Reshaping financial paradigm economic cooperation

The G20, an intergovernmental forum, comprising 19 countries and the European Union is working together to address major issues related to the global economy, such as international financial stability, climate change mitigation, and sustainable development.

Economic analysts, Ian Mitchell and Sam Hughes have pointed out that "it has been 25 years since the 1997 Asian financial crisis led to the creation of the G20 forum for finance ministers and 15 years since this has become a leader-level meeting following the global financial crisis". Other analysts have also noted that during this period, there have been significant shifts in the global finance and economic landscape.

The rise of several emerging economies has seen their contributions to the multilateral finance system that supports development significantly. For example, the report prepared by the Centre for Global Development (CGD), collating those contributions over the last decade for the first time, has indicated how China's annual contributions to the UN and multilateral development banks have risen nearly twenty-fold from US Dollar 0.1billion to US Dollar 2.2 billion. It has also been observed that collectively developmental contributions to multilateral finance institutions have risen five-fold to over US Dollar 6 billion over the last decade because of a group of 13 rising economies. These contributions now make up an eighth of the total; and have seen the creation of two new multilateral finance institutions.

Reference has also been made in this context to the New Development Bank. Monitoring is going on with care to ascertain whether continued growth of emerging actors could generate enough new funding for development over the next quarter century, and even create an institution as large at the World Bank's fund for low-income countries. It has emerged that these countries are already playing a major role in the global economic and development system, and is likely to continue doing so in the near future.

In 1990 most people in the world lived in low-income countries. However, since 2020, this share had fallen dramatically to just seven per cent of the world population. Meanwhile, the share of the global population living in middle-income countries swelled from 30 per cent in 1990 to 73 per cent in 2020.

Such a transformation implies that the number of countries with the economic output to contribute internationally has not only increased but their participation in the multilateral system has also deepened. Over the past decade a group of emerging actors has significantly increased their contributions of development finance to multilateral organisations. Ten of these emerging actors are G20 members, including the BRICS-Brazil, Russia, India, China, and South Africa-but others have grown quickly too-- Argentina, Chile, Indonesia, Israel, Mexico, Saudi Arabia, Turkey, and the United Arab Emirates. Collectively, as a result of this change, many economists now refer to these thirteen emerging actors as the E13.

Over the past few years, the Centre for Global Development has also indicated that the E13's annual contributions of development finance to multilateral organisations appear to have increased almost five-fold, from US dollar 1.3 billion in 2010 to US dollar 6.3 billion in 2019 (up 377 per cent). Similarly, their core contributions have also risen-- from US dollar r 1.0 billion to US Dollar 5.2 billion (up 410 per cent). It has also been observed that of these core contributions, those to UN Agencies have more than quadrupled over the decade, steadily rising from US dollar 0.3 billion to US dollar 1.2 billion (up 330 per cent). However, the most outstanding development in E13 core contributions has come from the creation and capitalisation of two new multilateral organisations-- the Asian Infrastructure Investment Bank (AIIB) and the New Development Bank (NDB).

Economists have also observed that though China has recently reduced its bilateral financial assistance, its multilateral contributions have increased steadily and now provides a third (34 per cent) of the E13 total. Interestingly, this has empowered China to have the second highest aggregate voting share, after the US, in international finance institutions that it supports.

The process of creating new multilateral finance organisations is also being monitored carefully by economic strategists. They have observed that over the past decade, almost half of the E13's core multilateral contributions were to the two new institutions (AIIB and NDB). After 2016, funding provided to these institutions made up over two-thirds of their contributions. Indeed, in 2016 the first financial contributions to AIIB and NDB caused E13 multilateral development finance to triple in a single year. The E13 provided an additional US Dollar 6.0 billion of core funds for AIIB and NDB in 2016, without reducing their multilateral contributions through other channels. Some economists have observed that though annual contributions reduced to US Dollar 3.1 billion in 2019, AIIB and NDB still accounted for half of the E13's multilateral development finance in that year, leaving their contributions at the end of the decade far ahead of the beginning.

