Economic Outlook

South Asia's Economic Journey: A Decade of Growth and Future Outlook

The macro-economic landscape of South Asia over the last ten years has been defined by robust, albeit volatile, economic growth, primarily propelled by India's accelerating economy. The region, encompassing diverse nations like India, Pakistan, Bangladesh, and Sri Lanka, has collectively emerged as one of the world's fastest-growing regions, driven largely by resilient domestic demand, public investment, and a growing services sector.1 However, this period has also seen significant economic challenges, notably the debt crises in countries like Sri Lanka and Pakistan, and periods of high inflation fueled by global commodity price shocks and domestic factors.

A major theme has been the divergence in performance. India consistently maintained high GDP growth, often exceeding 7%, while other countries experienced more erratic cycles. Bangladesh has achieved remarkable socio-economic progress and sustained growth, transforming its economy with a strong ready-made garment (RMG) sector.2 Conversely, Pakistan and Sri Lanka grappled with external debt vulnerabilities, which culminated in severe economic instability in the early 2020s, requiring IMF support and painful structural adjustments. Regionally, the average debt-to-GDP ratio has been a persistent concern, often exceeding 75% for some nations, complicating fiscal management. Inflation, after being relatively moderate pre-pandemic, surged post-2021 due to global supply chain disruptions and the Russia-Ukraine conflict, forcing central banks to tighten monetary policy.