Chapters
As South Asia trudges ahead on the road to recovery, the region faces extremely difficult economic challenges. Internally, economies are weighed down by scars from the COVID pandemic. Externally, all challenges manifest as problems in the balance of payments. Elevated global food and energy prices and trade restrictions have led to broad-based increases in domestic inflation. High inflation and recovering domestic demand have raised import bills, while a slowdown in the global economy has reduced momentum in the region鈥檚 export growth, contributing to trade imbalances. Heightened uncertainty in the global markets and monetary tightening in advanced economies have shifted investor sentiment and increased net capital outflows from the region in the first half of 2022, exacerbating balance of payments pressures.
The outlook for the region marks a sharp inflection point around mid-2022 when GDP growth is expected to slow down sharply to average 5.8 percent in 2022 and 2023. Among South Asian countries, there are divergent paths. The more service-led economies (India, Nepal, and Maldives) are expected to maintain a reasonable recovery trend despite headwinds, while Afghanistan, Sri Lanka and Pakistan are in more precarious shape and will see poverty increase in 2022 as they deal with the aftermath of severe domestic crises. All countries in the region will see their resilience tested as global energy prices are expected to remain very high, and lower global growth is expected to weaken demand for the region鈥檚 exports--especially manufacturing goods. Various structural changes including financial innovations and the changes in the labor market will enhance their long-term development prospects, while limited fiscal space has led many countries to undertake revenue measures to improve long-term fiscal viability. On the downside, extreme weather events will become much more common with climate change. This calls for an urgent need to improve climate resilience.
Labor migration, both international and domestic, is a key part of life in South Asia. Despite the importance of migration to individuals and the region, migrants in South Asia face considerable barriers to mobility and vulnerability to shocks. The COVID crisis exposed this vulnerability on a large scale, as migrants returning home during COVID-related lockdowns face multiple hardships. To ensure that migration can continue to play a key role in development and as coping mechanism in the face of shocks, it is necessary to address high costs and frictions in migration, particularly those that might have worsened during the COVID crisis; and to learn from the pandemic experience and incorporate measures to 鈥渄e-risk鈥� migration into migration-supporting policies and institutions.
