South Asia holds on to its top spot as the world’s fastest growing region, with growth set to step up to 7 per cent in 2019, and 7.1 per cent in 2020 and 2021, but the region needs to increase its exports to sustain its high growth and reach its full economic potential, says the World Bank in its regional economic update release twice every year. The latest edition of the South Asia Economic Focus, Exports Wanted, finds that the region’s growth, while still robust, is mainly driven by domestic demand, which in turn swelled imports and far outstripped exports, further widening trade gaps and current account deficits, and triggering currency depreciation in some countries.
“South Asia’s exports performance has dropped in the last few years to languish at far below its potential and while growth still looks robust we are concerned about whether this can hold up over the longer term,” said Hartwig Schafer, World Bank Vice President for the South Asia Region. “To ensure growth in the long run, the region needs to integrate further into international markets to sustain its upward growth trajectory, create more jobs, and boost prosperity for its people,” a World Bank quoted Schafer as saying.
Across South Asia, imports grew much stronger than exports in the last two years, reversing the region’s exports dynamics of the early 2000s. Strong domestic demand, fueled by a consumption and investment boom, resulted in high import growth of 14.9 per cent in 2017 and 15.6 per cent in 2018, which is nearly twice as high as the region’s export growth. In comparison, exports grew by only 4.6 per cent in 2017 and 9.7 per cent in 2018.
“There’s no single solution that can unleash South Asia’s export potential and policymakers need to implement an ambitious range of reforms that can turn the region into the world’s next export powerhouse,” said Hans Timmer, the Bank’s Chief Economist for the South Asia Region. The report offers a positive outlook based on recent months as export growth is picking up from its low levels, even outpacing imports growth in the third and fourth quarter of 2018. This recent acceleration of export growth, combined with a slowdown in import growth, is expected to continue in 2019 and beyond, with both rates eventually converging at an average 11 per cent growth rate, it says.
But despite this recent progress, South Asian countries still export only onethird of their potential, and the gap is widening. The report estimates that the region’s export gap widened over time, standing at over 20 per cent of gross domestic product (GDP) in 2017, as South Asia did not fully take advantage of a favourable international global trade environment and remained on the margins of global value chains.