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WB: Unprecedented shocks rattle South Asia, exacerbating challenges and dampening growth
Beset with Sri Lanka’s economic crisis, Pakistan’s catastrophic floods, a global slowdown, and impacts of the war in Ukraine, South Asia faces an unprecedented combination of shocks on top of the lingering scars of the COVID-19 pandemic. Growth in the region is dampening, says the World Bank in its twice-a-year update, underscoring the need for countries to build resilience.Released last week in Washington, the latest South Asia Economic Focus, Coping with Shocks: Migration and the Road to Resilience, projects regional growth to average 5.8 percent this year – a downward revision of 1 percentage point from the forecast made in June. This follows growth of 7.8 percent in 2021, when most countries were rebounding from the pandemic slump.
The report says: In short order, a series of once-in-a-lifetime shocks has hit South Asia. The devastating floods in Pakistan, a full-blown economic crisis in Sri Lanka, and the ongoing war in Ukraine, which caused skyrocketing commodity prices, are happening when countries in South Asia are still trying to recover from COVID-19.
As a result of these crises, many households face severe economic hardship. In Sri Lanka, people suffer from shortages of essential items; floods in Pakistan have wreaked havoc on millions of people that lost their homes; soaring food prices across the region have adverse impacts on households’ ability to obtain sufficient food; people in Afghanistan suffer from double-digit declines in income and reduced access to core services; and the lives of migrant workers, upended during COVID lockdowns, face uncertainty and possible scarring effects from the pandemic. The economic headwinds manifest themselves as problems in the balance of payments. Elevated global food and energy prices have increased import bills while a slowdown in the global economy has reduced momentum in the region’s export growth.
This happens when trade balances were already deteriorating because of a rise in domestic spending: government deficits were increasing because of relief efforts and private consumption rebounded after the lockdowns ended. Falling or stagnating remittance inflows through official channels have worsened the situation further for several countries. The resulting larger current-account deficits are becoming increasingly difficult to finance.
Heightened uncertainty in the global markets, together with monetary tightening in advanced economies, have shifted investor sentiment and increased net capital outflows from the region in the first half of 2022. The balance-of-payments pressures have in turn resulted in dwindling foreign exchange reserves and led to requests by Sri Lanka, Pakistan, and Bangladesh to the IMF for support.
Countries have also resorted to restrictive measures to curb imports, but with potentially detrimental effects on the economic recovery. Apart from the balance-of-payment problems, several serious domestic challenges also warrant attention, not least the supply bottlenecks and deteriorated asset quality in the financial sectors. Despite the mounting challenges, there are also optimistic signs, as some sectors and some countries are recovering strongly. In India, services exports have recovered more strongly than in the rest of the world, and India’s ample foreign reserve buffers have afforded resilience to the country’s external sector. In most countries in the region, telecom and business services are also driving the recovery. The recovery of the tourism sector has remained robust in Maldives, while Bhutan recently fully re-opened its borders to tourists after prolonged lockdowns since 2020.
Against this backdrop, growth forecasts for South Asia have been downgraded. Growth in the region is expected to slow down to 5.8 percent in the calendar year 2022, 1 percentage point lower than forecasted in June, mainly because of a weakening of growth in the second half of 2022. The growth path diverges among South Asian countries: The more services-led economies (India, Nepal, and Maldives) are expected to maintain a reasonable recovery trend despite headwinds, while Afghanistan, Sri Lanka and Pakistan are in more precarious shapes and will see poverty increase in 2022 amid severe domestic crises.
All countries in the region will see their resilience tested as global energy prices are expected to remain very high and global demand for goods will weaken. The countries responding to high import prices by setting price caps or quantity barriers—which distort price signals—will experience a negative impact on growth. The growth forecast depends on the uncertain outlook for commodity prices, growth in high-income countries, and the amount of tightening in global financial markets.
The report presents simulations to assess the impact of a changing international environment. The impact differs across countries, but the general conclusion is that changes in commodity prices have the largest impact. The impact of changes in import demand in the rest of the world and of capital-flow reversals is more muted as South Asia has not deeply penetrated export markets and several countries had limited access to private international finance. Various structural changes are occurring in the background, which creates opportunities for the region’s long-term resilience. A realization that the limited fiscal space is impacting debt sustainability has led many countries to undertake revenue measures such as increasing indirect taxes, broadening the tax base, and reducing fuel subsidies, which if fully implemented could improve long-term fiscal viability. Financial innovations and digital technologies that create more flexible employment opportunities could provide people with tools to withstand future shocks and increase the region’s resilience.
