Still scarred by the coronavirus pandemic, South Asia is facing unprecedented shocks, from the economic crisis in Sri Lanka and devastating floods in Pakistan to the global economic slowdown and the fallout from the war in Ukraine. In its biannual economic bulletin, the World Bank notes that growth in South Asia is being held back, stressing the need for countries to build resilience.

The latest South Asia Economic Spotlight report, Coping with Shocks: Migration and Resilience, released today, forecasts regional growth of 5.8 per cent on average this year, down 1 percentage point from its June forecast. Growth was 7.8% in 2021, with most countries experiencing a rebound from the pandemic downturn.

While all South Asian countries have been dragged down by economic woes, several have fared better. India's exports and services sectors, South Asia's largest economy, have recovered more strongly than the world average, while its ample foreign exchange reserves have cushioned it against external shocks. The relaunch of tourism is driving growth in the Maldives, followed closely by Nepal, and both countries have vibrant service sectors. Sri Lanka has been hit particularly hard by the combined effects of record prices caused by the pandemic and the war in Ukraine, adding to its debt woes and depleting its foreign exchange reserves. Mired in its worst ever economic crisis, Sri Lanka's real GDP is expected to fall 9.2 percent this year and a further 4.2 percent in 2023. High prices have also worsened Pakistan's external imbalances and reduced foreign exchange reserves. There is still huge uncertainty about the outlook for this year's devastating floods, triggered by climate change, which left a third of the country under water.

"Pandemics, sudden swings in global liquidity and commodity prices, and extreme weather disasters used to be tail risks," said World Bank South Asia Vice President Teresa Lizzie. But over the past two years, these crises have hit fast, putting South Asia's economy to the test. In the face of these shocks, countries need to build stronger fiscal and monetary buffers and reallocate scarce resources to strengthen resilience and protect people."

Inflation in South Asia is expected to rise to 9.2 per cent this year before tapering off as higher global food and energy prices and trade restrictions exacerbate food insecurity in the region. The squeeze on real incomes is severe, especially for poor people in South Asia, who spend a large proportion of their income on food.

South Asia, where many migrant workers are employed in the informal sector, has been particularly affected by restrictions on their movement during the pandemic. However, the post-pandemic period has highlighted the critical role of migrant workers in fostering recovery. Data from the report's survey suggest that migration flows from hard-hit areas to less-hard-hit areas in late 2021 and early 2022 helped balance the supply and demand for Labour in the wake of the COVID-19 shock.

Hans Timmer, the World Bank's chief economist for South Asia, said: "Labor mobility between and within countries enables economic development because people can move to where they can be more productive. Mobility also helps to cope with shocks such as climate disasters, to which the rural poor in South Asia are particularly vulnerable. Removing restrictions on Labour mobility is critical to regional resilience and long-term development."

To this end, the report makes two recommendations. First, cutting the costs borne by migrants should be high on the policy agenda. Second, policymakers can reduce migration risks through a variety of tools, including more flexible visa policies, migrant Labour support mechanisms during shocks, and social protection schemes.

The Bank today also released updated development briefs for the Maldives, Nepal, Pakistan and Sri Lanka. Source: World Bank Macro Poverty Outlook and staff calculations.

Note: (e) = Measurement, (f) = forecast. Gross domestic product is calculated at 2015 prices and market exchange rates. To measure total regional GDP for each calendar year, fiscal year data are converted to calendar year data by taking the average of two consecutive fiscal years in constant 2005 dollars for Bangladesh, Bhutan, Nepal and Pakistan (quarterly GDP data for the four countries are not available). Pakistan is reported at factor cost. Afghanistan does not publish national account statistics since August 2021, so it is not listed in the table.