CAREC 2030

Connecting the Region for Shared and Sustainable Development

• Publisher: Asian Development Bank
• Year: 2017
• ISBN:
  9789292610197
• Topic: Economics
• Subtopic: Sustainable Development
• Index: Economics

The Central Asia Regional Economic Cooperation (CAREC) Program, now 16 years in operation, has recorded impressive achievements in regional economic cooperation, particularly in the areas of transport, energy, trade facilitation, and trade policy. From 2001 to end September 2017, investments in member countries under CAREC have amounted to $30.5 billion, covering 182 projects. CAREC 2030 builds on the solid foundation of progress made under CAREC 2020, and provides the new long-term strategic framework for the CAREC Program leading to 2030. CAREC 2030 is aligned with national strategies and with the 2030 global development agenda. It is inspired by a mission to create an open and inclusive platform that connects people, policies and projects for shared and sustainable development.

V RENEWING CAREC’S OPERATIONAL FRAMEWORK

32. CAREC 2030 prioritizes five operational clusters, encompassing existing and proposed areas. In addition, it supports the use of ICT to promote productivity and efficiency gains in all operational clusters.

33. Three criteria were used in selecting the operational clusters and their constituent sectors. First, the clusters show high returns to regional approaches, transcending the returns to individual country efforts. Second, the clusters are aligned with the priorities of national development strategies and the international development goals. And, third, CAREC’s development partners enjoy strong comparative advantages in these clusters, or can build up their expertise rapidly to support member countries in these.

A. Economic and Financial Stability Cluster

i. Macroeconomic Policy Coordination

34. With the region’s susceptibility to external economic shocks, CAREC will help support stable macroeconomic conditions and sound banking systems and capital markets as vital ingredients for economic growth and poverty reduction. CAREC will assist with policy dialogue and regional learning to design and implement appropriate countercyclical policy responses in periods of economic downturns. The MC could lead this dialogue. CAREC will particularly focus its expertise to illustrate sector linkages with macroeconomic performance; for example, the impact of energy pricing reforms on fiscal balance and economic stability in member countries.

35. To facilitate regional dialogue and minimize negative spillover effects under the CAREC umbrella, development partners will work together to support consistency of policy approaches in member countries. At a future stage, such cooperation dialogue could evolve into mutually supportive arrangements to deal with external shocks; for example, countries benefiting from an oil price rise could find ways of cushioning the effects on those adversely affected to support demand, not least for their non-oil exports. Another example could be arrangements on currency swaps between central banks based on lessons learned from the Chiang Mai Initiative.¹¹

36. CAREC development partners can continue to provide medium-term lending to countries affected by economic shocks and those needing financing for economic adjustment, while promoting cross-country coordination and learning to improve the designs of subsequent interventions.

ii. Promoting Financial Stability

37. Strengthening financial infrastructure and access to finance are high priorities across the CAREC membership. Growing cross-border capital flows strengthen financial integration, as does better-coordinated banking sector regulation and disclosure requirements, ease in use of collateral for loans, and other measures to raise credit-worthiness. Improving and standardizing banking supervision and enabling capital market reforms are also critical to forging closer financial cooperation among CAREC countries.

38. By setting up a forum to exchange experience and lessons, CAREC 2030 will support national banking and capital market regulators’ needs to exchange data, intelligence, and develop common practices to international standards, including Basel II and III. Such a forum could also deliberate on common frameworks in banking supervision, the avoidance of contagion effects, and measures to deal with impediments to cross-border transactions.

39. The creation of market institutions, such as the Astana International Financial Center, could focus on serving regional clients. Likewise, Pakistan’s experience with capital market development and regulatory strengthening could offer useful lessons for deepening market structures in other CAREC countries. CAREC development partners can encourage reforms in capital markets development, corporate governance, risk management, and local bond and stock market development, leading to eventual cross-listing of securities. Such reforms will require establishing robust ICT systems.

40. In addition, three region-wide proposals for deepening of financial markets merit consideration. First, the development of trade finance and the possible establishment of a multilateral trade credit and investment guarantee agency to cover CAREC members.¹² Second, promoting the use of local currencies for regional trade and banking operations across the membership. And, third, bolstering small and medium-sized enterprises (SMEs) financing, which is a common constraint in most member countries, and where cross-country learning could be useful to adopt effective financing models.

iii. Strengthening the Investment Climate

41. Stronger macroeconomic and financial stability will lead to an improvement in the outlook for investment in CAREC countries. Nearly all member countries, however, perform poorly on investment climate indicators at present.¹³ CAREC 2030 will promote reforms to attract greater private sector investment, including cross-border investment in member countries. Efforts will focus on reducing investor transaction costs, redressing incoherent or inaccurate investment policies and regulations, promoting business linkages between multinationals and domestics SMEs, and supporting capital markets development. To promote economic diversification, CAREC will support cross-border private sector investments in agriculture, agribusiness development and manufacturing, tourism, education, health, and other service sectors.

CAREC will support macroeconomic and financial stability for stronger economic resilience and an improved investment climate

B. Trade, Tourism, and Economic Corridors Cluster

i. Trade

42. CAREC facilitated trade openness by preparing member countries for WTO membership, and helping them with postaccession needs; by expanding trade in services; and by addressing nontariff barriers. CAREC’s trade facilitation agenda recorded successes with both knowledge and institution building: for knowledge building, international best practices were introduced in border management, logistics, sanitary and phytosanitary measures (SPS); in institution building, customs and freight forwarding cooperation institutions were formed and capacity built up. Pilot projects on customs control, prearrival data exchange, and regional transit are under implementation.

43. Going forward, CAREC will assess the shifting landscape of global and regional trade paradigms, and the potential of moving toward free trade agreements in the region. Opportunities for the CAREC countries in the context of trade treaties¹⁴ under discussion need to be understood and taken advantage of. CAREC will produce analyses for its members, outlining new opportunities, and help devise trade promotion strategies.

Regional cooperation will benefit from enhanced trade openness, joint tourism initiatives, and economic corridor development

44. A continued focus on trade in services, particularly in e-commerce, and cross-border labor placements can yield rich dividends. Prerequisites for success are investments in backbone services such as telecommunications or financial services, and freer movement of labor.

45. A special task for CAREC 2030 is to help members with obligations on post WTO-accession commitments, embracing difficult areas of trade adjustment where international agreements come into effect, such as the agreement on technical barriers to trade, the agreement on the application of SPS measures, and the trade facilitation agreement,¹⁵ all of them under the WTO’s aegis. CAREC 2030 will continue to support accession process for me...