1. South Asia is growing faster than other regions
The outlook is subject to downside risks from weak financial systems and fiscal positions, and would also worsen in the event of a further economic slowdown in China or climate change-related natural disasters.
2. Growth is not strong enough for rapid convergence with high-income countries
Potential growth in the region averages about 5 percent, but would have to be 8 percent or higher in most countries to reach high-income status by 2050. To accelerate growth, it will be critical to strengthen private investment growth.
3. Private investment has been weak
In the past five years, investment growth has generally followed two contrasting patterns in South Asia. In Bhutan, Pakistan, and Sri Lanka, growth has been negative or near zero. In India, Maldives, Bangladesh, and Nepal, investment growth has been robust and well above the emerging market and development economies (EMDE) average. In India and Bangladesh, this rapid growth has been supported by public investment growth of around 10 percent per year—triple the EMDE average. Sustaining this pace of public investment growth may become increasingly challenging as government debt and borrowing costs rise.
4. Fiscal positions are fragile
Slowing the rise in debt burdens will likely require continued strong growth as well as reforms to limit financing costs, improve spending efficiency, and address the region’s unusually low government revenue collection. All countries but one (Bhutan) collect less revenue than the EMDE average of nearly 30 percent of GDP, with revenues in Sri Lanka and Bangladesh below 10 percent of GDP.
5. South Asia is vulnerable to climate risks
Much of the region’s population lives in dense river valleys which are increasingly subject to severe floods, such as those that submerged one-third of Pakistan last year. Bangladesh’s losses from tropical cyclones alone are estimated to average 0.7 percent of GDP per year. Afghanistan is among the countries most at risk from heat waves. Coastal areas and the entirety of Maldives risk being covered by rising water levels. Changing weather patterns associated with climate change could make some areas unsuitable for agriculture or entirely uninhabitable.
This blog is part of a series on the World Bank's latest South Asia Development Update, Toward Faster, Cleaner Growth.