The E13's role in the multilateral system has also grown in relative terms. As a share of the level of finance provided by the high-income countries in the OECD, the E13's core multilateral contributions rose from 5 per cent in 2010 to 12 per cent in 2019-more than doubling their relative significance. This appears to have been largely due to the effect of AIIB and NDB.

Economists have started thinking of how the situation will be in 2050 and what role might the emerging economies play. It is being hoped that as the economies of the E13 continue to grow, their share of economic output provided as development finance to multilateral organisations (either core or earmarked) will hopefully tend to increase with higher levels of income per capita. This should facilitate multilateral development finance from this group.

It would be appropriate to mention that multi-financial effort throughout the world in general, and Asia in particular, is also balancing itself through the use of digital transformation to facilitate regional economic cooperation.

Analysts H.C. Tang and A. Cortez have underlined that digitalisation has become a "key driver of competitiveness and development". This evolving scenario has emerged as the world has undertaken the path towards unparalleled digital advancement,

Asia today has become a focal point of digital transformations in a wide range of areas from microchip manufacturing to electric vehicles, from digital currency to e-commerce.

It is true that corona virus (COVID-19) pandemic accelerated digital transformations, but socio-economists have observed that not all countries have benefited equally. Such emphasis on digital transformation assisted the rural sector in China where farmers were able to take advantage of existing digital mobile network, digital payment, and logistic services to find alternative markets and sell their produce online. This also helped rural and semi-rural communities in Malaysia, Vietnam, India and Bangladesh.

Many industrialists established e-commerce platforms and undertook innovative business through live-streaming. In contrast, rural farmers in other sub-regions in Asia struggled to keep their livelihoods during the pandemic and afterwards. Without access to face-to-face trading due to lockdowns during the pandemic, many had to live with little or no income. Businesses of micro, small, and medium-sized enterprises (MSMEs) in many parts of Asia also suffered during the pandemic and the post-period.

One has to accept that even in ordinary circumstances, persistent barriers such as poor and costly infrastructure, poor digital literacy, and limited government support hindered the growth of MSMEs in many developing economies. In Bangladesh, innovative measures were particularly adopted by the textile industry and this helped to keep our garment industry afloat through digital transformation.

However, despite the diverse opportunities presented by digital economy in Asia, a great part of the region's digital potential still remains untapped, and key regulatory, infrastructural, financial, and capacity challenges remain. It is unfortunate but there is also a widening digital divide among countries that are under-connected and those that are digitised.

Prevailing digital infrastructure and non-infrastructure gaps, specifically in e-commerce across Central Asia, have been highlighted in a study carried out by the Central Asia Regional Economic Cooperation Programme (CAREC) Institute. The study shows that e-commerce development among CAREC countries is highly varied and key gaps remain. These gaps include those in basic digital infrastructure and regulatory policies resulting in a lack of economic opportunities, income inequality and weaknesses in the business environment.

In this context, it may be recalled that in 2021, Ministers from CAREC member countries agreed on a strategic digital format which endorsed areas that can catalyse collaboration and digitalisation in the region. Similarly, Greater Mekong Sub-region (GMS) countries are also now considering measures to promote and enhance cooperation in the digital economy, leveraging on cross-border e-commerce cooperation platforms. The Asian Development Bank has been pro-actively supporting this effort.

 Region-wide cooperation allows governments and stakeholders to coordinate policies, share costs of building and maintaining infrastructure, and expand markets to advance the digital economy. Regional cooperation mechanisms also help build trust and harmony that are crucial for digital development among countries. In turn, digital advancement promotes regional cooperation in trade, finance, transport, energy, and other sectors.

Muhammad Zamir, a former Ambassador, is an analyst specialised in foreign affairs, right to information and good governance.
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