Amid increasing uncertainty in the global economy, South Asia¡¯s growth prospects have dimmed. Raising domestic revenue could help the region strengthen fragile fiscal positions and increase resilience against future shocks. Targeted reforms to open trade, modernize agricultural sectors, and boost private sector dynamism are needed to unlock faster growth and job creation.
While South Asia continues to grow faster than any other region, its growth prospects are dimming. Growth outcomes for 2024 have disappointed and forecasts for 2025 have been downgraded for most countries in the region.
After an unexpectedly weak outturn of 6.0 percent in 2024, growth in South Asia is expected to soften further to 5.8 percent in 2025¡ª0.4 percentage points below October forecasts¡ªbefore ticking up to 6.1 percent in 2026.
This outlook is subject to heightened risks, including from a highly uncertain global landscape, combined with domestic vulnerabilities including constrained fiscal space.
After a decade of shocks, South Asian economies¡¯ ability to cushion new shocks is limited. Tackling some of its greatest inefficiencies and vulnerabilities could help South Asia navigate this unusually uncertain outlook. These include poor tax collection, unproductive agricultural sectors, households and firms that lack mobility and access to finance to mitigate climate shocks and a growing labor force with insufficient jobs.
Country Outlooks
In Bangladesh, growth is expected to slow in FY24/25 to 3.3 percent amid political uncertainty and persistent financial challenges, and the growth rebound in FY25/26 has been downgraded to 4.9 percent. In Bhutan, the forecast for FY24/25 has been downgraded to 6.6 percent due to weak agriculture sector growth but upgraded in FY25/26 to 7.6 percent due to expected strength in hydropower construction. In India, growth is expected to slow from 6.5 percent in FY24/25 to 6.3 percent as in FY25/26 as the benefits to private investment from monetary easing and regulatory streamlining are expected to be offset by global economic weakness and policy uncertainty. In Maldives, the completion of a new airport terminal will contribute to 5.7 percent growth in 2025, although challenges in meeting external debt obligations continue to pose a downside risk. In Nepal, the forecast has been downgraded to 4.5 percent in FY24/25, due to damage from floods and landslides, and to 5.2 percent in FY25/26, as a result of persistent weakness in the financial system. In Sri Lanka, the government has made further progress with debt restructuring, and a projected rebound in investment and external demand is expected to lift growth in 2025 to 3.5 percent before it returns to 3.1 percent in 2026.
Last Updated: Jul 01, 2025
We are working across South Asia to create more jobs and boost resilience to economic and climate-related shocks. South Asia is not creating enough jobs to keep pace with its rapidly growing working-age population. There are over 700 million youth under the age of 24 in South Asia and more than one million youth in the region are expected to enter the labor force every month until 2030.
South Asia is also one of the most climate-vulnerable regions in the world, with its high population density, already high temperatures, and exposed geography. Since 2010, natural disasters have affected on average about 67 million people each year. On top of this, almost 750 million South Asians¡ªor about 48 percent of the region¡¯s population¡ªlive in climate hotspots, where unpredictable rainfall and rising temperatures are reducing crop yields and increasing water scarcity and displacing people.
Navigating global economic turbulence and uncertainty
In the wake of increased global economic uncertainty and declining aid flows, the countries of South Asia will need to redouble their efforts to spend much more efficiently and mobilize domestic resources and private sector investment. South Asia¡¯s high debt remains a source of vulnerability to rising borrowing costs or declining funding inflows from private or official sources.
Low revenues are at the root of these fiscal challenges. From 2019 to 2023, general government revenues averaged 18 percent of GDP, the lowest among all emerging market and development economy regions and well below the EMDE average of 24 percent of GDP. While South Asia¡¯s tax rates are often above the EMDE average, the region¡¯s tax revenue collection¡ªthe majority of the region¡¯s total revenue¡ªis below the EMDE average.
South Asia could raise revenues with tax policy measures that eliminate exemptions, unify, simplify, and harmonize tax rates. Steps to facilitate tax compliance and to strengthen tax administration¡ªsuch as better enforcement, improved incentives to tax officials, and steps to improve taxpayer identification¡ªcan significantly boost tax collection.
