South Asia is expected to grow by 5.8 per cent in the financial year 2023, but slower than its pre-pandemic pace and not fast enough to meet its development goals, said the World Bank in its twice-a-year regional outlook released on Tuesday.
The growth forecast for 2023 is 20 basis points higher than its April projection.
The latest South Asia Development Update, growth in the region is expected to slow to 5.6 per cent in 2024 and 2025, as post-pandemic rebounds fade and a combination of monetary tightening, fiscal consolidation, and reduced global demand weigh on the economic activity.
South Asia consists of the countries Afghanistan, Bangladesh, Bhutan, India, Maldives, Nepal, Pakistan, and Sri Lanka.
World Bank said growth prospects are subject to downside risks, including due to fragile fiscal positions.
Government debt in South Asian countries averaged 86 per cent of GDP in 2022, increasing the risks of defaults, raising borrowing costs, and diverting credit away from the private sector.
The region could also be affected by a further slowdown in China’s economic growth and natural disasters made more frequent and intense by climate change, the report said.
“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,” said Martin Raiser, World Bank Vice President for South Asia.
“Countries need to urgently manage fiscal risks and focus on measures to accelerate growth, including by boosting private sector investment and seizing opportunities created by the global energy transition.”
In India, which accounts for the bulk of the region’s economy, growth is expected to remain robust at 6.3 per cent in 2023-24. Output in Maldives is expected to grow by 6.5 per cent in 2023 and in Nepal is expected to rebound to 3.9 per cent in 2023-24, thanks to the strong rebound in tourism in both countries.
Several countries in the region are still suffering from the aftermath of recent currency crises. In Bangladesh, growth will slow to 5.6 per cent in 2023-24.
In Pakistan, the growth is forecast at only 1.7 per cent in 2023-24, below the rate of population growth. Sri Lanka is showing signs of recovery after a severe recession and the economy is expected to grow by 1.7 per cent in 2024, after contracting by 3.8 per cent in 2023.
“Constrained by fiscal challenges, governments have limited room to help their economies fully capitalize on the global energy transition. Though often seen as an additional burden for developing countries, for South Asia, the energy transition could present an opportunity for future growth and job creation—if it leads to more investments by firms, cuts air pollution, and reduces the reliance on fuel imports,” World Bank noted.
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