2001. Similar patterns but with higher rates were observed in the ECO countries.

 

TABLE 2: Average inflation rates in ECO member countries*    (Annual % change in consumer prices)

 

1997

1998

1999

2000

2001

ECO countries

57.5

39.7

37.7

22.5

27.2

Developing countries

10.0

10.6

6.9

6.1

5.7

(*) The figures do not include data for Afghanistan.

Sources: ECO Secretariat database, Economic and social survey of Asia and the Pacific 2003, UNESCAP, Statistical Database of SESRTCIC, Economist Intelligence Unit, Country Reports (London, 2001).

 

The ECO member states managed to curb the average inflation rate and bring it down to a low level of 22.5 percent in 2000. However, the average inflation rate realised by the group of ECO countries in 2001 ascended to 27.2 percent. At the individual country level, Tajikistan and Turkey were the countries with the highest inflation rate of 36.5 percent and 54.4 percent in 2001 respectively and Azerbaijan with the lowest rate of 1.5 percent in the same year.

 

Trade Balance, Exports and Imports

 

During the five-year period under consideration, the total merchandise exports of the ECO member states reached its peak of US$ 83.4 billion in 2000. The region dominated 1.3 percent and 1.4 percent of the world merchandise exports and imports respectively in 2000. This accounted for 5.3 percent intra-exports in the ECO region. The figures in Table-3 show that the average rates of change in merchandise exports of ECO countries dropped sharply in 1998 when most of the members experienced negative rates of growth in their merchandise exports reflecting the effect of the Asian crisis. However, the following two-year period of 1999-2000 witnessed a strong recovery in export performance when member countries registered the highest average rates of change in their merchandise exports in 2000. In contrast, merchandise export performance of the region deteriorated again and experienced negative rates of growth in 2001, affected by the slowdown of world economy and the deterioration in world commodity prices.

 

TABLE 3: ECO Trade (Billion US $)

 

1997

1998

1999

2000

2001

Exports

66.8

59.3

68.4

83.4

82.1

Imports

85.1

81.2

75.3

93.1

84.4

Total Trade Volume

151.9

140.5

143.7

176.5

166.5

Total Exports (Annual % change)

-1.4

-11.2

15.3

21.9

-1.6

Intra-ECO Exports*

6.1

5.9

5.0

5.3

-

Intra-Trade Ratio* (%)

5.3

5.0

5.1

5.2

-

(*) Calculated without data of Afghanistan and estimates of Uzbekistan data for 1999 and 2000

Sources: ECO Secretariat database, International trade statistics 2002, WTO.

    

In fact, despite that the ECO countries registered the highest average rate of change in merchandise exports in 2000 (21.9 percent), region’s share in the total merchandise exports of the world increased by a mere 0.1 percentage point over the previous year. This means that the ECO countries were, in general, unable to benefit enough from the strengthening of world economic output in 2000 and, consequently, from the enlargement of world trade by increasing their share in it. It is also observed that the exports of the ECO countries were heavily concentrated in Iran, Pakistan and Turkey. For example, these countries accounted for 78.1 percent of the total ECO members’ exports in 2001, where Turkey alone accounted for 38.1 percent.

 

In general, the trend of export performance in the ECO region during the period under consideration can be explained, in part, by the negative effects of the world recession caused by the Asian crisis that took place in the two-year period of 1997-98. It can also be explained, by the sharp fall in world commodity prices and the decline in official financial flows to countries in the same period. However, in the following two-year period of 1999-2000, the improved situation and recovery in the world economy as well as the improvement in world commodity prices, particularly in 2000, positively affected the trend of export performance.

 

The member states had made efforts to promote intra-trade and taken significant steps forward for improvement of regulatory frameworks and removal of tariff and non-tariff barriers in the region. The regional intra trade situation is, however, far from satisfactory when compared to preceding year and the prospect of an imminent change does not seem very likely unless private initiatives backed by political will of the member states are given momentum. So far, the scope and depth of trade linkages served as the main channel of transmission of external shocks between the member states. The intra-trade ratio of the ECO region in 2001 alike the previous years could not overpass the threshold of 6.0 percent.

 

During 2000, the share of intra regional export of Pakistan was just 3.2 percent, Turkey 3.1 percent, Iran and Kazakhstan 3.8 percent and 6.9 percent respectively. While for Azerbaijan it amounted 8.7 percent, for Turkmenistan 22.6 percent, for Kyrgyzstan and Tajikistan 30.8 percent and 23.6 percent respectively.