However, it is crucial that the opportunities translate into a more inclusive development path in which workers in the informal sector, and especially women have better access to markets and finance. On the downside, extreme weather events will become much more common with climate change, which calls for the urgent need to improve climate resilience through upgrading adaptation mechanisms and maintaining sufficient financial reserves. Labor migration, both international and domestic, is a key part of life in South Asia.
Just before the COVID-19 pandemic began, in 2019, 41.2 million people from South Asia were living outside their country of birth. In some South Asian countries such as Nepal and Sri Lanka, international diaspora numbers are close to 10 percent of the home country’s population. In parts of Bangladesh, approximately one-third of households out-migrate temporarily during the pre-harvest lean season. The flow of migrants represents the interaction of two economic forces: reallocation of labor to places where it is more productive and adjustment to local economic shocks such as weather-related shocks; both are central to inclusive and resilient development.
Despite the importance of migration to individuals and the region, migrants in South Asia face considerable barriers to mobility. Mobility costs—pecuniary and non-pecuniary—and frictions in credit and labor markets have hindered these benefits of labor mobility from being fully tapped. For example, on average, Bangladeshi workers were spending the equivalent of more than US$3,000 to move abroad before the COVID pandemic, a figure that represented about 2.5 years of the median household income.
Seasonal migrants from rural India faced the equivalent of 80 percent of their daily earnings at the migration destination in daily migration costs, including non-pecuniary costs of harsh living conditions at the destination. Migration also exposes South Asians to risks because of the precarious labor market conditions that poor migrant workers face. For example, the legal (visa) status of emigrants to GCC countries, the most common international destination for South Asian emigrants, is contingent on their holding temporary jobs in low-skill sectors.
Similarly, poor internal migrants in South Asia work largely in the informal sector, where they lack access to social protection. The COVID crisis exposed this vulnerability on a large scale, as migrants returning home during COVID-related lockdowns face multiple hardships. New survey-based evidence confirms that the COVID shock substantially slowed down new migration flows and created an unprecedented wave of return migration. The surveys also reveal that return migrants, especially women, struggled to assimilate into the home labor markets, with high unemployment rates among the newly returned migrants. Due to the overall fall in outmigration, migrant-sending households experienced disproportionate declines in income, driven by a drop in remittances received. A troubling possibility is that the pandemic shock has had long-term scarring effects on the costs and frictions associated with migration.
To ensure that migration can continue to play a key role in development and as a coping mechanism in the face of shocks, two policies deserve priority. First, it is vital to address unnecessarily high costs and frictions in migration, particularly those that might have worsened during the COVID crisis. The second main policy priority for the region is to learn from the pandemic experience and incorporate measures to “de-risk” migration into migration-supporting policies and institutions. In particular, because many poor migrant workers are employed in informal jobs, reforms to extend social protection to the informal sector should be designed to include migrant workers without deterring mobility.
News
Expert: Mismanagement of CEB hydro resources increases costly oil-powered electricity generation
The Ceylon Electricity Board (CEB) is in one of the strongest hydro storage positions in recent memory, but it has mismanaged key hydropower complexes, causing an increase in oil-powered electricity generation and and costs.
Energy expert Dr. Vidura Ralapanawe has raised serious concerns over CEB’s operational decisions, particularly the skewed use of the Mahaweli and Laxapana hydropower complexes. “By mid-May, the system had ample storage — about 60% overall — which is actually a very good position to be in just before the South-West monsoon rains,” he said. “But within that headline figure is a huge imbalance. Mahaweli reservoirs are near 75%, while Laxapana is languishing at 30%.”
This lopsided storage has already caused direct operational problems. The Canyon power station, which is fed by the Maussakele Reservoir in the Laxapana complex, has been forced to reduce its output. The 60MW plant is now operating at just 40MW due to limited water availability. Downstream, the 100MW New Laxapana station is similarly constrained.
The Laxapana complex is not just another hydropower asset — it plays a vital role in Colombo’s drinking water supply. It is required to run continuously to maintain flows for water treatment plants. “That means the CEB must generate from Laxapana 24/7, no matter what,” Ralapanawe said. “So how did they allow it to reach such a critically low level, especially when Mahaweli reservoirs are full?”
