The smaller economies of Bangladesh, Nepal, and Sri Lanka continue to show optimism for their economies based on good remittance inflows and export indicators that demonstrate strong growth in 2008. Policymakers have used these statistics as evidence to believe that they have been relatively unaffected by the current global downturn.
Unfortunately, this optimism is based on 12 month averages and do not highlight the significant drop in exports between October and December 2008 with some countries approaching negative rates. Coupled with the potential challenges that lie ahead, none of the countries are immune to the adverse effect of the global slowdown and there’s no room for complacency.
To minimize the negative effects, countries are advised to take strong measures to improve fiscal space to stimulate the economy without jeopardizing macroeconomic stability; improve the quality of public expenditures; strengthen competitiveness to protect export markets; reform the banking sector; and improve the implementation of public programs. These measures are necessary to protect exports, income, and employment, especially as the global crisis deepens that will further hurt South Asia’s earnings from exports, remittances and tourism.