World Bank – South Asia Development Update, Oct 2023

The World Bank's South Asia Development Update for October 2023 highlights the expected growth of the South Asian region in the coming years. Despite the impact of the pandemic, South Asia is projected to grow at a rate of just under 6 percent, making it the fastest-growing emerging market and developing economy region in 2024-25. However, this growth rate represents a slowdown from pre-pandemic levels. One of the main risks to this positive outlook is the fragile fiscal positions of the countries in the region. South Asia has the highest average government debt-to-GDP ratio among all EMDE regions, standing at 86 percent in 2022. Some countries in the region have already experienced outright defaults, while others have resorted to increasing domestic borrowing, leading to higher interest rates and less credit for the private sector. Additionally, upcoming elections could add to spending pressures. The report emphasizes the need to manage and reduce fiscal risks as an urgent policy priority. In the long term, the focus should be on accelerating sustainable growth and job creation. The energy transition away from fossil fuels presents an opportunity for South Asia to improve productivity, reduce pollution, decrease reliance on imported fuel, and create jobs. However, the region currently lags in the adoption of advanced energy-efficient technologies. The report suggests that even financially constrained governments can support the energy transition through market-based regulations, information campaigns, increased access to finance, and reliable public power grids. The transition will also require measures to address labor market shifts, particularly for workers employed in pollution-intensive activities. Overall, while South Asia shows solid progress in terms of economic growth, there are still considerable challenges ahead. To ensure continued development, it is crucial to maintain financial stability, improve fiscal sustainability, boost private investment, promote trade openness, and take advantage of opportunities presented by the global energy transition. Additionally, it is important for governments to avoid election-induced spending increases to safeguard fiscal sustainability.