"South Asia faces weakening growth amidst tightening financial conditions"

" South Asia faces weakening growth amidst tightening financial conditions \r\n\r\nSouth Asia\u2019s growth prospects have weakened due to tightening financial conditions, with large downside risks in most countries given limited fiscal space and depleting reserves, says the World Bank in its twice-a-year regional update. The report stresses the need to roll back market distortions introduced during the pandemic and address debilitating socioeconomic divides that constrain South Asia\u2019s potential.\r\n\r\nReleased today, the latest\u00a0 South Asia Economic Focus, Expanding Opportunities: Toward Inclusive Growth , projects regional growth to average 5.6% in 2023, a slight downward revision from the October 2022 forecast. Growth is expected to remain moderate at 5.9% in 2024, following an initial post-pandemic recovery of 8.2% in 2021.\r\n\r\nSouth Asia\u2019s outlook is shaped by a combination of 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\u2019s recovery, but rising interest rates and uncertainty in financial markets are putting downward pressure on the region\u2019s economies.\r\n\r\n \u201cSouth Asia\u2019s economies have been scarred by a combination of extreme shocks over the past three years, and the recovery remains incomplete,\u201d\u00a0 said\u00a0 Martin Raiser, World Bank Vice President for South Asia .\u00a0 \u201cCountries should use the opportunity of lower energy prices and improving trade balances to move away from ad hoc measures, such as fuel subsidies and import restrictions implemented to address these shocks, and focus on reforms needed to build resilience and boost medium-term growth.\u201d \r\n\r\nAll countries in the region except Bhutan have downgraded their forecasts. In\u00a0 India , South Asia\u2019s largest economy, high borrowing costs and slower income growth are expected to dampen consumption and lower growth to 6.3% in FY2023\/24. Growth in\u00a0 Pakistan \u2014which is still reeling from the impacts of last year\u2019s catastrophic floods and facing supply chain disruptions, deteriorating investor confidence, and higher borrowing and input costs\u2014is projected to drop to 0.4% this year, assuming agreement on an IMF program is reached. In\u00a0 Sri Lanka , GDP is expected to contract by 4.3% this year reflecting the lasting impact of the macro- debt crisis, with future growth prospects\u2014following last month\u2019s IMF program approval\u2014heavily dependent on debt restructuring and structural reforms. The resumption of tourism and migration has supported growth in\u00a0 Maldives \u00a0and\u00a0 Nepal . But high external debt and tightened global financial conditions pose risks to Maldives\u2019 fiscal and external accounts, and in Nepal, external shocks, domestic import restrictions, and monetary tightening are expected to hamper growth.\r\n\r\nInflation in South Asia is set to fall to 8.9% this year, and to below 7% in 2024. However, weaker currencies and delayed domestic price adjustments are contributing to a slower than anticipated decline in inflation. Elevated global and domestic food prices are contributing to greater food insecurity for South Asia\u2019s poor who spend a larger share of income on food.\r\n\r\nTo go from recovery to sustained growth, South Asia needs to ensure economic development is inclusive. The region has among the world\u2019s highest inequality of opportunity. Between 40 and 60% of total inequality in South Asia is driven by circumstances out of an individual\u2019s control such as place of birth, family background, caste, ethnicity, and gender. Intergenerational mobility is also among the world\u2019s lowest. Data highlighted in the report shows that less than 9% of individuals whose parents have low levels of education reach education levels of the upper 25%. Such disparities lead to differences in access to jobs, earnings, consumption, and welfare and to calls for redistributive policies.\r\n\r\n \u201cSouth Asia\u2019s stark socioeconomic divides are both unfair and inefficient. They keep talented individuals from contributing to society, reduce incentives to invest in human capital, and derail long-term economic growth,\u201d \u00a0 said Hans Timmer, World Bank Chief Economist for South Asia .\u00a0 \u201cAddressing these structural issues is vital to ensuring the region can achieve its full potential.\u201d \r\n\r\nThe report recommends continuing to improve the quality of primary education and expanding access to secondary and higher education, evaluate and strengthen affirmative action policies targeted to \u201clow opportunity\u201d groups, and policies to improve the business climate for small and medium enterprises, who account for the bulk of job opportunities for the less well-off. In addition, reducing barriers to labor mobility can have a powerful equalizing impact as urban areas tend to offer more opportunities for social mobility."

"South Asia faces weakening growth amidst tightening financial conditions"

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