The World Bank reports in its semiannual regional update that South Asia’s economic prospects have dimmed as a result of tighter financial conditions, with considerable downside risks in most countries owing to limited fiscal flexibility and dwindling reserves. The research emphasizes the need to reverse pandemic-era market distortions and rectify the widening socioeconomic gaps that limit opportunities in South Asia.
The newest South Asia Economic Focus, Expanding Opportunities: Toward Inclusive Growth, released today predicts the region’s average growth will slow to 5.6% in 2023, down slightly from the 5.7% prediction made in October of last year. After a rapid 8.2 percent growth rate in 2021 after the pandemic, modest growth of 5.9 percent is predicted for 2024.
Both positive and negative developments in the global economy have an impact on South Asia’s future. South Asian economies are recovering thanks to falling commodity prices, strengthening service industries, and fewer interruptions in supply chains, but they are still feeling the pinch of higher interest rates and market volatility.
Martin Raiser, World Bank Vice President for South Asia, stated, “South Asia’s economies have been scarred by a combination of extreme shocks over the past three years, and the recovery remains incomplete.” “Countries should use the opportunity of lower energy prices and improving trade balances to move away from ad hoc measures, such as fuel subsidies and import restrictions implemented to address these shocks, and instead focus on reforms needed to build resilience and boost medium-term growth.”
With the exception of Bhutan, all neighboring nations have reduced their predictions. High borrowing rates and slower income growth are predicted to reduce consumption and bring growth in India, South Asia’s biggest economy, down to 6.3% in FY2023/24. It is expected that Pakistan’s growth would slow to 0.4% this year if an agreement is made on an IMF program, as the country is still recovering from the effects of last year’s disastrous floods and faces supply chain disruptions, weakening investor confidence, and rising borrowing and input prices. Sri Lanka’s GDP is predicted to fall by 4.3% this year due to the lingering effects of the macro- economic crisis, and growth prospects going forward are highly contingent on debt restructuring and structural reforms after last month’s IMF program approval. The economies of the Maldives and Nepal have benefitted from the revival of tourism and emigration. However, foreign shocks, domestic import restrictions, and monetary tightening are projected to slow development in Nepal, while high external debt and tighter global financial conditions pose dangers to the Maldives’ fiscal and external accounts.
Forecasts indicate that South Asian inflation would drop to 8.9 percent this year and drop much further to around 7 percent by 2024. However, the fall in inflation has been slower than expected due to weaker currencies and slower domestic price adjustments. The impoverished of South Asia, who already spend a disproportionate amount of their income on food, are feeling the pinch of rising international and local food costs.
South Asia must make sure economic development is inclusive if it is to go from recovery to sustainable growth. Opportunity gaps in this area are some of the greatest in the world. Place of birth, family background, caste, race, and gender account for between 40 and 60 percent of overall inequality in South Asia. The country also has one of the lowest rates of generational mobility in the world. Less than 10% of people from families with poor educational attainment make it to the top 25% of the population, according to the report’s data. Demands for redistributive policies emerge in response to inequalities in employment opportunities, income, wealth, and quality of life.
The vast economic gaps in South Asia are both unjust and wasteful. According to World Bank Chief Economist for South Asia Hans Timmer, “they prevent talented individuals from contributing to society, reduce incentives to invest in human capital, and derail long-term economic growth.” Fixing these underlying problems is essential for the area to reach its full potential.
The report suggests policies to improve the business climate for small and medium enterprises, who provide the majority of job opportunities for the less fortunate, as well as evaluating and strengthening affirmative action policies targeted to “low opportunity” groups. As metropolitan regions often provide greater chances for social mobility, lowering obstacles to labor migration may have a dramatic equalizing influence.