The New Face of Emerging Economies

Over the past few years, South Asia has sustained a period of robust growth that has lifted up many living in poverty, and made notable strides in health and education. In fact, the World Bank reports that between 2013 and 2016, growth in South Asian countries increased from 6.2% to 7.5% while growth rates of other developing nations remained flat or even turned negative. In the coming years, the World Bank expects countries in South Asia to continue this growth trajectory, estimated at 6.3 percent in 2020 and 6.7 percent in 2021.

This article explores the economic potential of South Asian countries, and what makes each of these nations have the next high-growth potential.

Key Takeaways

  • South Asian countries are expected to continue a strong growth trajectory in coming years–up to 6.7% is projected by the World Bank in 2021.
  • The strongest economies in South Asia at the moment are Bangladesh, India, and Nepal.
  • In South Asia, countries have grown their economies primarily through investments in infrastructure, agriculture, and manufacturing.

South Asia: Less Vulnerable to Global Financial Turmoil

The primary South Asian countries include India, Pakistan, Bangladesh, Afghanistan, and Sri Lanka, as well as smaller nations including Nepal, Bhutan, and the Maldives.

While many of these economies have a considerable share of revenues from international exports, domestic demand is expected to be the primary driver for growth in the near future. Domestic markets make these economies less prone to external vulnerabilities and global financial turmoil.

Almost all of these nations are net importers of commodities. Nations like Bangladesh have emerged as major exporters of textile products and have benefited from lower prices of cotton. However, while many energy-hungry nations such as India have efficiently used the recent low cost of oil to stockpile huge inventories of oil for future use, rising energy prices present long-term downside risks.

At the same time, as most South Asian countries are not huge importers of finished goods, many are involved in importing raw commodities to manufacture finished goods for export. This dampens the prospective effects of trade protectionism. Still, cheaper imports have allowed the manufacturing of finished products at lower costs, offering a competitive advantage for international exports.

Cheaper commodities also assisted these economies with declining inflation, enabling governments to focus on infrastructure development and move ahead with much-needed economic reforms. The region generally has stable governments that have introduced supportive policies to facilitate international investments and helped improve investor sentiment.

With increased capital inflows, the current account deficit of the majority of South Asian nations has reduced. Though the currencies have declined against the U.S. dollar, the decline served beneficially to generate more revenues from exports. The same assisted in building high forex reserves, as South Asia received high inflows of remittances.

Future Projections

While South Asian economies showed strong GDP growth in recent years, growth in 2019 ended up being lower than expected. The risk profile for most South Asian nations is assessed to be low, as they are commodity importing and their growth is forecasted to be driven by domestic demand. Risk primarily remains dependent on domestic factors and can be mitigated at the individual level in a timely manner.

South Asian Economies: By Country

Afghanistan

Afghanistan has one of the lowest growth rates of all South Asian countries, at less than 3%. Largely, this is due to pressing security risks and political tension after the suspension of the U.S.-Taliban peace negotiations. However, its agriculture sector continues to grow as favorable weather reverses the impacts of a drought in 2018, prompting economists to favor Afghanistan’s GDP growth projections in the next few years. In addition, a new $100 million project seeks to increase the economic empowerment of poor, rural women.

Bangladesh

In recent years, Bangladesh has emerged as a leading manufacturer of textile products and become a frontrunner in South Asia. In fact, in 2019, Bangladesh had a growth rate of 8%, compared to India’s of 5.3%. As the trade deficit decreased, the growth in remittances grew strongly by 9.6% in 2019 to reach a record $16.4 billion. The forecast of an increase in domestic demand, hike in public sector wages, and increased construction activity will bolster its economy in the near term, as well.

Bhutan

Bolstered by increasing foreign investments, Bhutan has embarked on building three major hydropower projects to boost its industries and revenues. Under a new government, Bhutan has been slowly transitioning to a new Twelfth Five-Year Plan that started in 2018 and spans until 2023. Previously untapped, Bhutan is also building out its tourism sector, which saw a steady rise in revenue to $87.7 million in 2019. Still, government programs are supporting cottage and small industries.

India

India, the bellwether of South Asia, has successfully diversified its manufactured product base and enhanced its production capabilities. However, in recent years India’s GDP growth has weakened from a slowing economy, some inflation in the food industry, and declining oil prices. Recently, India has managed to attract foreign investments, liberalized FDI in key sectors like defense, real estate, railways, and insurance, and progressed towards energy efficiency.

