Rising Tide, Hidden Rocks: South Asia’s outlook in five charts

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Rising Tide, Hidden Rocks: South Asia’s outlook in five charts Photo Credit: Westock

Output growth in South Asia is on track to exceed earlier expectations, at 6.4 percent in 2024 and 6.2 percent a year in 2025–26, and remain higher than in all other emerging market and developing economy (EMDE) regions. This outlook is subject to downside risks from extreme weather events, social unrest, debt distress, and reform delays, and the region’s fragile fiscal and external positions leave few buffers against these downside risks. The region has three major sources of untapped potential: Raising employment among women, increasing openness to global trade and investment, and removing obstacles to firm growth. Tapping these could attract foreign investment, accelerate the diffusion of new technologies, and spur the private investment needed for job creation.

        1. South Asia is growing faster than expected, and faster than elsewhere

South Asia remains the fastest-growing emerging market and developing economy (EMDE) region in the world. South Asia’s economy is expected to grow 6.4 percent this year (even higher than anticipated six months ago) and remain robust at 6.2 percent in the next two years. This broad-based upturn is supported by strong domestic demand in India and faster recoveries in Bangladesh, Nepal, Pakistan, and Sri Lanka.

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Sources: Macro Poverty Outlook (World Bank); World Bank.                                                                  

Note: e = estimate; f = forecast; EMDE = emerging market and developing economies; SAR = South Asia. Bars show the average for fiscal year. Aggregation method is weighted average.

        2. South Asia faces many risks and has limited room to absorb shocks

South Asia remains highly vulnerable to natural disasters, debt pressures, and, as we have witnessed recently, social unrest. Delays in implementing key policies could set back growth, too. The region has little fiscal space or buffers to shield against such negative shocks.

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Sources: CEIC; Haver Analytics; World Bank.

Note: EAP = East Asia and Pacific; ECA = Europe and Central Asia; EMDEs = emerging market and developing economies; LAC = Latin America and the Caribbean; MNA = Middle East and North Africa; SAR = South Asia; SSA = Sub-Saharan Africa. Bars show simple average of monthly data in 2024 through July. Sample includes 55 EMDEs of which 5 are in SAR. Whiskers show the interquartile range. Dotted line shows the median EMDE economy.

        3. Untapped potential #1: Creating jobs for women

South Asia has considerable untapped potential to boost growth in the medium term. For example, only 32 percent of working-age women were in South Asia’s labor force in 2023. That is well below the region’s male labor force participation rate of 77 percent. It is also well below the EMDE-average female labor force participation rate of 54 percent. Creating jobs to raise women’s labor force participation rate to that of men would increase the region’s output in the long term by up to one-half, especially if the additional female employment is accompanied by private capital accumulation and a shift of women into equally productive jobs as men.

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Sources: ILOStat (International Labour Organization); World Bank.

Note: BGD = Bangladesh; BTN = Bhutan; EMDE = emerging market and developing economies; IND = India; LKA = Sri Lanka; MDV = Maldives; NPL = Nepal; PAK = Pakistan. Pink shaded region indicates interquartile range of EMDEs, excluding South Asia. EMDE averages are weighted by working-age population. Female labor force participation rate is the share of the female working-age population (15+) employed or looking for work, measured using ILO’s ILOStat modeled data. Even when national data, based on national definitions, were used for South Asia, all countries except Bhutan and Maldives would remain in the bottom quartile among EMDEs. Afghanistan has not published any official statistics since 2021.

        4. Untapped potential #2: Opening up to global trade and investment

South Asian countries are currently among the world’s least open—all South Asian economies except Maldives are among the least open EMDEs to global trade, FDI, and lending from global banks. In part, this reflects higher tariffs and more cumbersome customs procedures than in other EMDEs. This lack of openness limits the region’s ability to take advantage of the foreign investment and export market opportunities that result from shifting global supply chains. To better seize such opportunities, South Asian economies may need to lower import tariffs, ease restrictions on FDI, improve infrastructure and logistics, and deepen financial markets.

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Sources: Aiyar and Ohnsorge (2024); World Development Indicators (database); World Bank.

Note: Red shades denote interquartile range for other EMDEs. Gray shades denote interquartile range for other small states. BGD = Bangladesh; BTN = Bhutan; EMDEs = emerging market and developing economies; IND = India; LKA = Sri Lanka; MDV = Maldives; NPL = Nepal; PAK = Pakistan. Trade is defined as the sum of goods and services exports and imports. Maldives uses 2022 data. Other EMDEs comprise 72 economies, and other small states comprise 13 economies (as defined in World Bank 2024).

        5. Untapped potential #3: Helping small firms grow

In South Asia, firms often remain small and unproductive, in part because of policies that favor smaller establishments. In South Asia, the average firm tends to be smaller than in other EMDEs, and the average small firm tends to be older. To stimulate the growth of firms, governments could reduce regulatory burdens, enforce competition policies that prevent large incumbents from abusing market power, increase openness to global trade and investment, and enhance the efficiency of input markets (particularly for land).

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Sources: World Bank Enterprise Survey (database); World Bank.

Note: BGD = Bangladesh; BTN = Bhutan; EMDE = emerging market and developing economies; IND = India; LKA = Sri Lanka; MDV = Maldives; NPL = Nepal; PAK = Pakistan. Horizontal lines mark the median level firm size in manufacturing and share of young among small firms in other EMDEs.               


Patrick Kirby

Senior Economist, Office of the Chief Economist for South Asia

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