 

The figures in Table-3 show that while import performance of ECO countries was deteriorating since 1997, but reached its peak in 2000 with US$ 93.1 billion. While this amount accounted for 1.4 percent of the total merchandise imports of the World, corresponding to an increase by 0.1 percentage point over the previous year. In 2001, import performance weakened again and amounted to US$ 84.4 billion. Overall, the ECO region’s total trade data reveals a volume of US$ 176.5 billion in 2000. It accounted US$ 166.5 billion in 2001, when compared to preceding year an overall decrease of 5.7 percent was discernable in the total trade volume in the region. The ECO member states as a group recorded trade balance deficits in all the years over the period 1997-2001. The lowest trade deficit of the region was recorded in 2001 and amounted to US$ 2.3 billion.

 

 FIGURE-1: FDI and Total External Debt of ECO countries (Billion US$)

Sources: ECO Secretariat database, World Investment Report 2002, UNCTAD.

 

                Liberalization of laws and regulations on foreign investment continued in the ECO member states and a series of steps were taken to simplify various administrative procedures. FDI inflows to the region boosted from US$ 6.1 billion in 2000 to US$ 9.6 billion in 2001. All these served thus to support and accelerate financial stabilization process, development of domestic financial markets, resource exploitation activities and privatization programmes in several member states economies.

 

On the other hand, the debt service burden on the member countries continued to be heavy and increased from US$ 165.3 billion in 1999 to US$ 177.6 in 2000, thus pressure on the balance of payments increased.

 

Human Development in the ECO region

 

The range of human development in the world is vast and uneven, with astounding progress in some areas amidst stagnation and dismal decline in others. Balance and stability in the world will require the commitment of all nations, rich and poor, and a global development compact to extend the wealth of possibilities to all people.

 

According to the UNDP, Human Development Report 2003, Human Development Index (HDI), which measures achievements in terms of life expectancy, educational attainment, and adjusted real income, classified most of the ECO member states within medium human development countries. Though average incomes have risen and fallen over time in the region, human development has historically shown sustained improvement, especially when measured by the HDI.

 

 

TABLE 4: Human Development Indicators of ECO Countries

HDI ranka

 

Life

expectancy

at birth

( years)

2001

Adult

literacy

rate

(% age 15

and above)

2001

Combined

primary,

secondary and tertiary gross

enrolment

ratio (%)

2000-01 b

GDP

per capita

(PPP US$)

2001

Life

expectancy

index

Education

index

GDP

index

Human

development

index

(HDI)

value

2001

GDP

per capita

(PPP US$)

rank

minus

HDI

rank c

..

Afghanistan

..

30.0

36

..

..

..

..

..

..

89

Azerbaijan

71.8

97.0 h, i

69 f

3,090

0.78

0.88

0.57

0.744

24

106

Iran

69.8

77.1

64

6,000

0.75

0.73

0.68

0.719

-29

76

Kazakhstan

65.8

99.4 d

78

6,500

0.68

0.92

0.70

0.765

-5

102

Kyrgyzstan

68.1

97.0 h, i

79

2,750

0.72

0.91

0.55

0.727

16

144

Pakistan

60.4

44.0

36

1,890

0.59

0.41

0.49

0.499

-7

113

Tajikistan

68.3

99.3 d

71

1,170

0.72

0.90

0.41

0.677

41

96

Turkey

70.1

85.5

60 e, f

5,890

0.75

0.77

0.68

0.734

-16

87

Turkmenistan

66.6

98.0 i, j

81 g

4,320

0.69

0.92

0.63

0.748

13

101

Uzbekistan

69.3

99.2 d

76 g

2,460

0.74

0.91

0.53

0.729

21

 

Developing Countries

64.4

74.5

60

3,850

0.66

0.70

0.61

0.655

..

 

World

66.7

..

64

7,376

0.70

0.75

0.72

0.722

..

 

Note:

a. The HDI rank is determined using HDI values to the sixth decimal point.

b. Data refer to the 2000/01 school years. Data for some countries may refer to national or UNESCO Institute for Statistics estimates.

c. A positive figure indicates that the HDI rank is higher than the GDP per capita (PPP US$) rank, a negative the opposite.

d. For purposes of calculating the HDI, a value of 99.0% was applied.

e. Preliminary UNESCO Institute for Statistics estimate, subject to further revision.

f.  Data refer to a year other than that specified.

g. Data refer to the 1999/2000 school years.

h. UNICEF 2003b.

i.  Data refer to a year or period other than that specified, differ from the standard definition or refer to only part of the country.

j.  UNICEF 2000.

