South Asia regains momentum but faces risks

WASHINGTON - South Asia is regaining its economic momentum, but the recovery in the region with the largest number of poor people could falter in the absence of a stronger investment climate, said the latest South Asia Economic Focus report of the World Bank.

The combined growth of Afghanistan, Bangladesh, Bhutan, India, Maldives, Nepal, Pakistan and Sri Lanka was just 4.7 percent in 2012, substantially below pre-crisis levels, according to the report.

A pick-up to 5.5 percent can be expected in 2013 with ongoing efforts to regain fiscal space and boost private investment, it said, adding that given the uncertain global environment, it will be important to strengthen the investment climate, noted the report.

"How countries manage their economies in the face of uncertainties in the global environment will be critical not only for addressing near-term current account and fiscal deficits but also for tackling South Asia's long-term challenges," said Martin Rama, chief economist for the South Asia Region at the World Bank.

The report, a twice-yearly look at South Asia's economic prospects, said that the region is now more vulnerable because current account balances have widened, foreign direct investment has slowed, and persistently high inflation has limited the ability for central banks to use monetary policy to counter any economic downturn.

"Exports and domestic consumption are expected to contribute only modestly to growth, and so a revival in investment will be critical for South Asia to regain momentum," said Rama.