South Asia is projected to grow by 5.8% in the financial year of 2023, a pace slower than its pre-pandemic rate and insufficient to meet its development goals, according to the World Bank's semi-annual regional outlook released on Tuesday. The forecast for 2023 has risen by 20 basis points compared to the April projection.
The South Asia Development Update anticipates a slowdown in growth to 5.6% in 2024 and 2025. This deceleration is attributed to the fading of post-pandemic rebounds and a combination of monetary tightening, fiscal consolidation, and reduced global demand impacting economic activity. The region, comprising Afghanistan, Bangladesh, Bhutan, India, Maldives, Nepal, Pakistan, and Sri Lanka, could also be affected by a further slowdown in China's economic growth and climate change-induced natural disasters.
The World Bank has warned that growth prospects are subject to downside risks due to fragile fiscal positions. Government debt in South Asian countries averaged 86% of GDP in 2022, escalating the risks of defaults, increasing borrowing costs, and diverting credit away from the private sector.
Martin Raiser, World Bank Vice President for South Asia, stated that while South Asia is making steady progress, most countries in the region are not growing fast enough to reach high-income thresholds within a generation. He emphasized that countries need to urgently manage fiscal risks and focus on measures to accelerate growth.
India, which accounts for the bulk of the region's economy, is expected to maintain robust growth at 6.3% in 2023-24. In Maldives and Nepal, output is expected to grow by 6.5% and rebound to 3.9% respectively in 2023-24 due to a strong resurgence in tourism.
However, several countries in the region continue to grapple with the aftermath of recent currency crises. In Bangladesh, growth is expected to slow to 5.6% in 2023-24. Pakistan's growth is forecasted at a meager 1.7% in 2023-24, below the rate of population growth. Sri Lanka, recovering from a severe recession, is projected to grow by 1.7% in 2024, following a contraction of 3.8% in 2023.
The World Bank noted that due to fiscal challenges, governments have limited room to help their economies fully capitalize on the global energy transition. Despite often being seen as an additional burden for developing countries, South Asia could find in the energy transition an opportunity for future growth and job creation—if it leads to more investments by firms, cuts air pollution, and reduces reliance on fuel imports.
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