We are supporting countries, including Bangladesh and Sri Lanka, to enhance their domestic revenues by improving tax policy and administration. For example, in Sri Lanka, the recently completed Public Finance Review offers detailed recommendations to improve tax policy, administration and morale, which could potentially increase the tax-to-GDP ratio by 1.5 to 2 percentage points by 2029.
Creating more and better jobs
Private investment and robust business growth are essential to create the jobs South Asia needs. A critical area of focus is increasing women's labor-force participation as only one in three women in South Asia are currently in the workforce. We are supporting countries through critical policy reforms, skills programs, infrastructure investments, and analytical work to help create jobs.
Following economic crisis in Sri Lanka, we are supporting reforms to put the economy on a sustainable growth path by boosting competitiveness and laying the foundation for a private-sector-led recovery and job creation.
In Bangladesh, we provided $300 million to equip 900,000 disadvantaged rural youth¡ªmany of whom are female¡ªwith skills, alternative education, entrepreneurship support, and employment opportunities. We also supported a series of job-focused development policy operations to modernize the trade and investment environment; strengthen systems that protect workers and build resilience; and enhance access to jobs for vulnerable populations.
In India, we supported the Government¡¯s National Rural Livelihoods Mission, which supports more than 100 million women. We helped develop women-led and women-owned community institutions that received financial and technical support. Over the past decade, more than $100 billion in loans have enabled women to diversify their income sources and actively engage in wage labor, self-employment, and micro-enterprise activities.
In Nepal, we are supporting a youth employment initiative that is working to strengthen the government¡¯s Prime Minister Employment Program to improve employment services and labor market outcomes for youth, especially women from the poor and marginalized communities.
Reducing vulnerability to natural disasters and building climate resilience
South Asia faces acute climate risks driven by dense coastal populations, a dependence on monsoon-fed agriculture, and rapid urbanization. Better functioning land, labor and capital markets would help build resilience, as would improved climate information, and better planning and design to mitigate climate risks.
We support investments to increase livability across the region. This includes climate adaptation and mitigation, climate-smart agriculture, improved water resource management, effective coastal and fisheries management, biodiversity conservation, and air quality management.
An important aspect of building resilience is improved access to climate information. We are working at the regional level to strengthen hydrometeorological institutions and improve the monitoring of air quality to target interventions for maximum cost effectiveness. We have a series of air quality improvement projects ¨C one has just been approved for Bangladesh and projects for India and Nepal are under preparation.
In Bangladesh, we are supporting an economic corridor along the Jamuna River to enhance livelihoods and protect the ecosystem. In India, we are helping to provide more and better access to water and sanitation services to around 2 million people in 21 cities. In Sri Lanka, we are empowering farmers with knowledge and training on climate smart agriculture practices.
Last Updated: Jul 01, 2025
BANGLADESH
Bangladesh¡¯s informal sector accounts for 85 percent of employment and is characterized by low productivity and low wages. Youth and returning migrants face significant challenges in accessing economic opportunities. With youth expected to account for 50 percent of Bangladesh¡¯s working-age population by 2028, getting them into the labor market is critical for the country¡¯s sustainable long-term growth and poverty reduction.
The Recovery and Advancement of Informal Sector Engagement (RAISE) project focuses on informal workers and returning migrants, providing services such as counseling, on-the-job learning, business management, technical skills, life-skills training, microfinance, and stipends. The project established 31 district welfare centers for returning migrants, offering counseling, cash transfers, and referrals. An extensive implementation network delivers services close to clients to respond to local needs.
RAISE has reached 280,000 beneficiaries, including over 140,000 returning migrant workers who received counseling, cash transfers, and job training referrals. Over 17,200 youth graduated from a job apprenticeship program, with almost 90 percent now employed or running their own microenterprises. Nearly 115,000 microentrepreneurs received support to enhance their businesses, leading to business expansion and job creation. As of January 2025, the project resulted in nearly 45,000 new or better jobs for women.
