World Bank:India’s growth expected to accelerate to 7.3 % by 2018

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The recently released South Asia Economic Focus (SAEF) by the World Bank, after leading global growth for two years, South Asia has fallen to second place, after East Asia and the Pacific. The region’s slowdown is due to both temporary shocks and longer-term challenges. Regional economic growth is expected to slow to 6.9% in 2017 from 7.5% in 2016, but growth could rebound to 7.1% in 2018 with the right mix of policies and reforms.  Overall, South Asian economies stand to gain from continued recovery in advanced economies, which are their largest export markets.

The report finds that the slowdown in South Asia has mostly been driven by internal factors, most notably in India, such as a decrease in private investment, and an increase in imports and government spending.

India’s economic momentum has been affected from disruptions from the withdrawal of currency notes and uncertainties around the GST. Growth is expected to slow from 8.6% in 2015 to 7.0% in 2017. Sound policies around balancing public spending with private investment could accelerate growth to 7.3% by 2018. While sustained growth is expected to translate to continued poverty reduction, more focus could be made to help benefit the informal economy more.

Given its weight in the region, India sets the pace for South Asia. Its Gross Domestic Product (GDP) growth is expected to slow down to 7.0% in 2017, due to surging imports and declining private investment along with the effects from withdrawing large amounts of banknotes and the introduction of the Goods and Services Tax (GST). However, India’s growth is expected to rebound to 7.3% in 2018.

The report also highlights that South Asia was once at the cutting edge in economic measurement and analysis, pioneering techniques such as the use of household surveys. With the rise of big data, traditional ways to measure economic phenomena like prices and GDP can be supplemented. To improve economic measurement in South Asia, a greater reliance on big data may help, but a clear agenda toward stronger statistical systems is a necessity.

Many South Asian Countries Have Potential to Accelerate Growth

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Source: PHD Research Bureau, compiled from South Asia Economic Focus 2017, World Bank

 

Afghanistan’s economic recovery remains slow with continuing insecurity curbing private investment and consumer demand. Growth is anticipated to accelerate slightly from 2.6% in 2017 to 3.4% in 2018. However, with population growth of nearly 3%, such a level of economic growth means minimal income per capita growth. Sustained economic growth requires transforming the economy through better health and education, improved agriculture, and the development of the country’s mining resources.

The economy in Bangladesh remains strong with accelerating industrial production and resilient services.  However, growth is expected to moderate in 2017. Deficits are widening as export growth and remittances have weakened, which should be monitored and addressed along with increasing stresses on the financial sector and uncertainties around the upcoming elections.

Economic activity in Bhutan has kept growth strong with the economy expected to grow at 6.7% in 2017 and 6.9% in 2018. Hydropower projects, supportive policies combined with low inflation, a stable exchange rate and greater financial reserves have contributed to growth and poverty reduction. However, risks are emerging, including possible delays in hydropower construction and the slowdown in growth in India.

In Maldives, GDP growth has rebounded to nearly 5% as the government embarks on several major infrastructure projects to help move Maldivians to the capital city Malé. Construction is expected to be a key driver of growth, with tourism also recovering. The country could better align economic activity with providing more employment opportunities, and better health as well as education services. In addition, it needs to prepare for the impacts of climate change.

Nepal has seen an impressive economic recovery after disruptions from earthquakes and a trade blockade. Economic activity rebounded to 7.5% in 2017 through increasing government resources, spending, and remittances from abroad. Growth is expected to slow in 2018 due to the heaviest floods in decades, slow recovery of exports, and an increase in lending rates.

In Pakistan, economic growth is expected to accelerate to more than 5% in 2017 and the next years if the country’s fiscal deficits are well managed and external stability is maintained. Efforts to reverse the trade and fiscal imbalances and continued implementation of reforms will be needed for sustaining and accelerating growth and improving welfare.

Sri Lanka’s economic growth is projected to grow at 4.6% in 2017 and achieve 5% growth in the years ahead. Public finances and reserves have improved in spite of a high budget deficit and public debt. Frequent natural disasters continue to weaken economic performance and are expected to increase poverty. Accelerating reforms to promote competitiveness, better governance, and a more balanced budget are critical to ensure sustained growth and development.

 

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