South Asia needs to get its political house in order to turn around its economy

Sri Lanka was on the verge of collapse in 2022 and is still on a knife-edge with its massive debts, even though its political situation is improving after President Aruna Kumara Dissanayake took office in September

Analysis
By Editor_1
International Monetary Fund Mission Senior Chief for Sri Lanka Peter Breuer speaks during a media briefing in Colombo last month - EPA-EFE
By Biman Mukherji

South Asia stands on the brink of a severe downturn unless its leaders act decisively to stabilize the region’s economies as they face unrelenting global headwinds and US President-elect Donald Trump’s protectionist trade measures.

One of the poorest regions in the world, South Asia has experienced numerous incidents of political violence, which have hampered its development and economic growth.

Pakistan recently launched air strikes on Afghanistan apparently to thwart militants even as doubts linger over the political legitimacy of the country’s elected government. Supporters of jailed former Prime Minister Imran Khan have clashed with the police to demand his release.

The situation is also grim in Bangladesh, where the interim government has been struggling to restore law and order with a depleted police force since a mass student-led uprising in August deposed then-prime minister Sheikh Hasina.

The political unrest has dented investor confidence and support from multilateral institutions such as the International Monetary Fund (IMF) and the World Bank.

On the economic front, Sri Lanka was on the verge of collapse in 2022 and is still on a knife-edge with its massive debts, even though its political situation is improving after President Aruna Kumara Dissanayake took office in September.

The Maldives is also facing a mountain of debt. Nepal and Bhutan are also in an economic morass due to low tourist arrivals and weak demand for their goods.

India, the region’s economic powerhouse, is also under pressure with its growth slipping to a low of 5.4 per cent in the most recent quarter – its lowest in over seven quarters.

Meanwhile, Trump has vowed to target countries enjoying large trade surpluses with the United States, and this could put India in Washington’s crosshairs.

Heavily reliant on US backing, multilateral global institutions are unlikely to provide support that is substantial enough to pull South Asia out of its economic doldrums.

Earlier this month, the World Bank cancelled a US$ 500 million loan to Pakistan for missing key conditions and has frozen new budget support loans for the country this financial year.

On the other hand, Bangladesh is expected to receive additional aid of US$ 202 million pledged by the US but whether Washington will disburse the funds remains to be seen. Its garment exports, a mainstay of its economy, risk being hit by US tariffs.

IMF critics say the institution’s rules favour bigger economies and its tough lending conditions have hurt developing nations. Among them is Biswajit Dhar, a distinguished professor at New Delhi’s Council for Social Development, who said the US “virtually owns” multilateral financial institutions, with their programmes dependant on Washington’s support.

“The US is extremely self-centred and the direct benefits that these institutions are going to provide [would go] to Washington,” Dhar said.

With tensions easing between India and China over their disputed border, South Asia might derive knock-on economic benefits. The two Asian giants are leading members of the Brics bloc, which launched the New Development Bank in 2014 to finance infrastructure projects in the developing world.

An improvement in ties between Beijing and New Delhi could potentially lead to more financial support from the BRICS bank for South Asian economies, according to Dhar.

While China and India’s economies have been experiencing a slowdown too, they would likely support the smaller economies in South Asia to prevent their collapse, Dhar said. “You cannot have failed states next to you.”

Nonetheless, it is ultimately up to the South Asian countries to get their house in order by alleviating social unrest and stabilising their political situation. At a regional level, they should deepen their trade relationships to safeguard against the external volatile environment.

With these elements in place, South Asia can assure global investors that it is on the right track for sustainable economic recovery.

 -scmp.com

 

 

 

Editor_1
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