Economies in South Asia recover as global demand bounces back and targeted containment measures aid in reducing the economic impacts of the pandemic. According to the bi-annual regional update from the World Bank, the road to recovery is still rough and fragile as the majority of the countries still have a long way to go before they reach the pre-pandemic levels.
The latest South Asia Economic Focus titled Shifting Gears: Digitization and Services-Led Development have provided projections for the region to increase by 7.1% during the years 2021 and 2022. The year-on-year growth continues to stay strong in the region, after being extremely low in 2020.
The recovery has been bumpy across countries and sectors. The average annual growth for South Asia is forecasted to be at 3.4% during the time span from 2020 till 2023. The forecasted number is 3% below the four years prior to COVID-19.
South Asia’s largest economy, India is projected to experience 8.3% growth during the fiscal year 2021-22 with the help of rising public investment and incentives to promote manufacturing. The economy of Bangladesh is expected to increase its growth rate to 6.4% during FY22 as its recovery in exports and consumption continues to grow. The GDP projection for Maldives is an increase of 22.3% in 2021 with the help of rising tourism.
World Bank Vice President for the South Asia Region Hartwig Schafer said, “The pandemic has had profound impacts on South Asia’s economy. Going forward, much will depend on the speed of vaccination, the possible emergence of new COVID variants, as well as any major slowdown in the momentum of global growth. While short-term recovery is important, policymakers should also seize the opportunity to address deep-rooted challenges and pursue a development path that is green, resilient, and inclusive.”
The effects of COVID-19 on the region’s economic health are expected to last well into the recovery. A huge number of countries saw lower investment flows, setbacks to human capital accumulation, disruptions in supply chains as well as substantial increases in debt levels. It is estimated that around 48 to 59 million South Asians have become or will remain poor in 2021 due to the pandemic.
As countries restart their economies, they have an opportunity to reshape their long-term development models. The emergence of new digital technologies can enable South Asia to shift gears from a traditional manufacturing-led growth model and capitalize on the potential of its services sector.
The region has seen an increase in the role of services in the economy owing to rapid technological changes and the accelerated structural transformation of global economic activity in response to covid-19. Adapting digital technologies facilitates services to become more tradable, allows them to increase the productivity of other sectors—including manufacturing—and creates new markets. A few South Asian countries are providing more and more business and professional services that add value to manufacturing as well as play a key role in global value chains.
World Bank Chief Economist for the South Asia Region Hans Timmer said, “Countries in South Asia have a strong comparative advantage in exporting services, particularly business processes and tourism, whereas they have struggled to break into manufacturing export markets. To realize the potential of the services-led development, the region needs to rethink regulations and establish new institutions to support innovation and competitiveness.”