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^*

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)

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 $)

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

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 76^th 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

Table-6 Poverty and income distribution in ECO countries

Table 7. Economic activities of ECO Member states

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

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