South Asia

Growth in South Asia is expected to be strong at 6.0% in 2024, driven mainly by robust growth in India and recoveries in Pakistan and Sri Lanka. But persistent structural challenges threaten to undermine sustained growth, hindering the region’s ability to create jobs and respond to climate shocks.

According to Jobs for Resilience, the latest South Asia Development Update, South Asia is expected to remain the fastest-growing region in the world for the next two years, with growth projected to be 6.1% in 2025.

But this strong outlook is deceptive. For most countries, growth is still below pre-pandemic levels and is reliant on public spending. At the same time, private investment growth has slowed sharply in all South Asian countries and the region is not creating enough jobs to keep pace with its rapidly increasing working-age population.

In Bangladesh, output is expected to rise by 5.7% in FY24/25, with high inflation and restrictions on trade and foreign exchange constraining economic activity. Bhutan’s economy is expected to grow by 5.7% in FY24/25, supported by higher electricity production alongside growth in mining, manufacturing, and tourism. In India, which accounts for the bulk of the region’s economy, output growth is expected to reach 7.5% in FY23/24 before returning to 6.6% over the medium term, with activity in services and industry expected to remain robust. Output growth in Maldives is expected to be 4.7% in 2024, a half-percentage point downgrade from previous forecasts as tourists shift from high-end resorts toward lower-cost guesthouses. In Nepal, output is expected to grow by 4.6% in FY24/25 as hydropower exports are expected to pick up but recovery outside the hydropower sector is expected to remain slow. Following the contraction in FY22/23, Pakistan’s economy is expected to grow by 2.3% in FY24/25 as business confidence improves. In Sri Lanka, output growth is expected to strengthen to 2.5% in 2025, with modest recoveries in reserves, remittances, and tourism.

Last Updated: Apr 02, 2024

Last Updated: Apr 02, 2024

The World Bank approved $10.1 billion in lending to the region for 37 operations in fiscal 2023, including $4.3 billion in IBRD commitments and $5.8 billion in IDA com­mitments. We also supported 61 advisory services and analytical products for eight countries. These provided technical advice on issues such as debt management, gov­ernance, job creation, social protection, air pollution, and climate resilience.

Across the region, we are focused on the resilience of human capital to minimize the scarring effects of crises; resilience to the impacts of a changing climate and natu­ral disasters; and resilience of the economy, markets, and society so that development is inclusive and sustainable.

Protecting people in the wake of crisis

The Bank helped Pakistan respond to devastating floods with nearly $1.7 billion for five projects in the worst-affected Sindh province to build resilient housing, restore crop production, provide health services for mothers and children, and strengthen social protection and the local government’s disaster response capacity. In Afghanistan, we have continued to provide support for basic services and livelihoods in health, agri­culture, and education, with more than $1 billion in off-budget support implemented through UN agencies and international non-governmental organizations.

In response to the unprecedented economic and financial crisis in Sri Lanka, we moved quickly to protect people—particularly the poor and vulnerable—from its worst impacts. We repurposed $325 million to finance emergency cash transfers, medicines, school feeding programs, tuition vouchers, fertilizer for smallholder farmers, and cooking gas. In December 2022, the Bank approved Sri Lanka’s request to access con­cessional financing from IDA—a process called reverse graduation—to stabilize the economy. We also prepared a new country partnership framework for fiscal 2024–27, along with two operations totaling $700 million to advance critical economic reforms and improve social protection.

Investing in resilient human capital

Across South Asia, the COVID-19 pandemic led to a collapse in human capital for mil­lions of children and young people. Today’s students could lose more than 14 percent of their future earnings; today’s toddlers could see a 25 percent decline in earnings when they reach adulthood. Learning poverty—the inability to read and understand a simple text by age 10—increased from 60 to 78 percent during the pandemic. We sup­port education policies that ensure learning for all, build skills for future needs, and improve access to labor markets. In Maldives, a $9 million project is improving the qual­ity of secondary education. In Nepal, a $120 million project is helping establish a teacher mentoring system and ensuring that a full complement of subjects is taught in schools.

We are also strengthening health systems, expanding access to primary care, and building targeted and responsive social protection systems. In the Indian state of Gujarat, we are providing $350 million to improve public health care, with a special focus on girls. In India’s Odisha state—which is hit with a natural disaster about every 15 months—a $100 million program is enhancing social protection coverage for poor and vulnerable households through a digital cash transfer program.