Ralpanawe said: “Instead of making adjustments to maintain operational flexibility, the CEB appears to have run the Laxapana complex harder than necessary in previous months while underutilising Mahaweli, where Victoria and Randenigala are sitting comfortably. The consequence? More reliance on oil-based thermal generation, even as the country’s dams remain well-stocked.”
“This is not just a technical problem — it’s an economic one,” he stressed. “Oil is expensive. When you underutilise hydropower in a year like this, you’re actively choosing to drive up the cost of generation.”
The apparent lack of coordination between the Mahaweli and Laxapana systems is especially baffling given the CEB’s long-standing familiarity with both. “The CEB has operated these systems for over 40 years. They know the inflows, the rainfall patterns, the seasonal irrigation releases — none of this is new,” Ralapanawe said.
Moreover, the growing integration of AI and data-driven forecasting tools in the global energy sector makes such mismanagement increasingly indefensible. “If, in the age of AI, we’re still hearing that ‘it’s too complex’ to manage these reservoirs in tandem, then something is seriously wrong,” he added.
Dr. Ralapanawe urges the CEB to provide an explanation: “Why was Mahaweli underdispatched when it was full? Why was Laxapana overused to the point that we now can’t get full capacity from critical plants like Canyon and New Laxapana? What is the economic impact of burning more oil than necessary?”
The missteps are already costing the public. Higher generation costs will ultimately be passed on to consumers in the form of increased tariffs, a burden made heavier in an already strained economy,” says Dr. Ralapanawe.
Ironically, 2025 was shaping up to be a strong hydro year, offering a rare opportunity for cost savings and reduced fossil fuel use. Instead, mismanagement has left key reservoirs unbalanced and locked the system into a more expensive operating mode — one that benefits oil suppliers but punishes the average household and industry.
Dr. Ralapanawe’s message is blunt: “This is not just about water and electricity. This is about public accountability and economic responsibility. If the CEB cannot manage two hydro systems properly with decades of data at its fingertips, then it must rethink its leadership and planning structures — or risk repeating the same costly mistakes year after year.”
Our efforts to contact CEB officials for comment were in vain.
By Ifham Nizam
As many as a million Lankan women workers in key export sectors will lose their jobs and income if the 44 percent tariffs imposed by US President Donald Trump come into force at the end of the 90-day pause, Asia News has reported.
Sri Lanka’s main export industries, such as apparel, tea, gems, rubber and cinnamon, that employ mostly women, will be the most affected by the new tariffs since the US market is one of their most lucrative.
Apparel workers reproach the government for its “lethargic attitude” and failure to consider the concerns of workers and unions, not least because their representatives were not asked to participate in the discussions on tariffs.
The apparel industry accounts for about 40 percent of the country’s total exports, and is crucial for its economy. It also employs mainly women from low-income backgrounds in rural areas, for whom these jobs represent a crucial pathway out of poverty.
Since most apparel workers are also breadwinners, their wages help extended family networks in economically disadvantaged regions.
“The Women’s Centre collaborated with 25 other women’s organisations to carry out our campaign against the US tariffs hindering women workers,” said its Executive Director, Padmini Weerasuriya.
If the tariffs go into effect, “Their take-home pay will decrease significantly,” she added. “As orders dip and approximately six million dependents will also be severely impacted.”
“These women need job security as factories are already discussing about possible layoffs of workers, since demand is likely to drop.”
Compared to India and Bangladesh, she warns, Sri Lankan women face greater competition since “the tariffs imposed on Sri Lanka are higher”. That is why several manufacturers are already moving their operations to Vietnam, Bangladesh and Africa.
If plants shut down, more than 350,000 women working will be impacted. AsiaNews met three of them, 33-year-old Subadra Aponsu, 31-year-old Hemamamli Akaravita and 30-year-old Sandamini Tissera who spoke about their difficulties.
“We are the breadwinners of our families as our parents are elderly and sick. Our siblings are married and they are unable to provide for our parents. During the past several years, we have been working hard and providing for our families. If we lose our jobs, we have no option but to mortgage our homes,” they explained.
“During the economic crisis, we had to sell our paddy fields. Currently, our employers are planning to leave the country. We may lose our jobs shortly. We are unable to find employment elsewhere as almost every apparel manufacturer is planning to sell their business. In our boarding house, several women have already lost their jobs.”
According to economic analysts Sampath Amarasinghe and Niroshini Caldera, “due to the new tariffs, there will be a significant decline in export volumes with a severe erosion of Sri Lankan goods’ competitiveness in US markets.” All this, they warn, could result in “many Sri Lankan products ending up out of reach for US consumers and businesses.”
