World Bank says South Asia will be the world's fastest-growing region

The World Bank says South Asia, including India, will be the fastest-growing region in the world, with GDP growth projected to go up from 7 percent in 2015 to 7.4 percent in 2016.

But for that to happen, says the World Bank's half-yearly report released this month, there has to be ‘solid growth in services, domestic consumption, and a gradual rise of investments’.

“Limited exposure to the financial turmoil and an improved external position has given most South Asian countries important policy space,” the global lender says in its South Asia Economic Focus.

“Given India’s weight in the region, its performance greatly influences the projections for South Asia as a whole.

“While the region is now in a position of strength, structural constraints holding back export and investment growth do persist. To keep the momentum and accelerate job creation, governments should enact reforms easing infrastructure bottlenecks and paving the way to greater competitiveness,” World Bank Chief Economist for South Asia Martin Rama said in a statement.

“Fiscal space remains limited while financial sector vulnerabilities persist,” he says.

As for Bangladesh, the report says the country has seen a spurt in domestic economic activity since April 2015 – after the end of the three-month long political violence since January.

“GDP is expected to grow by 6.5 percent in 2015 and 2016, supported by healthy agricultural production along with a recovery in services and domestic demand.

Figures from the World Bank's South Asia Economic Focus

But Bangladesh needs to tackle instability, depressed export growth and continued weakness in private sector credit growth, says the WB report.

It also has to build on the 'modest rebound in remittances'. The report said “improved investor sentiment and resilience to external shocks" are expected to raise India’s growth rate to 7.5 percent in 2015 fiscal year and further to 7.8 percent in 2016 fiscal year.

But the report notes that rapid growth has not yet translated into significantly higher government revenue generation and improved fiscal balances in the region.

“Budgetary deficits are expected to remain at 6.5 percent of Gross Domestic Product (GDP) in 2015, the highest among all developing regions”, the report warned.

“Tax collection remains well below estimates, and has even deteriorated across major South Asian economies,” it said.

“Mobilising revenue is critical for the region to develop its infrastructure and deliver better social services, while creating a financial cushion to address potential shocks in the future,” said Annette Dixon, World Bank South Asia Vice President.

“In some cases introducing and rolling out modern tax instruments holds the key to higher revenue, but containing exemptions and special regimes are crucial across most of the region.”

Many South Asian countries have potential for faster growth in the short and medium term, the World Bank says.

“However, the transition in Afghanistan, the earthquakes in Nepal, and revisions of national accounts in Sri Lanka, has slowed down growth rates in these three countries below previous expectations ," the World Bank report said.