South Asia Development Update

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The South Asia Development Update, previously known as South Asia Economic Focus, presents the near-term economic outlook for South Asia as well as in-depth analysis on topical challenges and opportunities for policy makers in Afghanistan, Bangladesh, Bhutan, India, the Maldives, Nepal, Pakistan, and Sri Lanka. This series is prepared twice a year by the Office of the Chief Economist for the South Asia region.

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  • Publication
    South Asia Development Update, April 2024: Jobs for Resilience
    (Washington, DC: World Bank, 2024-04-02) World Bank
    South Asia is expected to continue to be the fastest-growing emerging market and developing economy (EMDE) region over the next two years. This is largely thanks to robust growth in India, but growth is also expected to pick up in most other South Asian economies. However, growth in the near-term is more reliant on the public sector than elsewhere, whereas private investment, in particular, continues to be weak. Efforts to rein in elevated debt, borrowing costs, and fiscal deficits may eventually weigh on growth and limit governments' ability to respond to increasingly frequent climate shocks. Yet, the provision of public goods is among the most effective strategies for climate adaptation. This is especially the case for households and farms, which tend to rely on shifting their efforts to non-agricultural jobs. These strategies are less effective forms of climate adaptation, in part because opportunities to move out of agriculture are limited by the region’s below-average employment ratios in the non-agricultural sector and for women. Because employment growth is falling short of working-age population growth, the region fails to fully capitalize on its demographic dividend. Vibrant, competitive firms are key to unlocking the demographic dividend, robust private investment, and workers’ ability to move out of agriculture. A range of policies could spur firm growth, including improved business climates and institutions, the removal of financial sector restrictions, and greater openness to trade and capital flows.
  • Publication
    South Asia Development Update, October 2023: Toward Faster, Cleaner Growth
    (Washington, DC: World Bank, 2023-10-03) World Bank
    At just under 6 percent, South Asia is expected to grow faster than any other emerging market and developing economy (EMDE) region in 2024–25. However, for all countries, this will represent a slowdown from pre-pandemic averages. Several potential adverse events could derail this outlook, including risks related to fragile fiscal positions. Government debt in South Asia averaged 86 percent of GDP in 2022, above that of any other EMDE region. In some countries, outright defaults have short-circuited growth while, in others, increasing domestic borrowing by governments has driven up interest rates and diverted credit away from the private sector. Elections could add to spending pressures. An urgent policy priority for the region is, therefore, to manage and reduce fiscal risks. Over the longer term, the policy priority is to accelerate growth and job creation in a sustainable manner. The energy transition, away from fossil fuels toward sustainable sources of energy, presents an opportunity for the region to lift productivity, cut pollution, reduce its reliance on fuel imports, and create jobs. South Asia uses twice as much energy to produce each unit of output as the global average and the region lags in the adoption of advanced energy-efficient technologies. Even fiscally constrained governments can take action to support the energy transition with market-based regulations, information campaigns, broader access to finance, and reliable public power grids. With about 9 percent of the region’s workers employed in pollution-intensive activities, and these workers less educated and more often informally employed than the average worker, the energy transition will create challenging labor market shifts. This calls for measures to boost job creation and facilitate worker mobility, geographically and across sectors.
  • Publication
    Expanding Opportunities: Toward Inclusive Growth
    (World Bank, Washington, DC, 2023-04-04) World Bank
    South Asia’s outlook is shaped by both good and bad news in the global economy. Lower commodity prices, a strong recovery in the services sector, and reduced disruptions in value chains are aiding South Asia’s recovery but rising interest rates and uncertainty in financial markets are putting downward pressure on the region’s economies. Countries in South Asia, especially those with large external debt, face difficult tradeoffs as they respond to these pressures. Growth prospects have weakened, with large downside risks in most countries given limited fiscal space and depleting foreign reserves. Going forward, broad reform programs, including a sustainable fiscal outlook, are needed to put South Asia on a more robust and inclusive growth path. Inequality of opportunity, which is higher in South Asia than in other regions of the world, is both unfair and inefficient. Reducing inequality of opportunity and increasing economic mobility will help broaden countries’ tax base and boost support from the population for the critical reforms.
