Arun Kumar

Washington, Feb 24 With sound economic policies, India, Bangladesh and Bhutan are expected to emerge from the global economic crisis with stronger growth performances in South Asia, according to a World Bank report.

These three countries generally have sound economic policies and greater resilience of trade, investment, and remittances, it said noting growth has been weakest in countries that entered the crisis with large internal and external imbalances, such as Pakistan, Sri Lanka and the Maldives.

In general South Asia appears to have escaped the worst effects of the global economic crisis, the report — Global Economic Prospects 2010 — said. However, the region's GDP growth of 6 percent in 2009 remains unchanged from 2008.

The global financial crisis contributed to deceleration in real GDP growth in South Asia, from 8.7 percent in 2007 to 6 percent in 2009. This was largely driven by a pronounced decline in investment growth and private consumption.

Although the global financial crisis had a sharp negative impact on South Asia, the slowdown in regional GDP growth was the lowest among all developing regions, the report noted.

South Asia's import volumes through July 2009 declined 32 percent compared with the previous year. The decline in the region's merchandise export volumes was less severe.

Some sectors demonstrated marked resilience during the crisis, such as ready-made garments in Bangladesh, Sri Lanka's partnerships with mid-to high-end retailers in the United States and the European Union, and India's information technology industry.

Overall, the combination of a sharp fall in the value of imports, a less steep decline in exports, and resilient remittance inflows have mitigated the negative effects.

Remittance, a key source of foreign exchange for South Asia, declined in 2009 due to decline in economic activity and the rise in unemployment in migrant host countries. Remittance inflows, however, remained relatively strong compared with other sources of foreign exchange, and indeed are above their 2007 levels.

Among South Asia's economies, India — the largest recipient of remittances in the world in dollar terms — posted a contraction in remittance inflows in 2009, while Bangladesh, Nepal, Pakistan, and Sri Lanka, experienced a slower pace of growth of remittances inflows.

Domestic demand in South Asia was relatively resilient, having been cushioned by counter-cyclical macroeconomic policies. Interest rates were rapidly cut across most economies, which represent a large share of regional household outlays.

Bangladesh, India, Pakistan, and Sri Lanka cut policy interest rates. Activity in Bhutan and Nepal, where the currencies are tied to the Indian rupee, was supported by India's expansionary monetary policy stance.

Although regional GDP growth is projected to accelerate, a return to boom-period growth rates is not expected in near future. The regional fiscal deficit is projected to narrow on reversal of stimulus measures introduced to support demand during the crisis.

The recovery path for the individual economies will vary substantially. Countries that entered the crisis with stronger fundamentals, such as Bangladesh Bhutan, and India, weathered the crisis better, the report noted.