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  April 3rd, 2024 | Written by

South Asia’s Growth Resilience Faces Structural Challenges

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South Asia is poised for robust growth in 2024, with a projected GDP growth of 6.0%, primarily driven by India’s strong performance and recoveries in Pakistan and Sri Lanka. However, despite this positive outlook, persistent structural challenges threaten to impede sustained growth and hinder the region’s ability to create jobs and respond to climate shocks, as highlighted in the World Bank’s latest South Asia Development Update.

While South Asia is expected to maintain its status as the fastest-growing region globally for the next two years, the report warns that the current growth trajectory is deceptive. Most countries are still below pre-pandemic growth levels, relying heavily on public spending to fuel economic expansion. Private investment growth has notably slowed across all South Asian nations, exacerbating the challenge of job creation amidst a rapidly expanding working-age population.

Read also: Navigating Economic Dynamics: East Asia and Pacific Region’s Growth Prospects

Martin Raiser, World Bank Vice President for South Asia, cautions that fiscal vulnerabilities and escalating climate shocks loom as potential threats to the region’s growth trajectory. To fortify resilience, he emphasizes the necessity of implementing policies to stimulate private investment and foster employment growth.

South Asia’s demographic dividend presents both opportunities and challenges. Despite a surge in the working-age population, employment growth has lagged behind, resulting in a declining employment ratio compared to other emerging market regions. Franziska Ohnsorge, World Bank Chief Economist for South Asia, emphasizes that fully harnessing this demographic dividend is imperative for the region’s economic advancement, with the potential for output to increase significantly if employment levels mirror those of comparable economies.

The report underscores the urgency of addressing weak employment trends, particularly in non-agricultural sectors, through policy interventions aimed at enhancing firm growth and facilitating job creation. Recommendations include measures to enhance trade openness, improve access to finance, strengthen business climates, and promote women’s economic participation, which collectively can boost growth, productivity, and resilience.

In addition to providing a comprehensive overview of South Asia’s economic landscape, the report offers country-specific outlooks. Bangladesh faces challenges posed by high inflation and trade restrictions, while Bhutan anticipates growth supported by electricity production and tourism. India’s economy is expected to maintain robust growth, while Maldives adjusts to shifting tourism dynamics. Nepal foresees growth driven by hydropower exports, and Pakistan anticipates economic recovery as business confidence improves. Sri Lanka expects modest growth supported by improvements in reserves, remittances, and tourism.

In conclusion, while South Asia’s growth prospects are promising, addressing structural challenges is essential to ensuring inclusive and sustainable development in the region.