WB raises red flag on SA region, urges countries to build resilience

• Notes pandemics, sudden swings in global liquidity and commodity prices, and extreme weather disasters testing South Asia’s economies
• Countries in the region told to build stronger fiscal and monetary buffers, and reorient scarce resources towards strengthening resilience 

The World Bank yesterday raised a red flag for the South Asian region, asserting that growth is dampening and there is a pressing need for countries in that region to build resilience.

In a virtual media briefing yesterday, the World Bank pointed out that the economic crisis in Sri Lanka, the catastrophic floods in Pakistan, the global slowdown, and the impacts of the war in Ukraine have resulted in the South Asia region facing an unprecedented combination of shocks on top of the lingering scars of the COVID-19 pandemic.

The latest South Asia Economic Focus by the agency projected regional growth to average 5.8 percent this year, which is a downward revision of 1 percentage point from the forecast made in June.

This follows the growth of 7.8 percent in 2021 when most countries were rebounding from the pandemic slump.
 In the case of Sri Lanka, the combined effects of COVID-19 and the record-high commodity prices due to the war in Ukraine have taken a heavier toll on the island nation, exacerbating its debt woes and depleting foreign reserves. Facing the worst-ever economic crisis, Sri Lanka’s real GDP is expected to contract by 9.2 percent this year and a further 4.2 percent in 2023, the World Bank said.

Whereas in the case of Pakistan, high commodity prices have also worsened the country’s external imbalances, bringing down its reserves. After devastating climate-change-fueled floods submerged one-third of the country this year, its outlook remains subject to significant uncertainty.

“Pandemics, sudden swings in global liquidity and commodity prices, and extreme weather disasters were once tail-end risks. But all three have arrived in rapid succession over the past two years and are testing South Asia’s economies,” said Martin Raiser, World Bank Vice President for South Asia.

 “In the face of these shocks, countries need to build stronger fiscal and monetary buffers, and reorient scarce resources towards strengthening resilience to protect their people,” he added.  Inflation in South Asia, caused by elevated global food and energy prices and trade restrictions that worsened food insecurity in the region, is expected to rise to 9.2 percent this year before gradually subsiding. The resulting squeeze on real income is severe, particularly for the region’s poor who spend a large share of their income on food.

Further, the report pointed out that while economic distress is weighing down all South Asian countries, some are coping better than others.

Exports and the services sector in India, the region’s largest economy, have recovered more strongly than the world average while its ample foreign reserves served as a buffer to external shocks. The return of tourism is helping to drive growth in the Maldives, and to a lesser extent in Nepal—both of which have dynamic services sectors.