Resource information
The surge in global commodity prices of
the past few years has presented a tremendous development
challenge for South Asian countries. The large loss of
income from the terms of trade shock has worsened
macroeconomic balances, fueled rapid inflation, and hurt
growth. Although commodity prices have come down recently,
the benefits are being clouded by the emergence of a severe
global financial crisis. The adverse consequences of the
food price hike for the poor are large; the global financial
crisis could further worsen the situation due to falling
economic opportunities and government revenues. South Asian
countries need to accelerate reforms to avoid facing a
serious downturn in economic activity, investment, exports,
and income. Governments in South Asia have responded by
stabilizing domestic food prices through a number of
short-term measures, tightened monetary policy to reduce
inflation, and increased spending on a range of safety net
programs for the poor. Some of the policies employed, such
as export bans, are not consistent with the long-term
welfare of the country or the region. Safety net
interventions need to be made consistent with a longer-term
poverty reduction strategy and fiscal sustainability. Most
importantly, policy attention now needs to shift toward
efforts to increase farm productivity, improve rural
infrastructure, and lower the vulnerability of the poor.
