South Asia

While South Asia continues to grow faster than any other region, its growth prospects are dimming. Growth outcomes for 2024 have disappointed and forecasts for 2025 have been downgraded for most countries in the region.

After an unexpectedly weak outturn of 6.0 percent in 2024, growth in South Asia is expected to soften further to 5.8 percent in 2025—0.4 percentage points below October forecasts—before ticking up to 6.1 percent in 2026.

This outlook is subject to heightened risks, including from a highly uncertain global landscape, combined with domestic vulnerabilities including constrained fiscal space.

After a decade of shocks, South Asian economies’ ability to cushion new shocks is limited. Tackling some of its greatest inefficiencies and vulnerabilities could help South Asia navigate this unusually uncertain outlook. These include poor tax collection, unproductive agricultural sectors, households and firms that lack mobility and access to finance to mitigate climate shocks and a growing labor force with insufficient jobs.

Country Outlooks

In Afghanistan, with aid declining, the economy is estimated to have grown by 2.5 percent in FY24-25, slower than the pace of population growth and growth is forecast to increase only moderately to 2.2 percent in 2025/26. In Bangladesh, growth is expected to slow in FY24/25 to 3.3 percent amid political uncertainty and persistent financial challenges, and the growth rebound in FY25/26 has been downgraded to 4.9 percent. In Bhutan, the forecast for FY24/25 has been downgraded to 6.6 percent due to weak agriculture sector growth but upgraded in FY25/26 to 7.6 percent due to expected strength in hydropower construction. In India, growth is expected to slow from 6.5 percent in FY24/25 to 6.3 percent as in FY25/26 as the benefits to private investment from monetary easing and regulatory streamlining are expected to be offset by global economic weakness and policy uncertainty. In Maldives, the completion of a new airport terminal will contribute to 5.7 percent growth in 2025, although challenges in meeting external debt obligations continue to pose a downside risk. In Nepal, the forecast has been downgraded to 4.5 percent in FY24/25, due to damage from floods and landslides, and to 5.2 percent in FY25/26, as a result of persistent weakness in the financial system. In Pakistan, the economy continues to recover from a combination of natural disasters, external pressures, and inflation, and is expected grow by 2.7 percent in FY24/25 and 3.1 percent in FY25/26. In Sri Lanka, the government has made further progress with debt restructuring, and a projected rebound in investment and external demand is expected to lift growth in 2025 to 3.5 percent before it returns to 3.1 percent in 2026.

Last Updated: Apr 23, 2025

Last Updated: Apr 23, 2025

We are working across South Asia to create more jobs and boost resilience to economic and climate-related shocks. South Asia is not creating enough jobs to keep pace with its rapidly growing working-age population. There are nearly 900 million youth under the age of 24 in South Asia and more than one million youth in the region are expected to enter the labor force every month until 2030. On top of this, about 800 million South Asians—over 40 percent of the population—live in climate hotspots, where unpredictable rainfall and rising temperatures are reducing crop yields and increasing water scarcity and displacing people.

Navigating global economic turbulence and uncertainty

In the wake of increased global economic uncertainty and declining aid flows, the countries of South Asia will need to redouble their efforts to spend much more efficiently and mobilize domestic resources and private sector investment. South Asia’s high debt remains a source of vulnerability to rising borrowing costs or declining funding inflows from private or official sources.

Low revenues are at the root of these fiscal challenges. From 2019 to 2023, general government revenues averaged 18 percent of GDP, the lowest among all emerging market and development economy regions and well below the EMDE average of 24 percent of GDP. While South Asia’s tax rates are often above the EMDE average, the region’s tax revenue collection—the majority of the region’s total revenue—is below the EMDE average.

South Asia could raise revenues with tax policy measures that eliminate exemptions, unify, simplify, and harmonize tax rates. Steps to facilitate tax compliance and to strengthen tax administration—such as better enforcement, improved incentives to tax officials, and steps to improve taxpayer identification—can significantly boost tax collection.

We are supporting countries including Bangladesh, Pakistan and Sri Lanka to increase their domestic revenues through improvements in tax policy and tax administration. For example, in Pakistan we helped double revenue collection at the provincial level in Khyber Pakhtunkhwa—from $99 million in fiscal 2019 to $216 million in fiscal 2022—through improved governance and fiscal management.

Creating more and better jobs

Private investment and robust business growth are essential to create the jobs South Asia needs. A critical area of focus is increasing women's labor-force participation as only one in three women in South Asia are currently in the workforce. We are supporting countries through critical policy reforms, skills programs, infrastructure investments, and analytical work to help create jobs.

Following economic crises in Sri Lanka and Pakistan, we are supporting reforms to put both economies on a sustainable growth path by boosting competitiveness and laying the foundation for a private-sector-led recovery and job creation.

In Bangladesh, we provided $300 million to equip 900,000 disadvantaged rural youth—many of whom are female—with skills, alternative education, entrepreneurship support, and employment opportunities. We also supported a series of job-focused development policy operations to modernize the trade and investment environment; strengthen systems that protect workers and build resilience; and enhance access to jobs for vulnerable populations.

In India, we supported the Government’s National Rural Livelihoods Mission, which supports more than 100 million women. We helped develop women-led and women-owned community institutions that received financial and technical support. Over the past decade, more than $100 billion in loans have enabled women to diversify their income sources and actively engage in wage labor, self-employment, and micro-enterprise activities.

In Nepal, we are supporting a youth employment initiative that is working to strengthen the government’s Prime Minister Employment Program to improve employment services and labor market outcomes for youth, especially women from the poor and marginalized communities. 

Reducing vulnerability to natural disasters and building climate resilience

South Asia faces acute climate risks driven by dense coastal populations, a dependence on monsoon-fed agriculture, and rapid urbanization. Better functioning land, labor and capital markets would help build resilience, as would improved climate information, and better planning and design to mitigate climate risks.

We support investments to increase livability across the region. This includes climate adaptation and mitigation, climate-smart agriculture, improved water resource management, effective coastal and fisheries management, biodiversity conservation, and air quality management.

An important aspect of building resilience is improved access to climate information. We are working at the regional level to strengthen hydrometeorological institutions and improve the monitoring of air quality to target interventions for maximum cost effectiveness. We have a series of air quality improvement projects – one has just been approved for Pakistan and others are under preparation in Bangladesh, India and Nepal.

Under the Sindh Resilience Project—prepared immediately in response to the devastating floods of 2022 in Pakistan—just over 1 million families have received funding for the construction of new weather-resistant homes. Construction of these homes generated an estimated 450,000 direct jobs and an additional 650,000 jobs in the construction supply chain, enabling families to rebuild and remain in their communities. In Bangladesh, we are supporting an economic corridor along the Jamuna River to enhance livelihoods and protect the ecosystem. In India, we are helping to provide more and better access to water and sanitation services to around 2 million people in 21 cities. In Sri Lanka, we are empowering farmers with knowledge and training on climate smart agriculture practices. 

Last Updated: Apr 23, 2025

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