India is setting the pace for growth in South Asia as the country with the fastest developing economy in the world, says the World Bank.
While many other countries are floundering in the face of turbulent markets, India’s GDP is set to accelerate from 7.5% growth this year to 7.7% in 2017.
The bank explained that the region – which besides India includes Afghanistan, Pakistan and Sri Lanka - is insulated from volatile markets and is attracting higher investment.
India, as a major oil importer, is benefitting from lower fuel prices and the cost of food is cheap.
However, the economy is feeling the impact of fewer remittances set back from expats in oil producing nations.
India reforms praised
The bank praises reforms in agriculture subsidies and civil service pay, but warns that the government needs to do more to encourage investment.
Regionally, average GDP growth is expected to rise from 7.1% in 2016 to 7.3% in 2017.
“South Asia has been resilient to global turbulence due to its limited exposure to slowdowns in other major economies coupled with the tailwinds of favourable oil prices, capital flows, and remittances,” said Annette Dixon, World Bank South Asia Vice President.
“However, fiscal and financial vulnerabilities remain and countries should strive to address them through generating revenue and creating more fiscal space”
Meanwhile, the bank also issued a report on the economic outlook for South East Asia.
Vietnam poised to expand
Vietnam was highlighted as the country likely to post the best economic growth – rising to 6.2% by the end of 2016.
After tackling a downturn in 2013 and 2014, the country recovered well in 2015 mainly due to increasing retail sales and an improving property market, boosted by easing restrictions on foreign buyers.
The bank also noted the government committed to heavy infrastructure spending.
“Vietnam is strongly positioned to benefit from numerous free trade agreements,” said the report.
Cambodia and Philippines accelerate
Cambodia and The Philippines were also selected as economies likely to show high growth in the coming months.
Cambodia is expected to hit 6.9%, but this is well down on figures of 12.3% for 2015 and 9.2% in 2014.
“Foreign investment in construction is the economy’s main driving force,” said the bank report.
The bank also warned domestic credit was rising and the government should look at tighter regulation of borrowing.
The Philippines is also expected to return economic growth of more than 6% in 2017.
“The region accounted for almost two-fifths of global growth in 2015, more than twice the combined contribution of all other developing regions,” said the report.
“South East Asia has benefitted from careful macroeconomic policies, including efforts to boost revenue in commodity-exporting countries. But sustaining growth amid challenging global conditions will require continued progress on structural reforms.”
The bank also pointed out that the economies of many countries in the region will rise or fall depending on their reaction to changing policies in China, which dominates the region as by the largest economy.