Source: UNDP, Human Development Report, 2003

     

According to table-4, HDI index values of ECO countries (except Pakistan) were higher than developing countries and even higher than world average in most of the member states in 2001. Kazakhstan with the highest HDI value (0.765) among the ECO countries in 2001 standing at 76th HDI rank in the world. Life expectancy and education indices of the ECO member states showed higher performance than the developing countries. However, GDP per capita figures of member countries remained below the world average, although some of them were higher than average developing countries. Moreover, GDP per capita (PPP US$) rank of some ECO member states (Iran, Kazakhstan, Pakistan and Turkey) were higher than the HDI rank. Advancing human development within the ECO region is integrated with regular budget processes, long-term development strategies, and poverty reduction strategies.

 

Failed sustainable economic growth lies behind the faltering HDI and the inability of many ECO countries and the region to further reduce income and human poverty. Seldom if ever is income poverty reduced in a stagnant economy, and the regions growing fastest economically are the ones that have reduced income poverty most. Economic growth is essential for reducing income poverty. At constant inequality levels, a country needs to grow by 3 percent or more a year to double incomes in a generation, e.g. from $1 to $2 a day. Yet, of ten ECO countries had no annual per capita income growth rates above 3 percent during 1996-2001. Moreover, country performances of the ECO countries were more homogeneous and better than some other regions, except for Afghanistan, no country experienced reversals in the key human development indicators. Overall, for ECO as a developing region, achieving respectable human development indicators remains an important challenge.

 

Table-5 Key Indicators of Development in ECO countries

  Country

  

Population

Gross National

Income (GNI)

PPP Gross National

Income (GNI)

GDP

Per capita

Growth 

(%)

2000-2001

Life

Expectancy

at 

birth

2000

Under-5

Mortality rate

per 1,000

2000

Adult illiteracy

rate % of people

15 and above

2000

Millions

2001

Average 

Annual

growth 

(%)

1990-2001

Density

people

per 

sq.km

2001

Billion US$

 

2001

Per capita US$

 

2001

Billion US$

 

2001

Per capita

US$

 

2001

 Afghanistan 

27.2

3.9

41.8

-

-

-

-

-

43

279

63.1

 Azerbaijan

8.1

1.1

94

5.3

650

25

3,020

8.2

72

21

1

 Iran

64.7

1.6

40

112.9

1,750

403

6,230

3.0

69

41

24

 Kazakhstan

14.8

–0.8

5

20.1

1,360

94

6,370

13.5

65

28

1

 Kyrgyzstan

5

1.1

26

1.4

280

13

2,710

4.2

67

35

1

 Pakistan

141.5

2.5

18

59.6

420

271

1,920

0.9

63

110

57

 Tajikistan

6.2

1.5

44

1.1

170

7

1,150

4.1

69

30

1

 Turkey

66.2

1.5

86

168.3

2,540

440

6,640

-7.8

70

43

15

 Turkmenistan

5.3

3.3

11

5.0

950

24

4,580

18.4

66

43

2

 Uzbekistan

25.1

1.8

61

13.8

550

62

2,470

2.6

70

27

1

Source:  (1) World Development Report 2003, World Bank.

              (2) ECO Secretariat data.

 

Table-6 Poverty and income distribution in ECO countries

Economy

Survey

year

National poverty lines

Survey

year

International poverty line

Survey

year

Gini

index

Percentage share of Income or consumption

Population below the

poverty line ( % )

Population

below

S1 a day

%

Poverty

gap at

S1 a day

%

Population

below

S2 a day

%

Poverty

gap at

S2 a day

%

  Country

Lowest

10%

Highest

10%

Rural

Urban

National

 Afghanistan 

-

. . 

. . 

. . 

. .

. . 

. .

. .

-

. . 

. .

. . 

 Azerbaijan

1995 

. .

. .

68.1

1995

<2

<0.5

9.6

2.3

1995 c,d

36 

2.8

27.8

 Iran

-

. .

. .

. .

-

. .

. .

. .

. .

-

. .

. .

. .

 Kazakhstan

1996

39

30

34.6

1996

<2

<0.5

15.3

3.9

1996 a,b

35.4

2.7

26.3

 Kyrgyzstan

1997

64.5

28.5

51

-

. .

. .

. .

. .

1999 a,b

34.6

3.2

27.2

 Pakistan

1991

36.9

28

34

1996

31

6.2

84.7

35

1996-97 a,b

31.2

4.1

27.6

 Tajikistan

-

. .

. .

. .

-

. .

. .

. .

. .

