GDF 2007 - South Asia outlook

30 May '07

3 min read

Net capital flows to South Asia reached a record $40.1 billion (3.6 percent of GDP) in 2006, up from $28.3 billion (2.8 percent of GDP) in 2005, with most of the increase in going to India

The annual World Bank report, Global Development Finance 2007, released says that sustaining recent high growth in South Asia will require continued economic reform, expansion of infrastructure capacity, and further reduction of security threats. The report predicts that these efforts will also contribute to higher capital inflows, which have been spurred by progress in these areas in recent years.

Revamping tax collection systems to reduce evasion and improve tax collection to help finance the extensive government agendas is also important.

Increased political instability represents another main risk. Heightened security concerns could hurt investor sentiment and undermine foreign capital inflows, which have contributed to the region's record four-year expansion.

The continued easing of political tensions between the governments of India and Pakistan bodes well for continued progress toward improved relations.

Gross Domestic Product (GDP):
GDP in South Asia expanded a robust 8.6 percent in 2006, reflecting generally expansionary policy conditions. Growth was down slightly from 2005 due primarily to a deceleration of growth in Pakistan.

In Afghanistan, GDP growth is expected to accelerate over the forecast horizon, initially due to an anticipated recovery from drought in the agricultural sector, and over the forecast horizon due to the stimulative impact 135 of donor-led construction projects.

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