The World Bank has reported a weakened growth outlook for South Asia amid global economic uncertainties, with predictions of growth dropping to 5.8 percent in 2025 and slightly recovering to 6.1 percent in 2026. This is a decrease of 0.4 percentage points from previous forecasts made in October. The "Taxing Times" regional outlook highlights increased risks due to the uncertain global landscape as well as domestic vulnerabilities such as limited fiscal space.
"Multiple shocks over the past decade have left South Asian countries with limited buffers to withstand an increasingly challenging global environment," stated Martin Raiser, World Bank Vice President for South Asia. He emphasized the need for reforms to enhance economic resilience and boost growth and employment opportunities. Raiser advocated for increased trade openness, modernization of the agricultural sector, and invigorating the private sector.
Revenue mobilization through domestic channels is crucial for strengthening economic resilience, the World Bank suggests. Though tax rates in South Asia are higher than those in other developing economies, the revenue generated is comparatively lower. From 2019 to 2023, South Asia collected 18 percent of GDP in revenues, compared to the 24 percent average in other developing areas. Consumption taxes, along with personal and corporate income taxes, displayed significant shortfalls in the region.
Franziska Ohnsorge, World Bank Chief Economist for South Asia, highlighted the fiscal weaknesses, stating, "Low revenues are at the root of South Asia's fiscal fragility and could threaten macroeconomic stability, especially in times of elevated uncertainty."
The report advocates for enhanced tax policies by eliminating loopholes, simplifying tax codes, and encouraging compliance. Additionally, it suggests adopting pollution pricing to raise revenues and combat pollution levels.
The country-specific outlooks offer varied forecasts: Afghanistan's growth is predicted to improve slightly, facing aid declines; Bangladesh's growth slows amid political and financial uncertainties; Bhutan sees mixed predictions with possible hydropower growth; India's growth reflects global weaknesses; Maldives faces risks despite airport developments boosting growth; Nepal confronts natural disaster impacts; Pakistan's economy shows recovery signs; Sri Lanka anticipates growth due to debt restructuring and increased investment.
The World Bank's country-specific development updates for Afghanistan, Bangladesh, Maldives, Pakistan, and Sri Lanka were also published concurrently.