The World Bank says growth in South Asia, already uneven and fragile, will be slower than previously projected. While some countries experienced a solid rebound in GDP growth, it said Afghanistan faced a humanitarian crisis, Pakistan a political crisis, and Sri Lanka a balance of payments crisis.
The latest ‘South Asia Economic Focus Reshaping Norms: A New Way Forward’ projects the region to grow by 6.6% in 2022 and by 6.3% in 2023. The 2022 forecast has been already revised downward by one percent compared to the January projection.
Countries in South Asia have been grappling with rising commodity prices, supply bottlenecks, and vulnerabilities in financial sectors. The war in Ukraine amplifies these challenges, contributing to inflation, increasing fiscal deficits, and deteriorating current account balances.
“South Asia has faced multiple shocks in the past two years, including the scarring effects of the Covid-19 pandemic. High oil and food prices caused by the war in Ukraine will have a strong negative impact on peoples’ real incomes,” said Hartwig Schafer, World Bank Vice President for South Asia.
Inclusive Growth and Equality as Tools
The war and its impact on fuel prices could encourage the region to reduce reliance on fuel imports and transition to a green, resilient and inclusive growth. The report also recommends that countries steer away from inefficient fuel subsidies that tend to benefit wealthier households and deplete public resources.
It said South Asian countries should also move towards a greener economy by gradually introducing taxation that puts tariffs on products that cause environmental damage.
South Asian economies are just about emerging from the deep Covid-19 recession, burdened by high inflation, rising current account deficits and deteriorated fiscal balances.
Rising interest rates in advanced economies could lead to capital outflows, putting pressure on the currencies in countries grappling with high external indebtedness. This is of particular concern in countries with high levels of foreign currency-denominated debt, such as Sri Lanka, Pakistan and the Maldives.
Another challenge the region faces is the disproportionate economic impact the pandemic has had on women. The report includes an in-depth analysis of gender disparities in the region, recommending policies that would support women’s access to economic opportunities, tackle discriminatory norms and improve gender outcomes for inclusive growth.
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