The region weathered global recession much better than any other, showing remarkable resilience and is the second-fastest growing area after East Asia, it said.
But South Asia's fiscal deficit is the highest of all regions and public debt at 60 percent of Gross Domestic Product might prompt investors to penalize the region like they did to European countries like Greece.
As the global recovery gathers momentum, governments in South Asia need to focus on exiting the stimulus programmes they introduced.
"Central banks need to knock off excess liquidity so it does not cause inflation," said Ernesto May, a bank official handling poverty reduction and private sector development in South Asia.
"Fiscal authorities need to start correcting fiscal imbalances with sustainable fiscal policies," he told a news conference.
"One of the most challenging aspects is the need to create fiscal space and allow the private sector to start taking out some of that space and they need to continue to con