Growth in SA slows down, Sri Lanka growth to soften to 2.7-pct in 2019: World Bank

Oct 14, 2019 (LBO) – Economic growth in Sri Lanka is expected to soften to 2.7 percent in 2019, says the World Bank in its twice-a-year regional economic update.

Supported by recovering investment and exports, as the security challenges and political uncertainty of last year dissipate, Sri Lanka's growth is , however, projected to reach 3.3 percent in 2020 and 3.7 percent in 2021.

Meanwhile, in line with a global downward trend, growth in South Asia is projected to slow to 5.9 percent in 2019, down 1.1 percentage points from April 2019 estimates, casting uncertainty about a rebound in the short term, the World Bank said.

The latest edition of the South Asia Economic Focus, Making (De)centralization Work, finds that strong domestic demand, which propped high growth in the past, has weakened, driving a slowdown across the region.

Imports have declined severely across South Asia, contracting between 15 and 20 percent in Pakistan and Sri Lanka.

In India, domestic demand has slipped, with private consumption growing 3.1 percent in the last quarter from 7.3 percent a year ago, while manufacturing growth plummeted to below 1 percent in the second quarter of 2019 compared to over 10 percent a year ago.

“Declining industrial production and imports, as well as tensions in the financial markets reveal a sharp economic slowdown in South Asia,” said Hartwig Schafer, World Bank Vice President for the South Asia Region.

“As global and domestic uncertainties cloud the region’s economic outlook, South Asian countries should pursue stimulating economic policies to boost private consumption and beef up investments.”

The report notes that South Asia’s current economic slowdown echoes the decelerating growth and trade slumps of 2008 and 2012.

With that context in mind, the report remains cautiously optimistic that a slight rebound in investment and private consumption could jumpstart South Asia’s growth up to 6.3 percent in 2020, slightly above East Asia and the Pacific, and 6.7 percent in 2021.

In a focus section, the report highlights how, as their economies become more sophisticated, South Asian countries have made decentralization a priority to improve the delivery of public services.

With multiple initiatives underway across the region to shift more political and fiscal responsibilities to local governments, the report warns, however, that decentralization efforts in South Asia have so far yielded mixed results.

For decentralization to work, central authorities should wield incentives and exercise quality control to encourage innovation and accountability at the local level.

Rather than a mere reshuffling of power, the report calls for more complementary roles across tiers of government, in which national authorities remain proactive in empowering local governments for better service delivery.

“Decentralization in South Asia has yet to deliver on its promises and, if not properly managed, can degenerate into fragmentation,” said Hans Timmer, World Bank Chief Economist for the South Asia Region.

“To make decentralization work for their citizens, we encourage South Asian central governments to allocate their resources judiciously, create incentives to help local communities compete in integrated markets, and provide equal opportunities to their people.”

Source: World Bank. GDP: Gross Domestic Product, CY: Calendar Year, FY: Fiscal Year, e: Estimate f: Forecast; in Bangladesh, Bhutan, Nepal, and Pakistan, 2019 refers to FY2018/19 and ended in June 2019. For India, 2019 refers to FY2019/20 and will end in March 2020.