The World Bank on Wednesday lowered its GDP growth forecast for South Asia from 7.6% to 6.6% in calendar year 2022 and attributed the downgrading to the negative impact of the war in Ukraine. Earlier in January this year the World Bank had projected a 7.6% GDP growth for South Asia in 2022.
"Higher import prices will exert further pressure on the current account balances in the region in 2022. This report estimates that the war could reduce income growth in South Asia this year by 2.2 percentage points, 1.3 percentage point because of slower GDP growth and 0.9 percentage point because of terms-of-trade losses due mostly to higher fuel import prices. Most affected are likely Sri Lanka, which is already struggling to pay the import bills, and Maldives, whose oil imports as a percent of GDP are the largest of all South Asian economies and 20% of tourists in Maldives were coming from Russia and Ukraine."
A World Bank report released yesterday also noted, "Energy subsidies as a percent of GDP are the highest in Pakistan, which means that the price increase in international markets potentially poses a tough fiscal challenge. Higher food prices complicate humanitarian aid to Afghanistan. Bangladesh would be affected by a potential indirect effect of slowing import demand in Europe."
In Bangladesh, GDP is expected to increase by 6.4% in FY 2021-22 and 6.7% in FY 2022-23, said the World Bank adding, ""While economic disruptions related to the COVID-19 pandemic are waning, garment exports are expected to remain strong if Bangladesh is able to maintain its market share in Europe and the United States. However, a slowdown in growth in major export markets, particularly the European Union, could, in turn, hamper export growth. GDP growth is expected to remain resilient in FY 2022-23, supported by strong domestic demand."
Speaking at a pre-report launch media brief, the World Bank's Chief Economist for South Asia Region, Hans Trimmer, however sounded caution in Bangladesh's lending money from its foreign exchange reserve to the private sector. He said Bangladesh has a reserve to meet import bills for well over six months but the country should remain guarded against lending reserve money to the private sector.
Responding to a Dhaka Tribune query on how the West's sanction on Russia is going to impact the South Asian economy, Hans Trimmer played it down saying there is not much business between Russia and South Asia. When this correspondent pointed to the facts that Bangladesh is Russia's single largest supplier of apparels and a keyimporter of foodgrains from Russia, Trimmer said, that's true but the country (Bangladesh) can source wheat from other countries and added Russian market is not so crucial for Bangladesh's RMG sector if it can keep market in Western Europe intact.
He said Bangladesh is in good shape with its limited foreign debt but, two concerns remain there - firstly, rise in commodity prices and secondly, any eventuality of decline of RMG demand in Europe.
The World Bank's report - South Asian Economic Focus Spring 2022 - notes that the uneven recovery from the pandemic has left countries in South Asia with multiple policy challenges, which are exacerbated by the impact of the war in Ukraine. "While several countries are navigating rising inflation and growing difficulties to finance fiscal deficits and trade deficits, the region must also chart a new way forward to address rising inequality, unleash new growth potential, and accommodate an energy transition. To reshape their economies, the region cannot avoid redesigning tax systems, increasing competition, and challenging vested interests and existing gender norms," the report states.
This issue of the South Asia Economic Focus describes recent economic developments, analyzes the economic impact on South Asia of the war in Ukraine, presents growth forecasts, provides risk scenarios, and concludes that reshaping economies goes hand in hand with reshaping norms.
