How South Asia can continue as world’s fastest growing subregion

Strong growth in South Asia has been largely driven by the performance of Bangladesh and India, with growth averaging above 7% in the past five years. Domestic demand in terms of consumption and investment has been strong. Major reforms such as the introduction of a goods and service tax in India and measures to make it easier to do business across the subregion have helped promote private investment. In next two years, India is expected to continue to grow above 7%, while Bangladesh’s growth is around 8%.  

Among the smaller economies of the subregion, economic performance has been more varied. Bhutan and Maldives grew by more than 6%, while Nepal, the second poorest nation in South Asia after Afghanistan, grew a little below 5% on average from 2014 to 2018 due to the earthquake in 2016. But buoyed by domestic demand and public infrastructure spending, these three countries are expected to grow at around 6.5% in the next two years.   

Pakistan and Sri Lanka, meanwhile, have built up persistent and large current account deficits, as well as borrowing from overseas to finance infrastructure, in recent years. To meet its balance of payment needs, Sri Lanka entered an International Monetary Fund programme in June 2016. Pakistan is poised to follow suit soon. Subsequently, as they rein in domestic demand and continue to address macroeconomic imbalances, both countries are expected to grow at around 3% in 2019 and 2020.