According to the latest Global Economic Prospects 2011, the South Asia region is projected to post GDP growth of 7.9% on average over the 2011-2012 fiscal years, buoyed by vibrant growth in India. This compares with estimated growth of 8.7% in fiscal year 2010. For a comparison between Nepal, South Asia and developing countries see this.
In 2012, South Asia is expected to have nominal GDP of US$ 2.88 trillion and population of 1.64 billion. GDP per capita is expected to be US$ 1754.4, with real GDP per capita growth of 6.7%
South Asia’s real GDP growth accelerated to an estimated 8.7 percent in FY2010-11 from 7.0 percent in FY2009-10, buoyed by very strong growth in India, which represents 80 percent of regional GDP. Excluding India, regional GDP growth (on a fiscal year basis) firmed, but to a more modest 5.1 percent from 4.3 percent the year before. On a calendar year basis, GDP for the region as a whole is estimated to have expanded 8.4 percent in 2010 after 5.3 percent in 2009, and to 4.8 percent in 2010 from 3.8 percent in 2009 if India is excluded.
The main reasons for this strong performance are robust domestic demand, aided by macroeconomic policy stimulus measures, a revival in investor and consumer sentiment, improved external demand, and stronger private capital inflows. Specifically,
- Afghanistan: a good harvest and strong donor funding
- India: a favorable monsoon
- The Maldives: recovery of tourism
- Bhutan: rising capital expenditures for ongoing development of hydropower capacity
- Sri Lanka: the peace dividend
- Pakistan: ailed by a standstill on policy implementation, severe disruption tied to massive flooding and continued security problems
- Nepal: ailed by political stalemate
- Bangladesh: ailed by power-supply bottlenecks
South Asia has the largest fiscal deficit (8.2% in 2010) among developing countries. Fiscal deficits of Bangladesh, the Maldives, India, Sri Lanka, Pakistan, and Bhutan are 2.5%, 22.4%, 9.6%, 8%, 6.3%, and 6.1% respectively. Meanwhile, South Asia’s general government tax revenues averaged 14.3% of GDP in 2009, which is lower than in other developing regions.
Interest payments averaged 18.2%, which is by far the highest share among developing countries. While, Afghanistan’s and Nepal’s interest payments are manageable at less than 4% of total budget, other countries have very high rates with Sri Lanka paying as high as 25.8%.
Inflationary pressure in the region, except in Afghanistan and the Maldives, was pretty high. Apart from domestic demand, increased capacity utilization rates, accommodative macroeconomic policy and increased inflationary expectations, rising international fuel and food prices also contributed to push up prices. The rise in headline prices in Bangladesh, Bhutan and India are spillovers from India. Temporary price shocks due to devastating floods in Pakistan is another reason for high prices. This has led to an appreciation of South Asian currencies.
Exports recovered initially starting first month of 2009 but dipped in mid-2009 and again recovered in early 2010, but is declining again. Power outages impacted ready-made garment production (which represents over 75% of merchandise exports of Bangladesh); and floods reduced cotton harvests by 20% in Pakistan and decline in exports of textiles (which represents two-thirds of total merchandise exports).
Remittances has been a major player in South Asia economies with Nepal, Bangladesh, Sri Lanka, Pakistan and India receiving respectively 23%, 12%, 9%, 5.1%, and 4% of GDP in 2010,. Overall, remittances in South Asia increased by an estimated 10.3% in 2010. Partly because of strong remittances inflows, imports increased and current account deficit worsened.
The region benefited from aggressive demand stimulus measures, a revival in investor and consumer sentiment, and a resumption of capital inflows. A recent move toward tighter policy will likely need to be pursued further, given the region’s high fiscal deficits (the largest among developing regions), high inflation and deteriorating current accounts.
Outlook:
- Continue robust growth in the next two years, although slightly lower than in 2010. It could be a result of tightening of fiscal and monetary policies. India, the Maldives, and Sri Lanka are pursuing fiscal deficit-reduction programs.
- Tight policies could lead to an easing of regional inflationary pressures.
- With less accommodative macro-policy and projected deceleration in the rate of growth of remittances, private consumption is expected to decelerate.
- Regional investment in expected to increase, particularly due to strong growth fundamentals in India, ongoing post-war reconstruction in Sri Lanka, and post-flooding reconstruction in Pakistan.
- Rate of growth of imports is expected to outpace that of exports. It will hit current account deficit.
- Moreover, higher oil and grain prices would also affect current account deficit.
| South Asia Macroeconomic Forecasts, 2008-2012 | |||||
| Indicator | 2008 | 2009 | 2010 | 2011 | 2012 |
| Real Expenditure Growth | |||||
| GDP at market prices | 4.8 | 7 | 8.7 | 7.7 | 8.1 |
| Private consumption | 5.6 | 5.1 | 7.5 | 5.2 | 5.7 |
| Government consumption | 18.1 | 6.1 | 9.1 | 8.4 | 7 |
| Fixed investment | 4.1 | 5.7 | 10.3 | 13.2 | 13.3 |
| Exports, GNFS | 16 | -6.1 | 7.4 | 8.8 | 10.3 |
| Imports, GNFS | 19 | -7.4 | 6.2 | 9.4 | 10.3 |
| Contribution to GDP Growth | |||||
| Private consumption | 3.4 | 3.1 | 4.5 | 3.1 | 3.3 |
| Government consumption | 1.8 | 0.7 | 1 | 0.9 | 0.8 |
| Fixed investment | 1.3 | 1.8 | 3.2 | 4.1 | 4.4 |
| Net exports | 3.2 | -1.4 | 1.4 | 1.7 | 2 |
| Price Deflators | |||||
| GDP at market prices | -3.1 | -0.1 | 13.6 | 20.3 | 3.2 |
| Private consumption | -2.6 | 0.8 | 13.3 | 18.9 | 3 |
| Exports, GNFS | -3.4 | 1.5 | 4.3 | 2.5 | -0.5 |
| Imports, GNFS | -4.9 | 4.6 | 3.9 | -1.8 | -1 |
| Share of GDP | |||||
| Private consumption | 60.6 | 60.1 | 59.2 | 57.2 | 55.9 |
| Government consumption | 11.6 | 11.6 | 11.7 | 11.7 | 11.5 |
| Fixed investment | 30.9 | 30.1 | 30.7 | 32.2 | 33.6 |
| Change in stocks | 1.4 | 1.3 | 1.2 | 1.1 | 1 |
| Total investment | 32.2 | 31.5 | 31.9 | 33.3 | 34.6 |
| Exports, GNFS | 22.1 | 19.7 | 17.9 | 15.4 | 15.2 |
| Imports, GNFS | 27.6 | 25 | 22.3 | 18.5 | 18.1 |
| Overall | |||||
| Nominal GDP (USD billions) | 1511 | 1616.1 | 1995.8 | 2586.5 | 2883.5 |
| Population (millions) | 1560.5 | 1581.6 | 1602.4 | 1622.8 | 1643.5 |
| GDP per capita, current USD | 968.3 | 1021.8 | 1245.5 | 1593.8 | 1754.4 |
| Real per capita GDP growth | 3.4 | 5.6 | 7.3 | 6.3 | 6.7 |
Source: Global Economic Prospects 2011; 2011 and 2012 are forecasts