Building resilient economies

To help countries build economic resilience, we promote private sector–led solutions, increase transparency of debt and investment, improve credit and market access for small and medium enterprises, and boost digital transformation. Our research looks at the drivers of the high rate of inequality of opportunity and how countries can enhance inclusion.

In the Indian state of Punjab, we committed $150 million to help the state better manage its financial resources and improve access to public services by leveraging digital technology and increasing accountability in public procurement. In Maldives, a $15 million project is strengthening private participation in state-owned enterprises, as well as their financial stability, and boosting the competitiveness of small and medium enterprises. In Nepal, we provided $100 million to support sustainable and productive use of natural capital, strengthen resilience to climate change, and promote private sector investment in greening the economy and creating jobs and livelihoods.

Boosting resilience to climate change and natural disasters

South Asia is confronting intensifying heat waves, cyclones, droughts, and floods—the changing climate could sharply diminish living conditions for up to 800 million people.

In fiscal 2023, we launched Country Climate and Development Reports for Bangla­desh, Nepal, and Pakistan. The reports underscore the urgent need to boost resilience across the region’s roads, hydropower dams, coastal communities, and agriculture, as well as its rapidly growing cities, which are full of informal settlements that are at the highest risk.

In India, we provided $1.5 billion to scale up renewable energy, develop green hydro­gen, and stimulate climate finance for low-carbon energy investments. In Pakistan’s Punjab province—which accounts for 73 percent of the country’s total food produc­tion—a $200 million project is promoting climate-smart technologies and practices to improve water-use efficiency, build resilience to extreme weather, and increase small-scale farmers’ incomes. In Bangladesh, we provided $250 million to promote green investments in the brick-kiln sector, municipal waste management, clean cookstoves, and rooftop solar systems to reduce air pollution and improve environmental quality.

Last Updated: Oct 03, 2023

Like other small island developing states, Maldives has a small, undiversified economy that makes it particularly vulnerable to external shocks, including sky-rocketing food and energy prices in the wake of Russia’s invasion of Ukraine. The country spends over 10 percent of its GDP annually to import diesel to meet energy needs. In 2020, its GDP contracted by 34 percent as the pandemic shut down tourism, the main driver of economic growth. In 2022, Maldives was hit by the surge in global commodity prices, putting pressure on domestic inflation, the government’s fiscal position, and the balance of payments. It is also extremely vulnerable to rising sea levels and extreme weather brought on by climate change. Much of the country lies just a meter above sea level; current projections show that it is likely to be fully submerged by rising sea levels by the end of this century.

The island nation is building resilience by scaling up renewable energy capac­ity, investing in green infrastructure, restoring mangroves to protect against coastal flooding, and ramping up early warning systems. Maldives has also committed to becoming a net-zero carbon emitter by 2030. But amid highly constrained public borrowing capacity, the private sector must play a critical role to fill the financing gap. With just over $12 million in World Bank concessional financing, the Acceler­ating Sustainable Private Investments in Renewable Energy and the Accelerating Renewable Energy Integration and Sustainable Energy projects are helping install a total of 53.5 megawatts of solar panels on the islands and on the open ocean, build 40 MWh of battery storage solutions for the country, and upgrade the electricity grid to include cleaner energy sources.

This Bank financing leveraged an additional $140 million—about 12 times the amount of funding for every dollar spent—including from the private sector. Bank Group guarantees will help mitigate the risks that kept investors from putting their money into a small island with a volatile economy. By allaying investors’ fears and attracting more private investment, this approach has made renewable energy proj­ects more financially sustainable for Maldives.

The first solar project in Maldives under ASPIRE attracted only four investors in 2014; buoyed by the risk mitigation structure, there were a record 63 bids in 2022. Greater private investment has also driven down costs—the power purchase price, which is the purchase price per unit of electricity that a power company agrees to with a solar power plant, decreased over this period from 21 cents per unit of electricity to less than 9.8 cents, significantly below the current price of imported fossil energy. These successes in attracting private investors have helped Maldives expand renewable energy, reduce import costs, and generate affordable and reliable clean energy.

Last Updated: Oct 03, 2023