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Rapid economic growth and progress in human development have raised the possibility that the region with the greatest number of poor people could end mass poverty within a generation. Following domestic reforms and external assistance, gross domestic product (GDP) in South Asia has grown an average of nearly 6 percent a year for the past decade. Growth in the two largest countries, India and Pakistan, reached 7 percent in the past two years. In 2006, GDP in South Asia is estimated to have expanded at the very rapid pace of 8.2 percent.

With growth has come an impressive reduction in poverty. During the 1990s, poverty rates fell 7 percent in India, 9 percent in Bangladesh, and 11 percent in Nepal. Pakistan’s poverty rate declined 5 percent in the first half of this decade. But to end poverty in a generation, South Asian economies must sustain an economic growth rate of 8–10 percent a year.

South Asia still has some of the worst human deprivation in the world. Levels of child malnutrition in India are nearly twice those in Africa. In Pakistan, one child in ten dies before the age of five, and only one in three completes primary school. About one person in five in South Asia lacks access to water services, and some two-thirds lack access to sanitation.

But perhaps the most fundamental challenge is the need for improved governance. Several South Asian countries suffer from endemic corruption, with Bangladesh scoring near the bottom of Transparency International’s Corruption Perceptions Index for the past six years. Weak governance and corruption—reflected, for example, in high levels of teacher absenteeism or rampant procurement problems at power plants—are key bottlenecks to human development and growth. Confrontational and often personality-based politics plague Bangladesh, Sri Lanka, and some Indian states, sometimes to the point of political violence. In parts of Afghanistan, Nepal, and Pakistan, conflict between state and nonstate actors plays out regularly.

The World Bank is working closely with partner countries to strengthen their core governance processes and institutions at the country level as well as to strengthen governance and anticorruption at the sector level; it is also strengthening risk mitigation in Bank-financed operations.

While all the country strategies in the region cover governance and anticorruption to varying degrees, the strategy for Bangladesh stands out in making governance a core, cross-cutting theme that is integrated into all of the Bank’s work in the country.

Although the challenges facing South Asia can seem daunting, the region’s ability to grow and to reduce poverty suggests that they can be overcome, and the World Bank is well equipped to support that effort.

World Bank Assistance

The Bank approved nearly $5.6 billion for South Asia in fiscal 2007, with $1.6 billion in loans from IBRD and $4 billion in IDA commitments, including $445 million in grants.

A new interim strategy note for Nepal was discussed by the Bank’s Executive Directors in fiscal 2007. The strategy emphasizes flexibility in helping Nepalis respond to historic opportunities in the transition to peace.

During fiscal 2007, the Bank continued its support for rural development, education, and health. Girls, members of formerly low-caste groups, and ethnic minorities in Nepal will benefit from a $60 million grant for the Second Higher Education Project. The Bank also supported India’s health sector with $672 million to improve reproductive and child health services, reduce mortality and morbidity from tuberculosis, and increase the use of essential health services in Karnataka. It also continued its support of India’s efforts to curb the spread of HIV/AIDS with a $250 million credit for the Third National HIV/AIDS Control Project. The project will assist the government in increasing prevention, care, and treatment interventions nationwide.

In conflict-ridden Sri Lanka, a new project will meet housing needs, provide safe drinking water and sanitation, improve drainage facilities, and regularize land titles for the 60,000 internally displaced people currently living in refugee camps. In Pakistan, a recently approved Bank project aims to improve the security of land tenure, which will increase access to land and credit, especially for the poor, whose rights remain largely unprotected.

Besides lending, a strong component of the Bank’s strategy is its analytic and advisory work. A recent report on Afghanistan’s poppy economy concluded that actions against drug traffickers have been marred by corruption and have failed to prevent the consolidation of the drug industry around fewer, more powerful, and politically connected actors. The Bank also undertook a regional HIV/AIDS study, a report on progress toward reaching the MDGs in Bangladesh, and a study on access to finance in Nepal.

Building the Climate for Investment

The 2006 edition of Doing Business in South Asia covered all eight countries in the region as well as major cities in Bangladesh, India, and Pakistan. Although doing business became easier in the region’s two largest countries—India and Pakistan—no other South Asian economies improved business regulations in 2005–06, causing the region to place last in the pace of global reforms.

The World Bank is working to address deficiencies in the region’s investment climate, such as weak infrastructure, excessive regulation, and corruption. In Afghanistan, the Bank provided a $25 million grant to improve the country’s investment climate and infrastructure facilities in key sectors such as electricity, water, and telecommunications. In Bangladesh, the Bank gave a $40 million credit to support the government’s plans to transform Bangladesh Railway into a well-managed, customer-focused organization.

Progress continues in reforming infrastructure policies in South Asia. India is reforming its port and road systems using $8 billion in public-private partnerships. The Bank supported this agenda in Punjab with a $250 million loan for the rehabilitation and expansion of the road network.

Fostering Participation in Development

The World Bank’s approach to participation in South Asia is to empower community groups to make development decisions, direct resources, and play a role in projects that affect them. The emphasis is on equity and the inclusion of poorer regions, communities, and households in development projects.

Under the Pakistan Poverty Alleviation Fund, some 10,000 community infrastructure projects have been completed that touch the lives of more than 2.5 million people in about 5,000 villages. More than half of these projects provide safe drinking water or access to sanitation. In fiscal 2007, the fund received additional financing of $138 million to address housing reconstruction in areas devastated by the earthquake that struck on October 8, 2005.

In Afghanistan, the Bank approved a $120 million grant for the Second National Solidarity Program, a community-led reconstruction and rural infrastructure initiative that has reached about 14 million rural people—74 percent of Afghanistan’s rural population—since its inception in 2002. More than 9,000 community development committees have received block grants to fund about 17,000 projects in water supply and sanitation, irrigation, rural energy, livelihoods, and transport infrastructure at the village level.

In India and Pakistan, the Bank is supporting livelihood programs that provide microfinance and self-employment opportunities to millions of poor women. In Andhra Pradesh, India, Bank-funded projects have helped some 8 million women build incomes, improve living standards, and even gain political influence by banding together in some 630,000 self-help groups. A similar operation—the $63 million Bihar Rural Livelihoods Project—was approved in fiscal 2007. The project is designed to support the social and economic empowerment of rural poor people in the state and is expected to directly benefit about 2.9 million people. (See www.worldbank.org/sar.)

South Asia Fast Facts

South Asia: Countries Eligible for World Bank Borrowing

The Promise of Regional Integration

World Bank Lending to Borrowers in South Asia by Theme and Sector

South Asia: Share of Total Lending by Theme and Sector

© 2007 The International Bank for Reconstruction and Development/The World Bank