South Asia is expected to grow by 5.8 per cent this year—higher than any other developing country region in the world, 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 today, the latest South Asia Development Update, Toward Faster, Cleaner Growth forecasts growth 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 economic activity.
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.
“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. 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,” said Martin Raiser, Vice President, World Bank, South Asia. “
In India, which accounts for the bulk of the region’s economy, growth is expected to remain robust at 6.3 per cent in FY23-24. 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 FY23-24. Several countries in the region are still suffering from the aftermaths of recent currency crises. In Bangladesh, growth will slow to 5.6 per cent in FY23-24. In Pakistan, growth is forecast at only 1.7 per cent, 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 capitalise 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. Even with limited fiscal space, countries can encourage firms to adopt more energy-efficient technologies through market-based regulations, information campaigns, broader access to finance, and reliable power grids.
“South Asia’s energy intensity of output is about twice the global average and the region lags in the adoption of more advanced energy-efficient technologies. Improvements in energy efficiency, in the context of a rapid global energy transition, are an opportunity for South Asia to make progress toward both environmental and economic goals,” said Franziska Ohnsorge, Chief Economist, World Bank, South Asia.
