World Bank Current Affairs - 2019

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South Asia Economic Focus, Making (De)Centralization Work Report: World Bank

As per the report released by World Bank on ‘South Asia Economic Focus, Making (De)Centralization Work’, Bangladesh has become the second-fastest growing economy in South Asia after Bhutan. According to the World Bank, Bangladesh and Nepal are estimated to grow faster than India in 2019.

The latest edition of this World Banks’s report finds that strong domestic demand, which support high growth in past, has weakened, driving a slowdown across the south Asian region.

Key Highlights of Report

The overall growth in South Asia is projected to slow down this fiscal in line with a global downward trend. Growth in South Asia is projected to fall to 5.9% in 2019, down 1.1% points from April 2019 estimates, casting uncertainty about a rebound in short term.

In India, growth is projected to fall to 6% this fiscal year and is then expected to gradually recover to 6.9% in fiscal year 2021 and to 7.2% in 2022.

The growth rate of Pakistan is projected to decrease further to 2.4% this fiscal year, as monetary policy remains tight, and planned fiscal consolidation will further compress domestic demand.

As per the report, the GDP growth rate of Bangladesh is projected to moderate to 7.2% this fiscal year and 7.3% in 2020. The country’s economy is likely to maintain growth above 7%, supported by a political stability, robust macroeconomic framework, and strong public investments.

In 2018 Bangladesh has reduced current account deficit due to rising export and remittances which was above $15.5 billion. However, the report indicates that the financial sector vulnerability, fiscal pressures and loss of external competitiveness pose challenges to its growth rate.

Moreover, despite slowdown in industrial growth rate, the industrial sector remains strong as Bangladesh’s garment industry benefited immensely from trade tensions between United States and China.

The World Bank report suggests Bangladesh to address key structural challenges such as reducing infrastructure deficit, improving urban management, managing climate change risks and enhancing human capital.

World Bank: South Asia Economic Focus, 2019

The World Bank recently released its South Asia Economic Focus, 2019. The report says that Bangladesh and Nepal are growing faster than India. However, it assured that India is still a fast-growing economy. India is relatively hit hard by the recent global economic slowdown.

The report is titled “Exports Wanted” highlighting the export potential of the South Asian region being not used to the fullest.

Key findings of the report: India

  • The projected growth of India in 2019 according to the report is 6%. However, India is expected to recover gradually. The report said that the growth rate of India will reach 6.9% in 2021 and 7.2% in 2022.
    • In 2016-17, the growth rate of India was 8.2%
    • In 2017-18, the growth rate was 7.2%
    • In 2018-19, the growth rate was 6.8%
  • The domestic demand (the major driver of growth rate in India according to the report) of the India has slipped. The private consumption is growing at the rate of 3.1%. It was 7.3% last year
  • The manufacturing growth dropped to below 1% in the second quarter as compared to 10% last year. The reason for the drop down is mainly due to the global slowdown in their investments
  • The industrial output growth increased to 6.9% due to increase in construction and manufacturing activities
  • The growth in agricultural sector and service sector was 2.9% and 7.5% respectively
  • The Current Account Deficit of India widened from 1.8% in last year to 2.1% this year
  • 80% of the causes of the economic slowdown is coming from international causes.

Key findings of the report : South Asia

  • South Asia remains the fastest growing region in the world, despite of the report’s estimation of growth in South Asia to fall to 5.(% in 2019.
  • The exports growth of South Asia accelerates and import growth is slowing. The growth of imports has declined by 15 to 20% in the region. Under these circumstances the GDP growth is expected to accelerate
  • South Asian countries are exporting only a third of their potential
  • The growth rate of South Asia was 7.7% in 2016, 7.2% in 2017 and 6.9% in 2018
  • Among all the countries India and Sri Lanka showed the lowest growth rates
  • Foreign Exchange reserves declined in South Asian region
  • Food inflation decelerated in the region. It was stable around 3%. The prices fell mainly due to good harvests.

Key findings of the report: Country wise growth rates

  • In Nepal, the GDP growth is projected to be 6.5%. The growth will be backed by construction activities, tourist arrivals and higher public spending
  • In Afghanistan the growth is expected to reach 3%. It will be mainly due to improved farming conditions and assuming political stability after elections
  • In Sri Lanka the growth is expected to soften to 2.7% in 2019. IF supported by recovering investment and exports, political uncertainty dissipated and tackling security challenges the growth is projected to reach 3.3% in 2020

Key Findings of the report: Trade Policy changes affecting South Asia

  • Import tariffs to protect domestic industries
  • Trade tensions between India and US
    • US imposed tariffs in steel and Aluminum imported from India. India in response to the move, postponed the retaliatory tariffs on selected US products like chickpeas, walnuts, Artemis, lentils, etc.
    • India had benefited greatly under the GSP – Generalized System of Preferences that gave 2,00 products duty free access to the US. Around 5.7 billion USD worth goods were covered under GSP in 2017. In 2019, the US withdrew its GSP following the market access strategy to open India’s market for US products.
  • India – Pakistan trade tensions
    • The MFN – Most Favored Nation status was withdrawn after the Pulwama attack. The custom duties on all goods imported from Pakistan was raised to 200%. It is expected that Pakistan will retaliate imposing tariffs on Indian goods.
  • Trade war between China and USA
    • The garment industry of Bangladesh has benefited immensely from the ongoing trade tensions between China and USA.