The World Bank (WB) said in its twice-yearly regional update that South Asia’s growth prospects have weakened due to tightening financial conditions, with significant downside risks in most countries due to limited fiscal space and depleting reserves.
According to a World Bank press statement issued today, the study emphasizes the need to reverse market distortions caused by the pandemic and address debilitating socioeconomic divides that limit South Asia’s potential.
The newest South Asia Economic Focus, Expanding Opportunities: Toward Inclusive Growth, published today, forecasts regional growth of 5.6 percent in 2023, a slight decrease from the October 2022 estimate. Following an initial post-pandemic recovery of 8.2 percent in 2021, growth is expected to stay moderate at 5.9 percent in 2024.
The outlook for South Asia is influenced by a mix of good and bad news from the global economy. Lower commodity prices, a robust recovery in the services sector, and fewer disruptions in value chains are assisting South Asia’s recovery; however, rising interest rates and financial market uncertainty are placing downward pressure on the region’s economies.
“South Asia’s economies have been scarred by a combination of extreme shocks over the past three years, and the recovery remains incomplete,” said Martin Raiser, World Bank Vice President for South Asia.
“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 focus on reforms needed to build resilience and boost medium-term growth,” he added.
Except for Bhutan, all nations in the region have reduced their forecasts. High borrowing costs and slower income growth are anticipated to dampen consumption and lower growth to 6.3 percent in FY2023/24 in India, the biggest economy in South Asia.
