1. Fiscal and Trade Policy for the SAARC Region - Vision 2020 Dr. Anura Ekanayake Deputy Vice Chairman, The Ceylon Chamber of Commerce SOUTH ASIAN TAX SUMMIT 2008 April 2008 Karachi, Pakistan

2. “The only way of discovering the limits of the possible is to venture a little way past them into the impossible.” - Late Arthur C. Clark, renowned scientist, S-F writer and a distiguished citizen of South Asia.

3. Why do we need them? Tools to raise Government revenue Influence demand and supply Encourage exports Stabilize Exchange rate/BOP Encourage investments Accelerate economic growth Create employment How are they inter-related? Trade policy is very much a part of Fiscal policy. It is used to raise/spend government revenue They strive to contribute to the achievement of similar objectives - Growth, Income, and Employment Fiscal and Trade Policies

4. Fiscal Policy Situation - Despite the differences in the size and development of the countries in the region, there are some characteristics that seem to stand out in terms of fiscal policy We seem to be high spenders relative to what we earn (high budget deficits and low government revenue) Our countries experience relatively high rates of inflation and high growth Poverty is high in our countries and income low Current Position of intra- SAARC Trade - Data and issues in brief.

5. Some indicators Per capita GNP (US$) GDP Growth rate Inflation 2006 Fiscal Balance (% of GDP) Govt. Revenue (% of GDP) % of the people below poverty line Afghanistan6.15.1-3.118.3N.A Bangladesh4806.67.2-3.210.750% Bhutan14107.84.9-0.834.5N.A. India8209.65.4-6.421.129% Maldives268019.13.5-6.751.8N.A. Nepal2903.18.0-1.613.142% Pakistan7706.67.9-4.314.233% Sri Lanka13007.79.6-8.116.425% Average110786-42336%

6. Trade liberalization started late (late 70s early 80s) and slow progress Tariff barriers are still significantly high Protection in agriculture is higher than protection in non agriculture Non tariff barriers are significant Trade facilitation can bring many benefits however not much progress has been made Intra regional trade is low, however, intra regional trade is more important for smaller SAARC countries than for larger ones (e.g. Bhutan 73% of total trade is within SAARC and Nepal 62%, in contrast for Pakistan intra regional trade is only 4% and India 3%) SAARC Countries’ Trade Policy - The Current Situation

7. A Brief Comparison of SAARC with the European Union and the ASEAN MembershipTrade Liberalization OriginalCurrentIntra regional trade - 2005 SAARC78SAPTA – 1993 SAFTA – 2005 4-5% ASEAN510AFTA – 199225% EU627EU single market completed in 1993 66.6% Source: www.aseansec.org, http://europa.eu/, www.saarc-sec.orgwww.aseansec.orghttp://europa.eu/www.saarc-sec.org

8. Importance of Trade within SAARC for SAARC Member Countries - 2005 CountryAs a % of total imports As a % of total exports As a % of total trade Bangladesh18210 Bhutan697873 India153 Maldives151615 Nepal655762 Pakistan344 Sri Lanka221017 Source: www.trademap.org, Annual Report of the Central Bank of Sri Lankawww.trademap.org

9. Tariff Profile of South Asia CountryYearSimple average applied tariff Bangladesh200615.2 Bhutan200522.1 India200519.2 Maldives200620.2 Nepal200513.9 Pakistan200614.3 Sri Lanka200611.2 Average for SAARC16.6 Average for ASEAN8.1 Source: World Tariff Profiles, 2006 (www.wto.org)www.wto.org

10. Potential for growth in South Asia Based on Deutcshe Bank Research - A forecast by Deutsche Bank Research on 34 economies indicate that Growth in future will come from Asia. According to this Study done in March, 2005: India (5.5%), Malaysia (5.4%), and China (5.2%) will post the highest GDP growth rates overall during 2006-2020 period The growth of India already is and will be a major driving force of growth in the SAARC Pakistan is the gateway to the middle east and Africa Yet, are we ready to make use of these opportunities? All the big businesses around the globe are eying to make profits from them What are we neighbors doing? Are we hiding behind our fears, suspicions and historical hostilities and turn a blind eye to this chance of a lifetime?

11. How can the Region move Forward? Find synergies, Find Win-Win situations Look for harmony not for conflict There are things we can share and benefit from Some examples of such situations: Cricket World Cup 1996 “Let us share our own backyard for the world to play cricket” Health tourism : Combine medical expertise of India with hospitality in Sri Lanka “Professional medical care in a home away from home” Trade: Combine increased trade of India with maritime expertise of Sri Lanka “Let your neighbor deliver your goods to the world” Apparel: Combine designing skills of India with production technology of Sri Lanka “Together let us dress the world”

12. Improve Connectivity We are neighbors, we share borders We share culture, language, religion Yet, doing business with each other is expensive both in terms of time and money: Saying hello to my neighbor is quite expensive – “Cost of telecommunications” Visiting to see my neighbor’s factory is quite expensive and time consuming – “Air connectivity” Sending my goods to my neighbor is quite expensive and time consuming – “Air, sea and land connectivity” Bringing down barriers must be seen as an opportunity rather than a threat – It will help reduce the dependence on few outside markets like U.S.A. and E.U., It reduces the vulnerability of being over dependent on these markets How can the Region move forward? (…Contd.)

13. Cost of trading across borders – 2006 SAARC Average (excl. Afghanistan) ASEAN Average (excl. Brunei, Myanmar) Documents for export (number)87 Time for export (days)3029 Cost to export (US$ per container) 1055806 Documents for import (number)1311 Time for import3532 Cost to import (US$ per container) 1408901 Source: Cost of Doing Business Report – World Bank

14. Role of the Government Role of the Government would be to act as a Facilitator To:  Facilitate Trade  Facilitate movement of people  Improve infrastructure

15. Role of the private sector Make use of each others strengths to make your business a success Few thoughts… India’s Entrepreneurs and Professionals Sri Lanka’s Maritime Expertise and Hospitality Labour and Commodities in Bangladesh and Nepal Innovative Poverty Alleviation Schemes (for e.g. Grameen Bank) Maldives Tourism - Sun and the Beaches Bhutan’s pristine Natural Beauty and Gross National Happiness Pakistan – the gateway to the Middle East

16. The direction of Trade Policy of SAARC in future should strive to Have lesser direct and indirect trade barriers for Intra SAARC trade & the direction of Fiscal Policy of SAARC should strive to Invest more on developing infrastructure Reducing wasteful recurrent expenditure Curtailing budget deficits Reducing poverty through growth In Conclusion…

18. THANK YOU Appreciation: EIU of the Ceylon Chamber of commerce