1998 a,b

34.7

3.2

25.2

 Turkey

-

. .

. .

. .

1994

2.4

0.5

18

5

1994 a,b

41.5

2.3

32.3

Turkmenistan

-

. .

. .

. .

1998

12.1

2.6

44

15.4

1998 a,b

40.8

2.6

31.7

 Uzbekistan

-

. .

. .

. .

1993

3.3

0.5

26.5

7.3

1998 a,b

44.7

1.2

32.8

Source:  World Development Report 2003, World Bank.

Note:  a. Refers to expenditure shares by percentiles of population. 

          b. Ranked by per capita expenditure. 

          c. Refers to income shares by percentiles of population. 

          d. Ranked by per capita income.

 

Table 7. Economic activities of ECO Member states

  Country

  

Gross domestic 

product

Agricultural

productivity

Agr. Value added

per  agricultural

worker 1995 dollars

Value added as 

% of GDP 

Household

final 

coms. 

expenditure

% of GDP

2001 

General

gov’t.

final coms.

expenditure

% of GDP

2001 

Gross

capital

formation

% of GDP

2001 

External

balance of

goods and

services

% of GDP 

2001 

GDP implicit

Deftator Avg. 

annual 

% growth 

1990-2001

Millions

of  

dollars 

2001

Avg. 

annual %

 growth

2001 

Agricultural

2001

Industry

2001

Services

2001

1988-1990

1998-2000

 Afghanistan 

-

-

-

-

-

-

-

-

-

-

 Azerbaijan

5,657

2.7

. .

708 

20 

38 

42 

59 

10

27

4

59.1

 Iran

118,868

3.6

2,838

3,756

19

26 

54

60

15

20

5

25.8

 Kazakhstan

22,154

–2.8

. .

1,421 

9

48 

43 

70

14

13

3

168.6

 Kyrgyzstan 

1,531

–2.9

. . 

1,583 

38

27 

35 

65

20

15

0

95.2

 Pakistan

59,605

3.7

513

630 

25

23 

51 

78

11

15

–4

9.7

 Tajikistan

1,058

–8.7

. . 

1,236 

19 

26 

55 

76 

8

20

–4

202.3

 Turkey

147,627

3.3

1,847

1,878 

15

27 

58 

69

13

15

2

74.1

Turkmenistan

5,962

–2.8

. .

1,229 

27

50 

23 

34

16

40

10

328

 Uzbekistan

11,270

0

. .

1,035 

36

21 

43 

69

18

11

2

211.6

Source:  (1) World Development Report 2003, World Bank.

              (2) ECO Secretariat data.

 

 

 Table 8. Trade, aid, and finance of ECO Member states

   Country

     

Merchandise trade

Manufactured

exports

% of total

merchandise

exports

2000

High

technology

exports

% of

manufactured

exports

2000

Current

account

balance

Millions

of dollars

2001

Net

private

capital

flows

Millions

of dollars

2000

Foreign

direct

investment

Millions

of dollars

2000

Official

development

assistance

Dollars

Per capita

2000

External debt

Domestic

credit

provided

by banking

sector

% of GDP

2001

exports

imports

Total

Millions

of dollars

2000

Present

value

% of GNI

2000

Millions

of dollars

2001

Millions

of dollars

2001

  Afghanistan

118

448

. .

. .

. .

. .

0

. .

. .

. .

. .

  Azerbaijan

2314

1431

8

4

–73

175

927

17

1,162

20

5.7

  Iran

23716

18138

7

2

12,645

–610

39

2

7,952

7

46.2

  Kazakhstan

8647

6363

20

10

158

1,900

2781

13

12,685

20

11.4

  Kyrgyzstan

476

467

20

5

–10

–65

90

44

1,386

144

9.7

  Pakistan

9135

10340

85

0

–1,946

–53

322

5

26,900

54

44.7

  Tajikistan

652

688

. .

. .

–61

64

22

23

1,226

95

. .

  Turkey

31340

40410

81

5

–9,819

11,416

1707

5

119,602

55

71.1

  Turkmenistan

2560

2105

7

5

412

473

131

6

2,303

. .

30.7

  Uzbekistan

3450

2630

. .

. .

–28

18

73

8

4,344

31

. .

  ECO region

82407

83019

 

 

 

 

6092

 

177,560

 

 

Source:  (1) World Development Report 2003, World Bank.

               (2) ECO Secretariat data.

Note:  Figures in italics are for years other than those specified.

a. Regional aggregates include data for economies that are not specified elsewhere. 

b. World and income group totals include aid not allocated by country or region.

            

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