In its latest South Asia Economic Focus (April 2020), the World Bank projects a sharp economic slump in South Asia, caused by halting economic activity, collapsing trade, and greater stress in the financial and banking sectors. The WB estimates that regional growth will fall to a range between 1.8 and 2.8 percent in 2020, down from 6.3 percent projected six months ago. Prolonged and broad national lockdowns will push growth in the negative territory. In 2021, growth is projected to hover between 3.1 and 4.0 percent, down from the previous 6.7 percent estimate.
The WB notes that “the impact of the pandemic will hit hard low-income people, especially informal workers in the hospitality, retail trade, and transport sectors who have limited or no access to healthcare or social safety nets.” It recommends stablishing temporary work programs for unemployed migrant workers, enacting debt relief measures for businesses and individuals, and easing inter-regional customs clearance to speed up import and export of essential goods during the short-term. Over the medium-term, it recommends expansionary fiscal policies combined with monetary stimulus to keep credit flowing in their economies.
Because of the drying up of tourism, disruption of supply chains, collapsing demand for garments, deteriorating consumer and investor sentiment, withdrawal of international capital, and decreasing remittance inflows, the effect of COVID-19 on South Asian economies is particularly severe. The report argues that the crisis has increased inequality in South Asia because the poor people have a higher likelihood of losing work, and domestic migrant workers are being pushed back to rural areas from where they moved to cities to escape poverty. Food security risks have increased.
Here is an update on GDP forecast for FY2020:
For Afghanistan a deep recession is expected this year, with a contraction between 3.8 and 5.9 percent. With population growth of 2.3 percent, this implies a dramatic drop in per capita income.
In Bangladesh, with a population growth of 1 percent per year, a limited increase in per-capita GDP is projected for two years. That would be an abrupt change from high growth rates in recent years. Given the variation within the country, it means that significant parts of the population would lose income during these two years. GDP is expected to growth at 2.0% to 3.0%.
In Bhutan, growth is still expected, but the downward revision from Fall forecast is large in both years.
In India, GDP growth in FY2021 is expected to range between 1.5 and 2.8 percent, implying per-capita GDP growth of between 0.5 and 1.8 percent. In FY2020, GDP is expected to grow at 4.8% to 5%.
Most affected is the Maldives, where tourism directly and indirectly contributes two-thirds of GDP, 80 percent of exports and 40 percent of revenues. A contraction of the economy between 8.5 and 13.0 percent is expected in 2020. With population growth of 1.8 percent in 2019, the per-capita income loss will be significant.
Nepal, with population growth of 1.1 percent per year, would experience low per-capita growth for two years in a row. GDP is expected to grow at 1.5% to 2.8% in FY2020. In FY2021, GDP is expected to grow at 2.7% to 3.6%.
For Sri Lanka a recession is anticipated, with annual growth estimated between -3.0 and -0.5 percent.
Pakistan, which has already experienced low growth rates in recent years, could well fall into a recession. With 1.8 percent population growth, that would imply a painful decline in per-capita income.
