World Bank cuts forecast for South Asia region

THE World Bank lowered its economic growth forecast for South Asia for next year, although still expects it to be the fastest-growing emerging market region.

South Asia’s economy will likely expand 5.6 per cent in each of the next two years, down from an estimated 5.8 per cent this year, the Washington-based lender said in a report on Tuesday (Oct 3). The region grew at 8.2 per cent in 2022.

The moderation in growth next year is mainly due to the fading of post-pandemic demand, as well as higher interest rates, lower government spending and weak exports, the World Bank said in its South Asia Development Update.

Growth is expected to be “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,” it said.

“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,” Martin Raiser, World Bank’s vice-president for South Asia, said in a statement. Countries in the region need to “urgently manage fiscal risks” and boost private sector investment, while seizing opportunities created by the global energy transition, he said.

India, the region’s largest economy, will maintain its economic pace and likely grow 6.4 per cent in the fiscal year ending March 2025, up from 6.3 per cent in 2023-24, the report said. Despite India’s strong growth, lower-than-projected economic expansion for Bangladesh and Pakistan will drag down the outlook for the rest of the region, it said.

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“Subsidy reforms will help reduce debt pressure for Sri Lanka and Pakistan,” Franziska Ohnsorge, chief economist for South Asia at the multilateral institution said at a press briefing in New Delhi. Stimulating private investment and removing trade restrictions can reduce default risks for the two economies, she said. “Such reforms are very difficult, but remain a policy priority.”

Sri Lanka is projected to grow at 1.7 per cent next year and 2.4 per cent in 2025, from a contraction of 3.8 per cent in the current year, the report said. Economists expect the island nation to cut rates at its policy review on Thursday to help a pick up in growth after inflation pressure eased significantly.

However, the outlook for Sri Lanka “is clouded by significant uncertainty, and downside risks exist,” said Richard Walker, World Bank’s senior country economist in Colombo. “Growth prospects will depend on progress with debt restructuring as well as the continued implementation of growth enhancing structural reforms.” BLOOMBERG