SAARC Financial Integration far cry

Kathmandu, May 30

 South Asian traders and producers face problems in transferring goods and money to other countries while participating in trade fairs and exhibitions in the region.

People of the SAARC (South Asian Association for Regional Cooperation) member countries cannot send money easily to other countries in the region since they have barred cash flow via money transfer companies and set the limit in using the banking channel while sending it to other countries.

In the past 34 years of its establishment, SAARC has failed to develop itself as a financially integrated region.

It is one of the least integrated regions financially. "It is difficult to send and receive money among the member countries. Traders are also facing the challenge," said Om Rajbhandary, Immediate Past Vice-President of the SAARC Chamber of Commerce and Industry.

He does not remember any agenda or discussion on the inter-banking cooperation in the past many years. There is a small banking cooperation which is India-centric and of bilateral nature. There is no regional financial unit or bank that facilitates the flow of money among the eight members – Afghanistan, Bangladesh, Bhutan, India, the Maldives, Nepal, Pakistan and Sri Lanka.

Gopal Sharma, A Nepali youth based in Mumbai, India, said that they were allowed to send IRs 49, 900 to Nepal. Those who want to send more money at a time should exhibit income and tax payment details.

The system is launched a couple of years ago with collaboration between Nepali and Indian banks which is facilitating the workers of both the countries. But other countries do not have such arrangement to send money to and from Nepal or any other member of the SAARC.

The SAARC Finance, a group of central bank governors of the region, has announced several initiatives to enhance financial cooperation among the member countries. It has launched SAARC Payment Council in 2008, but it is almost non-existent.

Economist Dr. Posh Raj Pandey, who heads a regional think tank South Asia watch on Trade Economics and Environment (SAWTEE), said that the regional forums were limited to policy sharing and coordination.

Cumbersome practices in money and goods transfer have obstructed trade development in the region. "I differ on the cliché that South Asia is the least integrated region in the world. There is a substantial trade, but the largest partner India has the smallest share in the regional trade," said Dr. Pandey.

The size of Indian export to the regional members in 2018 was 6.53 per cent of its total export and import 0.7 per cent. Afghanistan exports only to Pakistan and India and the Maldives only to India and Sri Lanka. Similarly, Nepal has negligible export trade with Pakistan, Sri Lanka and Bhutan and zero with the Maldives.

According to Director of the Nepal's central bank Bhisma Raj Dhungana, there were discussions to create a South Asian Currency Zone and Asian Clearing Unit but without digital intervention such initiatives were less likely to succeed.

The SAARC has discussed various measures to make the region a free and integrated supranational structure and announced instruments like South Asian Free Trade Area (SAFTA), SAARC Finance, regional Arbitration Council and Standard Organisation, and Agreement on Trade in Services (SATIS), financial integration has not moved in the desired direction.

In the meantime, the regional body has been feeling the heat from the India-Pakistan tension which has resulted in greater priority to BIMSTEC (Bay of Bengal Initiatives for Multi-Sectoral Technical and Economic Cooperation) – a six member regional body that minuses the second largest regional player Pakistan as well as Afghanistan.

India is trying to develop BIMSTEC as an alternative regional mechanism to the SAARC. A sub-regional mechanism called BBIN (Bangladesh-Bhutan-India-Nepal) has also been there to create connectivity network. It has also not gathered the desired momentum.

Experts say that greater mobility of people and goods would have contributed to an increased financial integration in the region.

However, President of the SCCI Ruwan Edirisinghe is hopeful that the situation would improve in future with instrument for financial cooperation getting centre stage of the regional agenda. Speaking at the annual meeting of the organisation last week in Kathmandu, he said that ultimately the members would realise the importance of the regional union.

Published in The Rising Nepal Daily on 31 May 2019.