After leading global growth for two years, South Asia has fallen to second place, after East Asia and the Pacific. The region’s slowdown is due to both temporary shocks and longer-term challenges. Regional economic growth is expected to slow to 6.9% in 2017 from 7.5% in 2016, but growth could rebound to 7.1% in 2018 with the right mix of policies and reforms.
The just released twice-a-year South Asia Economic Focus finds that the slowdown in South Asia has mostly been driven by internal factors, most notably in India, such as a decrease in private investment, and an increase in imports and government spending. This edition, 'Growth out of the Blue', explores the potential of night-time light satellite imagery to improve measurement and understanding of economic activities, World Bank reported.
"While growth rates in South Asia largely remain robust given the economic shocks that some countries in the region have faced, countries should continue to actively address their growing trade and fiscal deficits," said Annette Dixon, the World Bank South Asia Region vice president. "With the right mix of policies to respond to challenges, we remain confident that South Asian countries can accelerate their growth to create more opportunities and prosperity for their people."
Given its weight in the region, India sets the pace for South Asia. Its gross domestic product growth is expected to slow down to 7% in 2017, due to surging imports and declining private investment along with the effects from withdrawing large amounts of banknotes and the introduction of the Goods and Services Tax. However, India’s growth is expected to rebound to 7.3% in 2018.
Pakistan continues its upward growth performance with economic activity expected to accelerate to more than 5% this and next year, if deficits are well-managed and external stability is maintained. Nepal has seen an economic rebound after the earthquake and trade disruption in 2015. In Bangladesh, industrial production continued to accelerate, export growth slowed, and fiscal deficits increased.
Overall, South Asian economies stand to gain from continued recovery in advanced economies, which are their largest export markets.
The report also highlights that South Asia was once at the cutting edge in economic measurement and analysis, pioneering techniques such as the use of household surveys. With the rise of big data, traditional ways to measure economic phenomena like prices and GDP can be supplemented. To improve economic measurement in South Asia, a greater reliance on big data may help, but a clear agenda toward stronger statistical systems is a necessity.
Potential to Accelerate Growth
Afghanistan’s economic recovery remains slow with continuing insecurity curbing private investment and consumer demand. Growth is projected to accelerate slightly from 2.6% in 2017 to 3.4% in 2018. Sustained economic growth requires transforming the economy through better health and education, improved agriculture, and the development of the country’s mining resources.
The economy in Bangladesh remains strong with accelerating industrial production and resilient services. Growth is expected to be above 7% in 2017 but to moderate thereafter. Deficits are widening as export growth and remittances have weakened, which should be monitored and addressed along with increasing stresses on the financial sector and uncertainties around the upcoming elections.
Economic activity in Bhutan has kept growth strong with the economy expected to grow at 6.7% in 2017 and 6.9% in 2018.
In India, growth is expected to slow from 8.6% in 2015 to 7% in 2017. Sound policies around balancing public spending with private investment could accelerate growth to 7.3% by 2018.
In Maldives, GDP growth has rebounded to nearly 5% as the government embarks on several major infrastructure projects to help move Maldivians to the capital city Male.
Nepal has seen an impressive economic recovery after disruptions from earthquakes and a trade blockade. Economic activity is expected to rebound to 7.5% in 2017 through increasing government resources, spending, and remittances from abroad.
Sri Lanka’s economic growth is projected to grow at 4.6% in 2017 and achieve 5% growth in the years ahead. Public finances and reserves have improved despite a high budget deficit and public debt. Accelerating reforms to promote competitiveness, better governance, and a more balanced budget are critical to ensure sustained growth and development.
