The World Bank said it was cautiously optimistic about economic prospects in South Asia in 2014 because of growing exports and investment as it emphasized that the risks to growth were becoming more domestic, including an increasingly vulnerable banking sector.
In its twice-a-year ‘South Asia Economic Focus”, the World Bank forecast that economic growth would rise to 5.8 percent in 2015 from 5.2 percent this year and 4.8 percent last year. South Asian countries – which include Afghanistan, Bangladesh, Bhutan, India, Maldives, Nepal, Pakistan, and Sri Lanka – appeared to have largely recovered from last year’s financial turmoil caused by changes in U.S. Federal Reserve monetary policy. Many were rebuilding currency reserves while curbing current account deficits.
The World Bank said Sri Lanka would continue to grow at 7.3 percent this year as the economy was sustained by new capacity from infrastructure investments and rebuilding after the country’s recent conflict. Over this year, the report saw a strengthening of economic growth for most South Asian countries.
The region’s largest economy, India, would see growth rise to 5.7 percent in fiscal year (FY) 2014 from 4.8 percent last fiscal year with activity receiving a boost from a more competitive exchange rate and many large investment projects going ahead. Pakistan’s economic growth could increase to 4 percent this fiscal year from 3.6 percent in FY2013 as its economy benefitted from a reduction in electricity blackouts, resilient remittance flows from Pakistani workers abroad, rebounding manufacturing exports and a more buoyant services sector. Nepal was recovering from a difficult year affected by setbacks in the agricultural sector and with its government budget. Helped by strong remittance flows boosting consumption and the services sector, the economy should grow by 4.5 percent inFY2014 after 3.6 percent in FY2013. Sri Lanka would continue to grow at 7.3 percent this year as the economy was sustained by new capacity from infrastructure investments and rebuilding after the country’s recent conflict.
Economic activities recovered in the second half of FY14 in Bangladesh, driven by resilient exports and domestic demand, following setbacks suffered in the first half due to political uncertainty and turmoil. A recovery in export growth and increases in public expenditure are likely to help achieve 5.4 percent GDP growth in FY14, slightly lower than last year’s 6 percent.
The economy in Afghanistan will be weighed down by the persistent uncertainty caused by the withdrawal this year of international forces and the subsequent reduction in foreign aid for the economy. In addition, the country’s agricultural sector’s output has declined. Economic growth was therefore projected to fall to 3.2 percent this year after 3.6 percent in 2013.
The report made a point of focusing on the banking sector because of its centrality for South Asia’s economic stability and growth.