• Sri Lanka laggard in region but growth projected to rebound to over 3% from next year
• Bangladesh best performer amidst slowdown in South Asia
  
   

The World Bank yesterday revealed that Sri Lanka’s economy was forecast to grow by 2.7% in 2019, the slowest within South Asia, and above 3% over the next two years.

Only Afghanistan is expected to grow slower than Sri Lanka in the region, with Bangladesh the fastest-growing at 8.1%. India will grow by 6% this year and Pakistan by 3.3%. Other smaller nations such as the Maldives Nepal and Bhutan are projected to witness better growth than Sri Lanka.

The World Bank, in its latest South Asia Economic Focus released yesterday, said in line with a global downward trend, growth in the region is projected to slow to 5.9% in 2019, down 1.1 percentage points from April 2019 estimates, casting uncertainty about a rebound in the short term.

“In Sri Lanka, growth is expected to soften to 2.7% in 2019. However, supported by recovering investment and exports, as the security challenges and political uncertainty of last year dissipate, it is projected to reach 3.3% in 2020 and 3.7% in 2021,” the twice-yearly regional economic update said.

It finds that strong domestic demand, which propped high growth in the past, has weakened, driving a slowdown across the region. Imports have declined severely across South Asia, contracting between 15% and 20% in Pakistan and Sri Lanka. 

In India, domestic demand has slipped, with private consumption growing 3.1% in the last quarter from 7.3% a year ago, while manufacturing growth plummeted to below 1% in the second quarter of 2019 compared to over 10% a year ago.

“Declining industrial production and imports, as well as tensions in the financial markets, reveal a sharp economic slowdown in South Asia,” said World Bank Vice President for the South Asia Region Hartwig Schafer in a statement. 

“As global and domestic uncertainties cloud the region’s economic outlook, South Asian countries should pursue stimulating economic policies to boost private consumption and beef up investments.”

The report notes that South Asia’s current economic slowdown echoes the decelerating growth and trade slumps of 2008 and 2012. With that context in mind, the report remains cautiously optimistic that a slight rebound in investment and private consumption could jumpstart South Asia’s growth up to 6.3% in 2020, slightly above East Asia and the Pacific, and 6.7% in 2021.

In a focus section, the report highlights how, as their economies become more sophisticated, South Asian countries have made decentralisation a priority to improve the delivery of public services. With multiple initiatives underway across the region to shift more political and fiscal responsibilities to local governments, the report warns, however, that decentralisation efforts in South Asia have so far yielded mixed results.

For decentralisation to work, central authorities should wield incentives and exercise quality control to encourage innovation and accountability at the local level. Rather than a mere reshuffling of power, the report calls for more complementary roles across tiers of government, in which national authorities remain proactive in empowering local governments for better service delivery.

“Decentralisation in South Asia has yet to deliver on its promises and, if not properly managed, could degenerate into fragmentation,” said World Bank Chief Economist for the South Asia Region Hans Timmer. 

“To make decentralisation work for their citizens, we encourage South Asian central governments to allocate their resources judiciously, create incentives to help local communities compete in integrated markets and provide equal opportunities to their people.”

Commenting on the fastest-growing country in the region, the World Bank update said in Bangladesh, GDP was projected to moderate to 7.2% this fiscal year and 7.3% the following one. The outlook is clouded by rising financial sector vulnerability, but the economy is likely to maintain growth above 7%, supported by a robust macroeconomic framework, political stability and strong public investment.

The update said in India, after broad-based deceleration in the first quarters of this fiscal year, growth is projected to fall to 6% this fiscal year. Growth is then expected to gradually recover to 6.9% in the 2020/21 fiscal year and to 7.2% the following year.

 

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