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Led by robust growth in India, South Asia shows resilience in the face of turbulent international markets and remains the fastest-growing region in the world, with economic growth forecasted to grad ually accelerate from 7.1 percent in 2016 to 7.3 percent in 2017, a World Bank report said.
According to the report, the region’s economic performance prospects remain strong due to its limited exposure to global turbulence, coupled with increasing investment activity.
However, there are also signs of fading tailwinds. Capital flows to the region have declined and remittances from oil exporting countries have started to weaken. Fuel and food prices remain low but are unlikely to keep falling. As a result overall output growth is slower than previously anticipated and inflation has recently been creeping up.
Given its weight in the region, India sets the pace for South Asia as a whole. Economic activity is expected to accelerate from 7.5 percent in FY2016 to 7.7 percent in FY2017 based on the expectation of strong private investment, a push in infrastructure spending, an improved investment climate, and deleveraged corporate and financial balance sheets.
The report’s analysis of fiscal policy across the region suggests that governments need to find a balanced path towards fiscal consolidation.
In Bangladesh, growth is stable and projected to rise due to increased government consumption and investment, a recovery in private investments, and an easing of regulatory and infrastructure constraints. The country should be cautious about trade and financial shocks. It should strive to boost private investment by reforming business regulations, mitigating infrastructure deficiencies and addressing financial sector weaknesses.
In India, GDP growth is expected to be 7.7 percent in 2017 compared to 7.5 percent in 2015 supported by a rebound in agriculture and stimulus from civil service pay reforms. However, delays in the adoption and implementation of key reforms could affect investor sentiment. Favorable overall trends mask important underlying divergences: between urban and agricultural households; between domestic and external demand; and between public and private capital expenditure, which should be addressed.
Sri Lanka’s economic growth is expected to grow at 5.3 percent in 2016 and 2017 driven by increased public investment and postponed investments in 2015. The challenging global environment has taken a toll on the economy with reduced exports and remittances; and significant capital outflows, leaving Sri Lanka with higher public debt, lower reserves and rising inflation.