Pakistan is expected to grow below 4 percent in 2019 and 2020 as it reins in domestic demand and continues to address macroeconomic imbalances, says the Asian Development Bank (ADB). The ADB in a report 'How South Asia can continue as world's fastest growing sub-region' stated Pakistan and Sri Lanka, meanwhile, have built up persistent and large current account deficits, as well as borrowing from overseas to finance infrastructure, in recent years.
To meet its balance of payment needs, Sri Lanka entered an International Monetary Fund programme in June 2016. Pakistan has followed suit. Subsequently, as they rein in domestic demand and continue to address macroeconomic imbalances, both countries are expected to grow below 4 percent in 2019 and 2020.
The experiences of Pakistan and Sri Lanka confirm the importance of macroeconomic stability in sustaining economic growth. South Asian countries need to watch for macroeconomic imbalances and take preemptive actions. Current account deficits are desirable. Yet, a fast-rising deficit may indicate an economy is growing above its potential and needs to take precautions.
The ADB stated that since 2014, South Asia has been the fastest growing sub region in the world, with its eight economies collectively boasting average annual growth of 7.0 percent. This is higher even than East Asia (6.2 percent), which includes China; Southeast Asia (4.9 percent); and the Pacific (4.7 percent). To carry on this impressive performance beyond the next couple of years will require reforms and investments.
Strong growth in South Asia has been largely driven by the performance of Bangladesh and India, with growth averaging above 7 percent in the past five years. Domestic demand in terms of consumption and investment has been strong.
Major reforms such as the introduction of a goods and service tax in India and measures to make it easier to do business across the sub-region have helped promote private investment. In next two years, India is expected to continue to grow above 7 percent, while Bangladesh's growth is around 8 percent.