The Asian Development Bank (ADB) last week said South Asia was likely to hang on to its fast growth despite fresh outbreaks of COVID-19, with 9.5% overall economic expansion and Sri Lanka projected to grow by 4.1% this year. 

South Asia will have developing Asia’s fastest growth this year after suffering the region’s sharpest contraction in 2020. Aggregate output is forecast to expand by 9.5% in 2021, with growth tapering to 6.6% in 2022, the ADB said in its flagship Outlook report. 

South Asia’s largely reflects the performance of India, which will rebound from an 8% contraction in fiscal year 2020 and grow by 11% and 7% in this and the following fiscal year.

 A stimulus-fuelled surge in the US – India’s largest export market – will support the revival, but a severe second COVID-19 wave is threatening the recovery. 

Economic activity in Afghanistan, Nepal, and Pakistan will also rise as tight containment restrictions are lifted, with buoyant remittances stimulating growth in Nepal and Pakistan. Sri Lanka’s challenging macroeconomic situation will likely moderate growth in 2022 but is forecast to grow at 4.1% in 2021. However, this is lower than Government projections of 5.5%-6%. 

Growth recovery is dependent on an expansive budget and stronger global demand with a marked rebound expected in the major advanced economies, as well as from a base effect following contraction in 2020. 

“Growth is projected to slow somewhat to 3.6% in 2022. Building on growth momentum in Q3 and Q4 2020, the Purchasing Managers’ Index, a leading indicator of economic activity, moved strongly into expansionary territory above 50 in the three months to March 2021, with manufacturing above 60 and services in the high-50s,” the report said. 

Growth will benefit in the near term from increased private consumption as pent-up demand is released, and consumption and investment will benefit from low interest rates and ample liquidity. 

Progress on the Colombo Port City special economic zone is expected to foster Foreign Direct Investment, as does development in the Hambantota Industrial Zone. The Government’s reform priorities include deregulation to simplify governance structure, improvements to the Judiciary, Customs efficiency, financial sector regulation, and effective land use.