South Asia’s economic landscape: Hope and hurdles on path to prosperity
Not all countries in the region are growing fast, and three—Afghanistan, Pakistan and Sri Lanka—are in acute crisis
South Asia has emerged as a beacon of hope in the global economy, with the World Bank predicting that the region will outshine other developing regions in the years to come. However, a deeper dive into the situation reveals a complex reality marked by both progress and challenges, says the World Bank its latest ‘South Asia Development Update, Toward Faster, Cleaner Growth.’
The report said that while certain countries in South Asia are basking in robust economic growth, and others are recovering from turbulent times, the region as a whole is advancing at a more restrained pace compared to the pre-pandemic era. This warrants concern as South Asia still has substantial ground to cover in terms of economic development. With per capita incomes averaging around US$2,000, the region falls significantly short, standing at only one-fifth of the level achieved by neighboring East Asia and Pacific countries or the upper-middle-income average, and a mere one-twentieth of the income level of high-income countries.
Though South Asia’s current growth rates may surpass those of numerous other regions, they remain insufficient for the region’s countries to attain high-income status within a single generation. Moreover, not all nations within South Asia are experiencing rapid growth; Afghanistan, Pakistan, and Sri Lanka find themselves mired in acute crises.
To draw a parallel, South Asia’s progress is akin to mountaineers navigating the foothills of the Himalayas. Some have scarcely departed from base camp, while others are advancing briskly but remain at a lower altitude. Regardless of their current position, every country in the region has a long journey ahead, and the path ahead is poised to become even more formidable.
The “South Asia Development Update: Toward Faster, Cleaner Growth,” released last week provides policymakers with a roadmap to expedite their journey. This report underscores four pivotal components for success:
1. Boosting Private Investment: Robust private investment stands as a cornerstone for catching up with high-income countries and facilitating the transition to cleaner energy sources. Unfortunately, private investment growth in all South Asian countries, except one, has decelerated compared to the pre-pandemic period. To reignite private investment, policymakers must prioritize infrastructure development, enhance the business environment, ensure access to credit through a robust financial system, and eliminate market distortions.
2. Restoring Fiscal Sustainability: Many nations in South Asia carry a substantial debt burden, a roadblock to economic prosperity. Over the past decade, South Asia has experienced an above-average increase in public debt. High public debt stifles private investment, constrains spending on essential infrastructure and human capital, and reduces resilience. Tackling this challenge necessitates a combination of revenue augmentation, increased spending efficiency, and the implementation of robust fiscal regulations.
3. Speeding the Energy Transition: South Asia has made strides in adopting basic energy-saving technologies but lags in embracing advanced ones. Modernizing the economy and improving energy efficiency will enable the region to keep pace with the global energy transition.
4. Maintaining a Healthy Labor Market: The energy transition heralds new employment prospects but also poses the risk of leaving lower-skilled, informal workers with pollution-intensive jobs behind. Access to education, training, finance, and markets can aid workers in transitioning to new sectors. A strong labor market, fortified with effective social safety nets, eases the path for displaced workers.
The road to prosperity demands sustained high growth rates over extended periods. Many nations have seen their aspirations dashed as growth faltered following an initial surge. However, with the right policies and investments, South Asia can surmount these challenges and reach the summit, securing sustainable livelihoods for its people on a habitable planet. Achieving this goal will necessitate concerted efforts from policymakers and stakeholders across the region.