BHUTAN
In Central Bhutan, the women-led community group Nobgang Tsherim Detshen was established in 2021 to revive the cultural vibrancy of the village, which had diminished due to youth migration to cities. Supported by the ÐÓ°ÉÂÛ̳, the group developed a stewardship plan for revitalization and received training to manage community-led social enterprises.
This initiative is part of the Buddhist Circuit Development Program in South Asia, which aims to leverage the region's shared heritage to promote women's empowerment, inclusion, and prosperity. Nobgang was chosen as a pilot for this novel approach, with a community-driven process led by the Department of Culture. A "Cultural Stewardship Plan" was created to guide the village's revitalization, focusing on physical regeneration, value addition to agricultural products, and income-generating opportunities for women and youth.
Through the Matching Grants Program, women received loans and expand their businesses. This Program has facilitated loans worth INR 267 crore ($31.9 million) for 8,400 women-led enterprises since 2022. The project has created over 100,000 enterprises and nearly 53,000 jobs, promoting inclusive economic growth in rural areas.
Since 2019, the 2,500 Community Skills Schools established by the project have helped train more than 50,000 young people in 75 trades¡ª65 percent were women. These schools offer affordable, accessible vocational training specifically tailored to women¡¯s needs, as they often face barriers in formal employment. These schools are run by successful local businesses and the business owners and community experts serve as trainers, ensuring that the training is practical and relevant. More than 11,600 trainees have found employment in local enterprises and many graduates of these skills programs have gone on to launch businesses of their own.
MALDIVES
Maldives faces significant economic challenges due to its undiversified economy and vulnerability to external shocks. The country spends over 10 percent of GDP annually on diesel imports for energy needs. Maldives is also extremely vulnerable to climate change, with much of the country lying just a meter above sea level, risking submersion by the end of the century.
With limited public borrowing capacity, the private sector plays a crucial role. With just over $12 million in ÐÓ°ÉÂÛ̳ concessional financing, the Acceler?ating Sustainable Private Investments in Renewable Energy and the Accelerating Renewable Energy Integration and Sustainable Energy projects are helping install a total of 53.5 megawatts of solar panels on the islands and on the open ocean, build 40 MWh of battery storage solutions for the country, and upgrade the electricity grid to include cleaner energy sources. This financing leveraged an additional $140 million from the private sector, making renewable energy projects more financially sustainable. Increased private investment has driven down costs, reducing the power purchase price from 21 cents to less than 9.8 cents per unit of electricity, significantly below the cost of imported fossil energy.
NEPAL
Nepal¡¯s livestock sector contributes 24 percent of GDP and over 52 percent of the population relies on agriculture and livestock for employment and income.
The Nepal Livestock Sector Innovation Project (January 2018 to June 2024) played a critical role in modernizing the sector, helping to put in place policies, promoting innovation, and improving animal health and disease outbreak response. The project benefited more than 235,000 farmers, 42 percent of whom are women. Milk productivity increased by 80 percent, and the sales value of milk and goat meat rose by 90 percent.
It improved veterinary services with modern equipment and diagnostic techniques training for service providers and worked with 229 Farmers Field Schools to educate farmers on herd health and climate-resilient practices in goat farming and dairy.
The project promoted gender equity by prioritizing grants for farmer groups led by women or with more female members. It also supported the development of private sector actors such as farmers¡¯ cooperatives and organizations, as well as agri-enterprises. The project¡¯s matching grant program mobilized $18.6 million in private capital.
SRI LANKA
In Kalmadu Nagar, Northern Sri Lanka, the Kalmadu Kulam reservoir, once crucial for the community, faced challenges due to deteriorating infrastructure, affecting inland fishing. ÐÓ°ÉÂÛ̳-funded Integrated Watershed and Water Resources Management Project (2022-2024) transformed the dam with modern water management solutions. These included soil-cement-bentonite technology to reduce leakage, raising the dam to prevent overflow, installing a drainage system, and building an access road for maintenance. Now, the reservoir operates at full capacity, increasing agricultural yield by nearly 10 percent in 2024. The local fishermen's society, with 80 families, now has a sustainable income, and groundwater levels have significantly improved, benefiting over 400 nearby villagers. The project also provided learning opportunities for around 800 young engineers, promoting knowledge sharing and innovation.
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