  • Publication
    Coping with Shocks: Migration and the Road to Resilience
    (Washington, DC : World Bank, 2022-10-06) World Bank
    South Asia is facing renewed challenges. The impact of the Russia-Ukraine war on food and energy prices on domestic inflation is long-lasting. Externally, countries’ current account balances deteriorate rapidly as imports rise on the back of economic recovery and rising inflation, remittances decline, and foreign capital flows out following monetary tightening in advanced economies. An economic slowdown in advanced economies and trading partners can also be a drag to the exports sector and remittances inflows, which many countries in the region depend on. These immediate challenges can translate to persistent deterrent to long-term growth and development. Higher energy prices already are changing the attitude of many countries outside the region about green transition and carbon reduction. The South Asia region is thus at a critical juncture. The theme chapter provides a deep dive into COVID-19 and migration. Migrant workers and remittances flows are important for South Asia as sources of income and means to smooth local income shocks for households, and as an important source of foreign reserves for the country. The pandemic changed the flows of migration, as some migrants had to return home and some had to stay in foreign countries due to COVID-related restrictions. The chapter studies the long-run trend of migration in the region, how COVID-19 impacted migration and remittance inflows, whether migration has (or has not) recovered, and proposes policies to address underlying problems.
  • Publication
    Reshaping Norms: A New Way Forward
    (Washington, DC: World Bank, 2022-04-13) World Bank
    South Asia’s growth rate has returned to pre-pandemic levels. However, the uneven recovery from the pandemic has left countries in South Asia with multiple policy challenges, which are exacerbated by the impact of the war in Ukraine. While several countries are navigating rising inflation and growing difficulties to finance fiscal deficits and trade deficits, the region must also chart a new way forward to address rising inequality, unleash new growth potential, and accommodate an energy transition. To reshape their economies, the region cannot avoid redesigning tax systems, increasing competition, and challenging vested interests and existing gender norms. This issue of the South Asia Economic Focus, describes recent economic developments, analyzes the economic impact on South Asia of the war in Ukraine, presents growth forecasts, provides risk scenarios, and concludes that reshaping economies goes hand in hand with reshaping norms.
  • Publication
    Shifting Gears: Digitization and Services-Led Development
    (Washington, DC: World Bank, 2021-10-07) World Bank
    South Asia region’s economies continue on a recovery path, with production and export having recovered to pre-COVID trend levels. But the recovery has been uneven across countries and sectors, and significant risks exist that could jeopardize short-term recovery and long-term growth. Over the short-term, low vaccination rates in most countries in the region make the population and economies vulnerable to future COVID waves and lockdowns; supply shortages due to global supply bottlenecks continue to put upward pressure on (food) inflation, especially after consumption recovers. Over the long-term, the region faces long-lasting scarring effects from the pandemic. The emergence of a new services economy creates an opportunity for the region to shift gears and to move towards a services-led development model. The importance of services has been increasing over time and got a further boost during the response to the COVID pandemic, when digital technologies became critical. This new services economy comprises not just the ICT sector, but also business and professional services that are increasingly critical inputs into manufacturing and other sectors, and digital platforms that are creating new markets. It can become the driver of development in South Asia because 1) Services are increasingly tradable and also represent a large part of value added incorporated in the exports of goods. 2) Services firms can drive productivity growth because of innovations that make their own products and other industries more efficient 3) The services sector also generates jobs and helps upgrading skills through on-the-job training. To unleash the potential of the new services economy, policy makers should rethink regulations and establish new institutions to enable 1) competition and innovation 2) increased labor mobility and up-skilling, through education and on-the job training; 3) the absorption of new services by firms and households. Governments in South Asia are addressing these new realities, but they face major challenges. With countries worldwide struggling to find an optimal institutional environment for the new services sectors, a good option for South Asia is to experiment with regulatory sandboxes.
