Driven by India's expected GDP growth of 7.7 percent in 2017 and 7.5 percent in 2016, the World Bank forecasted gradual acceleration in South Asia's economic growth from 7.1 percent in 2016 to 7.3 percent in 2017.
Given its weight in the region, India sets the pace for South Asia as a whole, the World Bank said in its latest twice-a-year South Asia Economic Focus report.
India's economic activity is expected to accelerate from 7.5 percent in FY 2016 to 7.7 percent in FY 2017 based on the expectation of strong private investment, a push in infrastructure spending, an improved investment climate, and improved corporate and financial balance sheets, it said.
"South Asia has been resilient to global turbulence due to its limited exposure to slowdowns in other major economies coupled with the tailwinds of favourable oil prices, capital flows, and remittances," said Annette Dixon, World Bank South Asia Vice President.
"However, fiscal and financial vulnerabilities remain and countries should strive to address them through generating revenue and creating more fiscal space," it said.
According to the report, the GDP growth in India will be supported by a rebound in agriculture and stimulus from civil service pay reforms.
However, delays in the adoption and implementation of key reforms could affect investor sentiment, it said.
Favourable overall trends mask important underlying divergences: between urban and agricultural households; between domestic and external demand; and between public and private capital expenditure, which should be addressed, it noted.
In neighbouring Pakistan, growth is projected to accelerate modestly from 4.5 percent in 2016 to 4.8 percent in 2017, supported by growing industry and services and greater investment as well as buoyed by low oil prices and substantial remittances.
For sustained growth, Pakistan needs to address power cuts, a cumbersome business environment, and low access to finance through the successful implementation of tax and energy reforms, the report said.
In Sri Lanka the economic growth is expected to grow at 5.3 percent in 2016 and 2017 driven by increased public investment and postponed investments in 2015.
The challenging global environment has taken a toll on the economy with reduced exports and remittances; and significant capital outflows, leaving Sri Lanka with higher public debt, lower reserves and rising inflation, it said.
Discover the latest Business News, Sensex, and Nifty updates. Obtain Personal Finance insights, tax queries, and expert opinions on Moneycontrol or download the Moneycontrol App to stay updated!
