SA emerging from deep Covid-19 recession, but burdened with high inflation

South Asian economies are emerging from the deep COVID-19 recession, burdened by high inflation, rising current account deficits, and deteriorated fiscal balances, which are exacerbated by the impact of war in Ukraine, the latest update by the World Bank (WB) on the regional economic outlook revealed.

The South Asia Economic Focus, Spring 2022 update pointed out that financial sectors in South Asia, already in relatively weakened positions before COVID19, were effectively supported during the pandemic, but are facing renewed challenge.

“Carefully designed monetary and fiscal policies are needed to weather the new external shocks on top of the legacies of the pandemic,” the WB suggested.

There is scope for higher nominal interest rates set by central banks, as higher inflation has reduced real interest rates and financial conditions in international markets are tightening.

“While several countries are navigating rising inflation and growing difficulties to finance fiscal deficits and trade deficits, the region must also chart a new way forward to address rising inequality, unleash new growth potential, and accommodate an energy transition, the updated suggested.

While the region attempts to reshape its economies, nations cannot avoid redesigning tax systems, increasing competition, and challenging vested interests and existing gender norms, the WB said.