The greatest risk concerns “price- and cost-sensitive categories like garments, where profit margins are already low and competition from other countries is intense.”
The new tariff will see exports to the United States drop by 20 percent, with an annual loss of about US$ 300 million in foreign currency earnings.
As Sri Lanka’s total exports of goods in 2024 reached US$ 13 billion, the experts conclude, this represents “a major blow to the country’s balance of trade” and “economic growth prospects”.
Meanwhile, several women’s groups started a petition last week in the Katunayake Free Trade Zone (the first and largest of the country’s eight FTZs). – (AsiaNews)
Sri Lanka has again declared its commitment to repeal the Prevention of Terrorism Act (PTA) during the recently concluded talks with the European Union.
At the eighth meeting of the Working Group on Governance, Rule of Law and Human Rights under the EU-Sri Lanka Joint Commission, held in Colombo, Sri Lankan representatives “confirmed the commitment to repeal the Prevention of Terrorism Act (PTA), and briefed the Working Group on the timeline to replace it with new counter-terrorism legislation in compliance with international norms and standards.”
The PTA has long drawn criticism from civil society, rights organisations, and international observers. The law has enabled arbitrary detention and torture for decades, particularly against Tamils. Despite repeated pledges by successive governments, no comprehensive repeal has yet materialised.
Though the National People’s Power (NPP)-backed government has stated its commitment to repeal the PTA during election campaigns last year, once in power it has not yet taken legislative action to do so.
The following is the text of the joint statement issued by the government and the EU: The eighth meeting of the Working Group on Governance, Rule of Law and Human Rights under the EU-Sri Lanka Joint Commission was held in Colombo on 5 May.
The Working Group discussed a range of matters of mutual interest, including efforts to combatting corruption, upholding human rights including labour rights; rights of persons belonging to minorities; women’s rights; child rights; a conducive space for civil society; strengthening electoral processes; and preventing discrimination based on gender and sexual orientation.
During the discussions, the European Union congratulated Sri Lanka on the well-organised and peaceful Presidential and Parliamentary elections last year and Sri Lanka appreciated the European Union Election Observation Mission at the Presidential elections.
The European Union also congratulated Sri Lanka on the stabilisation of the economy, continued efforts towards recovery and important initiatives such as the Government Action Plan for the implementation of governance reforms based on the IMF recommendations. Sri Lanka briefed the European Union on the adoption of the National Action Plan to Combat Corruption as well as steps taken to strengthen the Commission to Investigate Allegations of Bribery or Corruption (CIABOC). The EU and Sri Lanka agreed on the importance of governance and judicial processes to strengthen the rule of law. The Sri Lanka side briefed the EU on the steps being taken by the Government since its election to strengthen the democratic process, governance, rule of law and the legal framework for protecting and promoting human rights. They agreed on the important role of civil society organisations, particularly in fostering inclusive and consultative legislative processes within democratic societies.
The Working Group reiterated its shared commitment to promote and protect human rights and to collaborate, as applicable, on the effective implementation of international human rights instruments. Sri Lanka confirmed the commitment to repeal the Prevention of Terrorism Act (PTA), and briefed the Working Group on the timeline to replace it with new counter-terrorism legislation in compliance with international norms and standards. The European Union recalled the need to bring relevant legislation in line with international Human Rights and ILO conventions to ensure continued access to the European market through the GSP+ trade preferences.
The European Union welcomed the commitment of the Government to end discrimination and build national unity, as well as the pledge to strengthen the truth and reconciliation framework in Sri Lanka, through an inclusive and participative process of all communities.
The EU and Sri Lanka reiterated their commitment to continue to work in the multilateral UN framework and continue their engagement with the Office of the High Commissioner for Human Rights and the Human Rights Council.
The European Union and Sri Lanka also reaffirmed their shared commitment to continuing to support a multilateral, rules-based international order grounded in international law, with the United Nations at its core.
The conclusions and recommendations of the Working Group will be reported to the EU-Sri Lanka Joint Commission to be held in Colombo during the latter half of the year.
The Delegation of Sri Lanka was led by Sugeeshwara Gunaratna, Director-General/ Europe and North America Division of the Ministry of Foreign Affairs, Foreign Employment and Tourism. The Delegation of the European Union was led by Charles Whiteley, Head of the South Asia Division of the European External Action Service.
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