Washington – South Asia’s economic growth is expected to slow down in 2025, according to the latest World Bank South Asia Development Update. The report highlights that the region’s growth prospects have dimmed, with projections now downgraded across most countries. The World Bank attributes this downturn to rising global uncertainties, along with domestic challenges such as limited fiscal space.
The update, titled Taxing Times, forecasts regional growth to decelerate to 5.8 percent in 2025—down 0.4 percentage points from the previous forecast made in October. However, growth is expected to slightly pick up to 6.1 percent in 2026. The report also warns that these projections are subject to increased risks, including those posed by a volatile global economy.
Martin Raiser, World Bank Vice President for South Asia, emphasized that multiple shocks over the past decade have left South Asian countries with insufficient buffers to weather global challenges. “The region needs targeted reforms to strengthen economic resilience and unlock faster growth and job creation,” said Raiser. He called for measures such as opening up trade, modernizing agriculture, and boosting private sector dynamism.
One of the key areas identified for improvement is domestic revenue mobilization. Despite South Asia having relatively high tax rates compared to other developing regions, tax revenue collection remains weak. On average, South Asian governments generated 18 percent of GDP in revenue between 2019 and 2023, below the 24 percent average for other developing economies. Tax gaps, particularly in consumption and corporate taxes, are significant and require urgent attention.
Read more: Pakistan’s FY25 Growth Outlook Dims as IMF Cuts Forecast to 2.6%
Franziska Ohnsorge, World Bank Chief Economist for South Asia, warned that low revenues are a major cause of fiscal fragility in the region. “This could threaten macroeconomic stability, especially during times of heightened uncertainty,” she stated. The report suggests various policy measures to improve tax collection, including eliminating loopholes, simplifying tax codes, tightening enforcement, and embracing digital technology for easier compliance.
The report also highlights the potential of pollution pricing as a way to reduce environmental damage while increasing government revenues.
Country-Specific Outlooks:
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Afghanistan: Economic growth is projected to slow to 2.5 percent in FY24-25 and will rise only moderately to 2.2 percent in FY25/26 due to declining aid and ongoing challenges.
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Bangladesh: Growth is expected to slow to 3.3 percent in FY24/25 amid political instability and financial challenges, with a revised rebound forecast of 4.9 percent in FY25/26.
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Bhutan: The growth forecast for FY24/25 has been downgraded to 6.6 percent, but is expected to rise to 7.6 percent in FY25/26 due to strong hydropower construction.
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India: Growth will decelerate from 6.5 percent in FY24/25 to 6.3 percent in FY25/26, primarily due to global economic weakness and policy uncertainties.
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Maldives: A 5.7 percent growth is expected in 2025, driven by the completion of a new airport terminal, though external debt challenges pose risks.
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Nepal: Growth forecast has been downgraded to 4.5 percent in FY24/25 due to natural disasters, with a slight recovery to 5.2 percent in FY25/26.
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Pakistan: Following recovery from natural disasters and inflation, Pakistan’s growth is projected at 2.7 percent in FY24/25 and 3.1 percent in FY25/26.
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Sri Lanka: With further progress in debt restructuring, Sri Lanka’s growth is expected to rebound to 3.5 percent in 2025 before returning to 3.1 percent in 2026.
The report underscores that while the region faces significant challenges, addressing fiscal weaknesses and implementing strategic reforms can help bolster economic resilience in South Asia.
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