Economic Theory & Research; Emerging Markets; Debt Markets; Currencies and Exchange Rates; Banks & Banking Reform
Summary: South Asia's rebound since March 2009 has been strong and is comparable to that in East Asia. South Asia is poised to grow by about 7 percent in 2010 and nearly 8 percent in 2011, thanks to the strong recovery in India, good performances in Bangladesh, post-conflict bounce in Sri Lanka, recovery in Pakistan, and turnarounds in other countries, including Afghanistan, Maldives, and Nepal. The region's prospective growth is close to pre-crisis peak levels and faster than the high rates of the early part of the decade (6.5 percent annually from 2000 to 2007). The recovery is being led by rising domestic confidence and is balanced in terms of domestic versus external demand, consumption versus investment, and private demand versus reliance on stimulus. Government policy, external support, resumption of private spending, and global recovery are driving the rebound. Strong government fiscal and monetary stimulus packages and, in some cases, external assistance are helping stimulate recovery. Improved optimism is helping the recovery in private spending in India, Bangladesh, Bhutan, and Sri Lanka. World trade and demand recovery are also supporting the rebound in exports and tourism, as are capital inflows. Not everyone is doing equally well, with slower recovery in countries with weaker fundamentals, those with unresolved conflict or post-conflict issues, and those that were heavily exposed to the global downturn (Maldives, Nepal, and Pakistan). Some significant risks are ahead in the global environment, slowing worker remittances and exports in a still hesitant and uncertain global recovery (which recent events in Europe have highlighted), volatile commodity prices, and continuing volatility in global capital flows.
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