Amid the onset of the global crisis in September 2008, GDP growth in South Asia registered a relatively resilient 7.1 percent in 2008, albeit down significantly from the robust 8.7 percent outturn of 2007, on a calendar-year basis.
This 1.6 percentage point falloff in growth compares favorably with the 3.4 and 2.9 percentage point declines in the East Asia and Pacific and Europe and Central Asia regions.
South Asia’s economies have been cushioned somewhat from the real-side effects of the crisis because exports represent a relatively small share of the region’s GDP and because their financial market integration is limited.
Production is less specialized in manufacturing or natural resources—sectors that have been hit particularly hard by the crisis.
Real incomes and consumer demand in the region have been bolstered by the collapse in global commodity prices, notably that of oil.
However, employment of migrant workers and remittances inflows to the region are facing strong headwinds in the wake of the fall-off in activity in high-income host countries.
A number of economies have been forced to undertake sharp adjustment measures to address macroeconomic imbalances, which has led to a slowdown in domestic demand.
Pakistan faced a balance of-payments crisis in the second half of 2008, eventually reaching an agreement with the IMF toward the end of the year. Sri Lanka—currently in discussion with the IMF on a stand-by facility (as of end-May)—and the Maldives are also struggling with large imbalances, especially so in the Maldives where the current account deficit surged to 53 percent of GDP and the fiscal deficit increased to 14 percent of GDP.
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