In addition, an aggressive cut of subsidies in India has released funds for development needs, and an increase in ventures under public-private partnerships such as in renewable energy is also aiding the growth momentum.

The well-formulated “Make In India” campaign has started supporting local manufacturers and attracted multinational corporations and even nations to set up manufacturing facilities in India across different industry and services sectors. A study by the UK thinktank the Centre for Economics Business and Research (CEBR) suggests that “India could become the world’s third-largest economy after 2030,” and together with Brazil it could lead to “France and Italy kicked out of the exclusive G8 group” in the next 15 years.

Maldives

In the Maldives, GDP growth has been driven by strong tourism, especially from Europe, China, and India. In fact, European guests accounted for about half of arrivals and grew by 16.5% in 2019. Despite slow progress on public infrastructure projects and falling gross foreign reserves, the Maldives is continuing to forecast strong growth as long as political problems don’t get in the way.

Nepal

Nepal has also been a surprising leader and has had robust growth in recent years, with agriculture exceeding expectations, especially in rice production. In Nepal, the industry continues to advance with increased electricity production, strong consumer demand, as well as efforts in Nepal to continue to recoup the losses from the devastating 2015 earthquake. The World Bank also reports that the first of two $100 million projects is bolstering Nepal’s electricity sector, while the IDA18 IFC-MIGA Private Sector Window will provide $103 million for a hydropower plant that will encourage private sector investment.

Pakistan

Although raking in the lowest growth rates in 2019, Pakistan continues to benefit from increased investments from China, and the return of Iran to international markets is expected to boost mutual trade. Additionally, the China-Pakistan Economic Corridor (CPEC), a 3,000-kilometer network of roads, railways, and oil and gas pipelines from Pakistan to China, is expected to bolster the Pakistani economy through to 2030. While growth in Pakistan at the end of 2019 was less than projected, a three-year program in conjunction with the International Monetary Fund aimed at stabilization and structural reform is promising to address macroeconomic issues.

Sri Lanka

Sri Lanka had slow and steady growth in 2019 at approximately 3.7% in the first quarter, mostly due to a growth in services, agriculture, and construction. Mostly, the Central Bank of Sri Lanka intervened with policy reforms after a period of low growth to boost its private sector. Over the years, China has also increased its port and logistics construction in Sri Lanka. While once thought that the tourism industry would continue to scale up in Sri Lanka, terror bombings in April of 2019 have deterred guests from visiting the small island country.

Untapped Intra-Region Potential

Though the large nations in the region, India and Pakistan, have successfully managed to increase their trade share with East Asian and Sub-Saharan African nations in recent times, a lot of potential with other developing nations still remains untapped. In fact, South Asia as a whole has remained closed off to the rest of the world, due to a lack of economic integration.

These countries have limited business integration with each other, for various political and historical reasons. The World Bank reports that “on average, India, Pakistan, Sri Lanka and Bangladesh’s exports to each other amount to less than 2 percent of total exports.”

For instance, after the Mexico-U.S. and Russia-Ukraine corridors, the Bangladesh-India corridor ranks third in the list of top migration corridors, which accounts for $4.6 billion remittances in 2015 between the two nations. If the existing trade barriers are eliminated facilitating regulated trade flow, the untapped potential can do wonders for this region.

The Bottom Line

With a projected growth rate of just under 7%, the South Asian region has all it takes to be the next bright spot in the global economy. Though challenges remain due to political uncertainty, bureaucratic red tape, and security concerns, the potential can increase manifolds if the nations forego their historical and geopolitical differences and present a collective front to emerge as an integrated economic powerhouse.

About Thiruvenkatam

Thiruvenkatam is a distinguished digital entrepreneur and online publishing expert with over a decade of experience in creating and managing successful websites. He holds a Bachelor's degree in English, Business Administration, Journalism from Annamalai University and is a certified member of Digital Publishers Association. The founder and owner of multiple reputable platforms - leverages his extensive expertise to deliver authoritative and trustworthy content across diverse industries such as technology, health, home décor, and veterinary news. His commitment to the principles of Expertise, Authoritativeness, and Trustworthiness (E-A-T) ensures that each website provides accurate, reliable, and high-quality information tailored to a global audience.

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