  • Publication
    South Asia Economic Focus, Spring 2021: South Asia Vaccinates
    (Washington, DC: World Bank, 2021-03-31) World Bank
    South Asia region’s economies are beginning to recover, though unevenly: economic activity in industry and export sectors have recovered to pre-COVID levels but some labor-intensive services sectors and tourism have not. Inequality has worsened on many dimensions. The process of vaccinating South Asia’s population is underway, with India taking a leading role in production. The socioeconomic benefits of vaccinating most South Asians as soon as possible outweighs the cost by multiple times, and thus justifies having public sector financing. Cracks in the primary health care system became evident since the pandemic began, and the vaccine rollout is likely to have other additional challenges such as delays in production, bottlenecks in supply chain logistics and vaccine hesitancy from some groups (which could delay the process of herd immunity). There are also tradeoffs in the priorities that should be established in deciding who gets the vaccine first.
  • Publication
    South Asia Economic Focus, Fall 2020: Beaten or Broken? Informality and COVID-19
    (Washington, DC: World Bank, 2020-10-08) World Bank
    The COVID-19 pandemic, which is still impacting South Asia, has temporarily brought the region to a near standstill. Governments proactively stabilized activity through monetary easing, fiscal stimulus, and supportive financial regulation, but the situation is fragile amid weak buffers and exhausted policy tools. South Asia’s GDP is expected to contract 7.7 percent this year, by far the largest decline on record, but uncertainty around the forecast is substantial. The informal economy in South Asia has been hit hard. Many unorganized workers, self-employed people and microenterprises have experienced a large drop in earnings as the service sectors that were affected most by the lockdowns are dominated by informality. Informal workers and firms tend to have inadequate mechanisms for coping with short-term demand and supply interruptions due to limited savings and constrained access to finance. While the poor have suffered severely during the crisis, many informal workers in the middle of the income distribution have experienced the greatest drop in earnings. Most of them are not covered by social insurance. The crisis lays bare complicated structural problems in the informal sector that need to be addressed.
  • Publication
    South Asia Economic Focus, Spring 2020: The Cursed Blessing of Public Banks
    (Washington, DC: World Bank, 2020-04-12) World Bank
    The unprecedented COVID-19 crisis comes with a dire economic outlook. South Asia might well experience its worst economic performance in 40 years. The harsh reality of inequality in South Asia is that poor people are more likely to become infected with the coronavirus, as social distancing is difficult to implement for them. They also have less access to health care or even soap, are more likely to have lost their job, and are more vulnerable to spikes in food prices. The unfolding economic crisis is unique in several ways. This report estimates that regional growth will fall to a range between 1.8 and 2.8 percent in 2020, down from 6.3 percent projected six months ago. The dire forecast is based on the analysis of several adverse impacts. South Asia finds itself in a perfect storm. Tourism has dried up, supply chains have been disrupted, demand for garments has collapsed, consumer and investor sentiments have deteriorated, international capital is being withdrawn and inflows of remittances are being disrupted. On top of the deterioration of the international environment, the lockdown in most countries has frozen large parts of the domestic economy. Public banks, discussed in the focus chapter of this edition, were at the center of weaknesses in financial sectors that accumulated during recent years. However, during this crisis, they might be part of the solution by providing countercyclical lending to the most vulnerable parts of the economy.
  • Publication
    South Asia Economic Focus, Fall 2019: Making (De)centralization Work
    (Washington, DC: World Bank, 2019-10-13) World Bank
    Global GDP growth is decelerating, while trade and industrial production are stagnating. The slowdown has been severe in South Asia, which in recent quarters was no longer the fastest growing region in the world. In most South Asian countries, growth is expected to be below long-run averages this year but there is significant diversity evident in the high frequency data of industrial production. Current account deficits have declined, as is often the case during economic downturns. Inflation remains near target in most countries, but food price inflation is picking up. Growth forecasts for South Asia are revised downward considerably as uncertainty in global markets and a worsening global outlook have become more important drivers of the forecast. The expected modest recovery to 6.3 percent in 2020 and 6.7 percent in 2021 is tentative as forecasts under current circumstances, particularly for investment, are highly uncertain. In many countries across the region, further decentralization is a high policy priority. These policies are part of a global decentralization trend, which aims to improve local service delivery. Empirical evidence of the effectiveness of decentralization is mixed, a result which is often attributed to partial decentralization. Successful development requires both decentralization and centralization at the same time. In the interplay between central and local governments, the allocation of resources plays a crucial role. In South Asia, a lack of geospatial data on expenditure and development outcomes remains a major constraint.