The weakened economic growth in the South Asian region in 2012 is expected to pick up in 2013 with the Sri Lankan economy poised to grow at 6.8 percent, despite the Central Bank’s forecast of a 7.5 percent growth, a World Bank report said.

According to the report, the economic growth of the South Asian region weakened considerably in 2012 to an estimated 5.4 percent from 7.4 percent in the previous year, amidst electricity shortages, monsoon rains, fiscal deficits, high inflation and policy and security uncertainties.

However, the report noted that the regional GDP growth is projected to rise to 5.7 percent in 2013, firming to 6.7 percent in 2015, supported by a gradual improvement in the global demand for South Asia’s exports, policy reforms in India, stronger investment activity and a return to normal agricultural production.

According to the report, reflecting the weakening of activity since the second quarter of 2012 and the opening up of output gaps and a moderation in food inflation, inflation momentum slowed sharply in the South Asian countries in the second half of 2012.

However, the annual (year-on-year) inflation picked up again in December in several South Asian counties, including Pakistan and Bangladesh, caused partly by an acceleration in the pace of food and fuel price increases.

“In Sri Lanka, a depreciation of the currency, drought and earlier increases in administered fuel prices caused inflation to surge to 10 percent by July; inflation remained close to that level moderating slightly to 9.1 percent in December,” the report noted.

It also stressed that the large fiscal deficits in South Asia compared with the other developing regions remain a source of concern, as government borrowing requirements may be crowding out private investment, while associated spending may be contributing to inflationary pressures.

“Despite efforts at consolidation, fiscal deficits are 6 percent or higher in Pakistan and Sri Lanka and above 4 percent in Bangladesh,” the report said.

Sri Lanka’s Central Bank has set a fiscal deficit target of 5.8 percent of the GDP for 2013 despite the improbability of achieving the deficit target of 6.2 percent set for 2012.