If one looks at the global map the South Asian region without a doubt has a unique position. The eight countries in the region reflect a highly diverse landscape, multiple languages but also at the same time show immense similarities. On the other hand, this part of Asia is the least economically integrated region and also faces numerous challenges on the climate front, and terrorism. It is also a part of world which undergoing significant changes and in some cases turbulence.
However, while all the other international markets face turbulent times but the markets of South Asia is continued to show resilience under these pressures. The World Bank in its latest twice-a-year South Asia Economic Focus report once again gave credit to eight countries in this region for maintaining its spot as the fastest-growing region in the world. With that said it has also warned that there are ample signs of fading tailwinds like the decline in capital flows and weakening of remittances from GCC countries. The report has forecasted that the economic growth to gradually accelerate from 7.1 percent in 2016 to 7.3 percent in 2017.
India being the largest economy in South Asia has shown substantial growth. As per WB projections, India's economic activity is expected to accelerate from 7.5 percent in FY 2016 to 7.7 percent in FY 2017. However, this growth will not happen right away. India will see a gradual increase in its economic activates.
First, it will be supported by a rebound in agriculture on the expectation of a normal monsoon in 2016. The Indian agricultural sector is counting a lot on the upcoming monsoon season since the country's food grain production has declined close to 252 million tonnes in 2014-15 crop years from the record 265.04 million tonnes in the previous year, due to weak monsoon.
The second factor would be the stimulus from civil service pay reforms which is expected to support broad-based consumption growth in FY17 and offset continued weakness in exports and private investment. But in later years, this economic growth would depend largely on the private investments. India is expecting substantial investment, especially in infrastructure. In the budget, the government has allocated $32 billion for infrastructure development in 2016-17, an increase of 22.5 percent from last year. Nevertheless, all of this primarily depends on the reforms which Modi Sarkar promised during the elections. But so far the government has failed to adopt and implement the key reforms that can affect investors sentiments.
The World Bank has seen a mild recovery in Pakistan to a greater part due to the structural reforms and exogenous factors which include falling oil, lower commodity prices, and a substantial increase in remittances. The bank has projected increase in economic growth from 4.2 percent in the fiscal year 2015 to 4.5 percent in the fiscal year 2016 and 5.1 percent by the fiscal year 2018.
In the recent development, the WB has said that these improvements are also fuelled by both supply-side effects like a growing industrial and services sector and on the demand side; this is supported by strengthening investment flows. The increase in large-scale manufacturing and construction are the main reason why the industry activities have increased.
The Bank has credited the infrastructure and energy projects under CPEC for higher construction activates in the country. The service sector is growing on account of the higher profitability of the financial sector, increase in automobile sales, robust port activity, and higher telecom the report notes. However, at the same time wholesale and retail trade is performing below par and needs improvement.
The Bank has patted on the back of the government for showing progress on business climate, energy, access to credit and tax reform agendas. The WB has also noted that the private sector credit showing a sign of revival and FBR collection has continued to grow. With that, the bank has said the exports of Pakistan are under pressure due to slower growth in China and weak global demand. But, it has also shown the country's vulnerability to a narrow base export market and a high concentration in few destinations.
The World Bank's outlook for Pakistani economy assumes low oil prices for a prolonged period and close to 6 percent constrained growth in remittances due to tightening fiscal policies of the Gulf States, along with no substantial volatility in exchange rates over this period.
The Bank similar to other institutions has called the CPEC as a game changer and argues that multiple factors in Pakistan's future economic outlook depend on it.
That's why it has warned that CPEC is mired in various political economy risks and raise the voice for consensus building on this economic asset.
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