Lifted by India, South Asia Regains Growth Lead, Still Lags on Jobs

South Asia has regained its lead as the fastest growing region in the world, supported by recovery in India. With the right mix of policies and reforms, growth is expected to accelerate to 6.9 percent in 2018 and 7.1 percent next year.

The twice-a-year South Asia Economic Focus (SAEF) finds that the region could even extend its lead over East Asia and the Pacific. Much of the progress, however, is driven by India’s growth rebound and is not consistent across countries. Despite accelerating global growth and trade, exports remain weak. Progress on fiscal consolidation is slow, and deficits are high.

This edition, Jobless Growth?, argues that growth alone will not be enough to attain the higher employment rates enjoyed by other developing countries, especially among women. “More than 1.8 million young people will reach working age every month in South Asia through 2025 and the good news is that economic growth is creating jobs in the region,” said Martin Rama, World Bank South Asia Region Chief Economist“But providing opportunities to these young entrants while attracting more women into the labor market, will require generating even more jobs for every point of economic growth.”

While the number of working age people is increasing, the fraction of working-age people who are at work has declined inmost countries in South Asia based on employment data analyzed from 2005 to 2015. Some decline was to be expected, as higher incomes allow households to prioritize education, health and other commitments. But the fall in employment rates in South Asia has been much faster than in East Asia. And it has been particularly strong in India, Bhutan and Sri Lanka, especially for women, the report shows. With declining employment rates, the region is foregoing some of its potential demographic dividend.

To arrest further declines in employment rates, South Asian countries would need to create 11.7 million jobs a year, which is feasible if the current growth momentum of the region is sustained. But if South Asia wants to increase employment rates to the levels seen in other regions with similar income levels, it would need to create many more jobs. The focus should also be on better jobs, as regular wage employment remains the exception more than the norm.

“Growth is important, but even very high growth will alone not be enough to increase South Asia’s employment rate”, said report author Robert Beyer. “Policies and actions are needed to make growth more labor-intensive, and especially to create the kinds of jobs that can encourage greater labor force participation by women.”

Country Outlook: Growth is relatively stable in most countries

Real GDP growth in South Asia 2015 2016 2017 (est) 2018 (f) 2019 (f) 2020 (f)
Afghanistan (CY) 1.3 2.4 2.6 2.2 2.5 3.3
Bangladesh (FY) 6.6 7.1 7.3 6.5 6.7 7.0
Bhutan (FY) 7.3 7.4 5.8 5.4 6.0 8.7
India (FY) 8.2 7.1 6.7 7.3 7.5 7.5
Maldives (CY) 2.2 6.2 6.2 5.5 4.5 4.9
Nepal (FY) 3.3 0.4 7.5 4.6 4.5 4.2
Pakistan (FY, factor prices) 4.1 4.6 5.4 5.8 5.0 5.4
Sri Lanka (CY) 5.0 4.5 3.1 4.8 4.5 4.5

CY: Calendar Year, FY: Fiscal Year, est: Estimate f: Forecast

Afghanistan’s economic growth is projected to slow from 2.6 percent in 2017 to 2.2 percent in 2018 largely due to security and political challenges and a reduction in agriculture production due to lower than expected levels of rainfall. New sources of growth through agriculture, mining, and regional connectivity can create more jobs and growth. Every month, the working-age population increases by 64,000 people and Afghanistan must create 370,000 jobs a year to maintain its employment rate.

Economic growth in Bangladesh remains strong with growing industrial production, remittances and investment. Growth is expected to moderate from 7.3 percent in 2017 to 6.5 percent in 2018. Inflation and budgetary pressures have been high and the trade deficit has expanded. Every month, the working age population increases by 170,000 people and Bangladesh must create 1.1 million jobs a year to maintain its employment rate.

Delays in the completion of two hydropower projects may temper growth from 5.8 percent in 2017 to 5.4 percent in 2018 in Bhutan. While supported by hydropower projects and tourism, the country would benefit from a more robust private sector to create more jobs for its youth. Every month, the working age population increases by 830 people and hence Bhutan must create 6,000 jobs a year to maintain its employment rate.

India’s economy has recovered from the withdrawal of large denomination bank notes and the Goods and Services tax. Growth is expected to accelerate from 6.7 in 2017 to 7.3 percent in 2018 and to subsequently stabilize supported by a sustained recovery in private investment and private consumption. The country should strive to accelerate investments and exports to take advantage of the recovery in global growth. Every month, the working age increases by 1.3 million people and India must create 8.1 million jobs a year to maintain its employment rate, which has been declining based on employment data analyzed from 2005 to 2015, largely due to women leaving the job market.

In Maldives, economic growth has been driven by tourism and construction. However, political instability may have a negative impact on economic growth, expected to moderate from 6.2 percent in 2017 to 5.5 percent in 2018. Concentrating the population to larger islands may help the country to create jobs and become more resilient to climate change. Every month, the working age population increases by 510 people and Bhutan must create 4,000 jobs a year to maintain its employment rate.

Nepal has seen an economic recovery after disruptions from earthquakes and a trade blockade but growth is expected to slow from 7.5 percent in fiscal year 2017 to 4.6 percent in 2018 due to the heaviest floods in decades combined with slow recovery of exports, slowdown in remittances, and an increase in lending rates. Every month, the working age population increases by 35,000 people and Nepal must create 240,000 jobs a year to maintain its employment rate.

In Pakistan, economic growth increased from 5.4 percent in 2017 to 5.8 percent in 2018 supported by major infrastructure projects and low interest rates. Efforts to reverse the trade and fiscal imbalances and continued implementation of reforms will be needed for sustaining and accelerating growth and improving welfare. Every month, the working age population increases by 250,000 people and Pakistan must create 1.4 million jobs a year to maintain its employment rate.

Sri Lanka’s economic performance has been hurt by prolonged drought but is expected to accelerate from 3.1 percent in 2017 to 4.8 percent in 2018. Accelerating reforms to promote competitiveness, better governance, and a more balanced budget are critical to ensure sustained growth and development. Every month, the working age population increases by 10,000 people and Sri Lanka must create 63,000 jobs a year to maintain its employment rate.

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