However, economic growth and expectations are constantly threatened by inappropriate macroeconomic policies, poor economic management and external shocks.

Despite some internal and external constraints, last year we achieved a record 6.27 per cent growth in our gross domestic product.

While trade was critical to growth, a number of other factors, both internal and external, must be addressed, including the level of ODA, especially in a climate of generally decreasing external finance to developing countries.

Cheap external finance, plentiful capital inflows, and commodity booms helped hide many such shortcomings and fueled 15 years of emerging market growth.

Meanwhile, a highly interdependent and (now) less dynamic world economy has been limiting the scope for external growth drivers. Accordingly, even countries with sound balance sheets and manageable leverage have experienced a growth slowdown.

The third assumption is that the United Nations underestimated the flight of capital and the erosion of growth due to external debt servicing.

For China, which to some extent still depends on external markets to drive economic growth, this environment is particularly challenging especially as currency depreciation in Europe and Japan erode export demand further. Even without the crisis in major external markets, however, a large and complex middle income economy like China s could not realistically expect growth rates above 6 7 .

Interrupting this second vicious spiral will require jump starting growth, which, under current circumstances, is easier said than done. The external environment is not favorable.

Economic growth is expected to moderate in 2005 in all three countries if the external environment weakens and uncertainty remains about the sustainability of domestic demand.

If invested in infrastructure, education, and external financial assets, natural resource revenues can accelerate growth. But, too often, such revenues distort economic incentives, which come to favor rent seeking and interfere with the diversification that is essential for growth.

But such a sharp decline in potential growth typically implies a powerful brake, in the form of an external shock or major internal adjustments. Under normal circumstances, an economy s potential growth rate adjusts naturally and gradually, as structural change progresses.

With significant elements of the global economy and external demand facing headwinds, China s acceptance (so far) of a growth slowdown, while its new growth engines kick in, is a good sign, in my view. It suggests that policymakers are playing for longer run sustainable growth and have become warier of policies that, if used persistently, amount to a defective, unsustainable growth model.

Given weak growth in external demand and an already large market share for many goods, China cannot count on export growth to sustain economic performance in the short run. And, though support for infrastructure investment by China s trading partners especially through the one belt, one road policy may help to strengthen external markets in the longer term, this is no substitute for domestic aggregate demand.

After emerging from the crisis, indicators show a sustained growth in the economy, and a surplus in the fiscal external accounts, together with a recovery in national reserves.

As we meet here today, the dramatic increase in oil prices is threatening to roll back growth possibilities in many African nations, worsening their internal and external imbalances.

Based on an exchange of experience over the past two years, we emphasized that strong domestic financial sectors are essential in supporting economic growth and reducing external vulnerabilities.

To achieve economic growth, countries need at a minimum three things economic and financial stability, structural policies that help the private sector to flourish, and a supportive external environment.

Funds, whether from internal or external sources, must be used effectively and in a transparent manner for pro poor growth instead of for only a section of the population.

A developing economy may slow prematurely when external factors alter the conditions supporting growth. Wages continue to rise, reducing competitiveness vis à vis low income economies, but the growth model is not yet equipped to support competitiveness in high skill industries, leading to stagnation.

External

Despite the expiry of the Multifibre Arrangement, the external sector is expected to become an increasingly important source of economic growth as a result of increased trade liberalization and regional integration.

It is no longer a short term external shock it is having an impact on growth, inflation, the balance of payments and public expenditure to fight poverty in a lasting way.

By contrast, however, Liberia showed an annual growth rate of only 2 per cent in 2004, despite the relatively large amount of external assistance provided in the form of humanitarian aid.

Favourable external factors, including low dollar interest rates, the expansion of regional tourism and a sustained increase in worker remittances and other income transfers, resulted in healthy domestic demand growth, which drove the real GDP growth rate up to 4.9 per cent, the highest since 2000.

This external dependence increases their vulnerability to external economic threats and shocks.

External auditors

External Auditor

External debt

External audit

External factors

External debt

External sector

To avert a disorderly fall, short term macroeconomic management requires officially engineered depreciation through administrative methods and restraints on external borrowing. A depreciated rupee should help revive Indian exports and lift growth.

The contribution of fiscal policy to growth is negligible in the presence of fixed exchange rates, a system heavily reliant on indirect taxes, increasing pressure from external debt and free capital mobility.

But internal European Union studies indicate that European exports are more closely linked to changes in external demand than the euro dollar exchange rate. So long as external demand holds up and recent growth numbers from China and the US are positive in this regard Europe s exports should continue to perform well.

Weak external demand is partly responsible for the falloff in growth, but internal factors namely, slowing investment and stagnating consumption are also holding back economic expansion. Maintaining growth in the face of a global slowdown is a daunting task, and it requires rethinking the future of factory Asia.

Both countries needed new recipes for revival and growth, and turned to each other in a marriage of convenience. China provided cheap goods that enabled income constrained American consumers to make ends meet, and the US provided the external demand that underpinned Deng Xiaoping s export led growth strategy.

In countries like the euro zone members, a loss of external competitiveness, caused by tight monetary policy and a strong currency, erosion of long term comparative advantage relative to emerging markets, and wage growth in excess of productivity growth, impose further constraints on the resumption of growth. If growth does not recover, the fiscal problems will worsen while making it more politically difficult to enact the painful reforms needed to restore competitiveness.

External Entity Example

Haiti External debt

(d) External Relations

External public debt

Fifth, four external forces will further impede US growth a worsening eurozone crisis an increasingly hard landing for China a generalized slowdown of emerging market economies, owing to cyclical factors (weak advanced country growth) and structural causes (a state capitalist model that reduces potential growth) and the risk of higher oil prices in 2013 as negotiations and sanctions fail to convince Iran to abandon its nuclear program.

EXTERNAL AUDITOR (item 4)

Senior External Relations Adviser