World Bank Predicts South Asia May Benefit From ‘Conceivable Protectionism’

The World Bank has predicted that the fastest-growing region in the world, South Asia, may benefit from conceivable protectionism in advanced economies against the region.

The latest edition of World Bank’s South Asia Economic Focus released on April 16, 2017, claims that despite likely protectionism against South Asia, the region may leverage such to its advantage to increase exports and create jobs for its dwellers.

Although the World Bank admits that the role of global integration in encouraging economic development and poverty reduction cannot be overemphasised, its latest report on the region further predicts that South Asian economies can also benefit from “observed recovery in advanced economies, which are their largest export markets.”

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The report, which is released twice every year, confirms that “South Asia remains the fastest-growing region in the world,” while noting that the region is indeed gradually widening its dominance relative to East Asia.

The World Bank expects regional GDP growth in the region to rise from 6.7 percent in 2016 to 6.8 percent in 2017, and 7.1 percent in 2018.

“Simulations on the impact of hypothetical new trade barriers show that South Asia is not only resilient to a potential rise in protectionism but could possibly even gain from it in some circumstances,” said Annette Dixon, the World Bank South Asia Region Vice President.

“Advanced economies are recovering and could see faster growth that will likely increase demand for South Asian products. The region should seize this opportunity to diversify its exports and enhance its supply response. This could create a substantial number of jobs for new entrants to the labor force,” said Dixon.

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With India leading the entire South Asia as a whole, Its GDP growth is expected to accelerate to 7.2 percent in 2018, the report says.

The report stated that both Nepal and Maldives are bouncing back from economic shocks, while noting that Bangladesh’ industrial production reached a record-high recently and growth remains strong.

South Asia, according to the report, may benefit particularly from “large regional trade agreements such as the Trans-Pacific Partnership (TPP),” and also from “the hypothetical scenario of greater protectionism against major exporting countries such as China and Mexico.”

“To make the most of this export opportunity, countries in the region should continue to focus on polices that promote economic growth,” said World Bank South Asia Region Chief Economist Martin Rama. “A survey of South Asian experts conducted for this report reveals a strong consensus on the need to promote human capital accumulation, investments in infrastructure, and a more business-friendly environment.”

Insecurity in Afghanistan is said to have greatly “curtailed private investment and consumer demand”, leading to its slow economic recovery.

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“Growth is projected to accelerate slightly from 1.2 percent in 2016 to 2.4 percent in 2017. However, with population growth of nearly 3 percent, such level of economic growth implies a decline in per capita income. Sustained economy growth in the long run in Afghanistan requires a structural transformation of the economy that could be realized through greater human capital investments, improved agriculture productivity and development of the country’s extractives resources.”

In Bangladesh the economy has “weathered global uncertainties well aided by strengthening investment and a recovery of exports. Growth will be sustained at 6.8 percent in 2017, coming slightly down from 7.1 percent in 2016 and with a decelerating information rate and a budget deficit that has narrowed. Infrastructure gaps and inadequate energy supply, combined with the high cost of doing business, remain the main obstacles to the realization of Bangladesh’s growth potential.”

“Economic activity in Bhutan has kept growth strong with the economy expected to grow at 6.8 percent once again in 2017. Hydropower projects, supportive fiscal and monetary policy coupled with low inflation, a stable exchange rate and accumulating international reserves have contributed to growth and poverty reduction. However, risks are emerging including possible delays in hydropower constructions and growth deceleration in India. With continued stable growth, poverty is expected to be reduced in a steady manner.

“India’s economic momentum is expected to pick up speed from 6.8 percent in 2016 to 7.2 percent by 2018 after a modest setback due to weaker than expected investments and the effects of the withdrawal of large denomination bank notes. Timely and smooth implementation of the GST could prove to a significant benefit to economic activity However, India faces the challenge of further accelerating the responsiveness of poverty reduction to growth.

“In Maldives, GDP growth rebounded to an estimated 4.1 percent in 2016 and is expected to grow at 4.5 percent in 2017 through substantial investments and construction activity. It is important that Maldives preserves its tax base and efficient tax system, as it prepares to develop Special Economic Zones offering tax concessions. There are opportunities for the country to promote economic activities in line with the aspirations of Maldivian youth and provide employment, improve the quality of public services such as health and education, and make the country more resilient to climate change.

“Nepal is seeing a broad economic recovery after a number of setbacks including the earthquakes of 2015. Its economic activity is recovering with growth expected to rebound to 6.0 percent in 2017 on the back of increased agriculture output, increased availability of electricity, and greater investment as the earthquake reconstruction gathers speed, compared 0.6 percent growth in 2016.

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“In Pakistan, economic activity expanded by 4.7 percent in 2016 and is expected to continue to grow at 5.2 percent in 2017 with growth prospects continuing to improve and inflation remaining contained. The China Pakistan Economic Corridor (CPEC) projects have supported construction activity, which is expected to stimulate industrial sector growth. These projects should help accelerating growth in the domestic construction industry and increase electricity generation. Sustainable and inclusive growth and poverty reduction, will require greater private sector investment and the longer term development of infrastructure.

“Sri Lanka’s economic growth is projected to grow at 4.7 percent in 2017, up from 4.4 percent 2016 which reflecting significant contributions from construction, trade, and financial services as well the as negative impacts of floods and droughts. Recent policy measures supporting fiscal consolidation and monetary tightening has contributed to an improved outlook. It is critical for Sri Lanka to expedite structural reforms to promote competitiveness and governance, and continue on fiscal consolidation in order to ensure sustained growth and development,” the report says.

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