The World Bank has stated that economic growth prospects in South Asia have weakened amid increasing global economic uncertainty. Without a strong focus on domestic revenue collection, countries in the region may struggle to withstand future economic shocks.
In its semi-annual report titled “South Asia Development Update: Tricky Times” published on April 23, the World Bank projects that South Asia’s growth will drop to 5.8% in 2025—0.4 percentage points lower than the previous forecast. However, it is expected to rise slightly to 6.1% in 2026.
Martin Raiser, Vice President for South Asia at the World Bank, remarked, “South Asian countries have become more vulnerable due to successive shocks over the past decade. Urgent reforms in tax structures, agricultural modernization, and climate change response are essential.”
The World Bank notes that while South Asia has relatively high tax rates, revenue collection remains low. Between 2019 and 2023, average government revenue in South Asia stood at only 18% of GDP, compared to 24% in other developing countries.
The report highlights a revenue gap of 1% to 7% of GDP in South Asian countries. Although this gap is partly due to agriculture-based economies and large informal sectors, weak administration and poor policy management are also responsible.
Franziska Ohnsorge, the World Bank’s Chief Economist for South Asia, said, “Revenue shortfall is the primary reason for South Asia’s financial instability. This places an additional burden on existing taxpayers and limits the government’s ability to provide essential services.”
To increase revenue, the report emphasizes eliminating tax evasion opportunities, simplifying tax codes, strengthening tax administration, and using digital technologies. It also proposes introducing pollution taxes to simultaneously protect the environment and boost revenue.
Country-wise Growth Forecasts:
- Bangladesh: Growth may fall to 3.3% in FY 2024–25 due to political uncertainty and financial challenges. A moderate recovery to 4.9% is expected the following year.
- India: Growth is projected at 6.5% in FY 2024–25, slightly declining to 6.3% in FY 2025–26.
- Pakistan: After overcoming natural disasters and inflation, growth is expected at 2.7% in 2024–25 and 3.1% in 2025–26.
- Sri Lanka: With progress in debt restructuring, growth is projected at 3.5% in 2025 and 3.1% in 2026.
- Nepal: Due to natural disasters and a weak financial sector, growth is forecast at 4.5% in 2024–25 and 5.2% in 2025–26.
- Bhutan: Despite weaknesses in agriculture, growth is expected to be 6.6% in 2024–25 and 7.6% in 2025–26 due to progress in hydropower construction.
- Maldives: Completion of airport terminal construction could lead to 5.7% growth in 2025, though external debt poses risks.
- Afghanistan: With reduced international aid, growth may be 2.5% in 2024–25 and drop to 2.2% the following year.
The World Bank concludes that boosting revenue collection is key to ensuring financial stability across South Asia.