The global financial crisis hit South Asia at a time when it had barely recovered from severe terms of trade shock resulting from the global food and fuel price crisis. The food and fuel price shocks had badly affected South Asia, with cumulative income loss ranging from 34 percent of 2002 GDP for Maldives to 8 percent for Bangladesh. Current account and fiscal balances have worsened sharply and inflation has surged to unprecedented levels.
Pakistan, Sri Lanka, and Maldives were particularly vulnerable because difficult political and social environments prevented adequate policy measures to adjust to the terms of trade shock. Additionally, their reliance on foreign funding has been relatively large. The global financial crisis worsened their macroeconomic difficulties as sources of funding contracted. Although India was well advanced in responding to the food and fuel price crisis and has generally maintained prudent macroeconomic management, the magnitude of the financial crisis has hit India very hard because of its strong connectivity to global financial markets.
Bangladesh, Nepal, and Bhutan have been mostly insulated from the first round effects of the financial crisis owing partly to sound macroeconomic management, but also because of the underdeveloped nature of the financial markets that are not well connected to international markets. They are however vulnerable to the second round effects of a global economic slowdown working through export earnings, tourism receipts, remittances and external financing for infrastructure. Issues in Afghanistan are much more complex and relate more to security and the political environment rather than the impact of global financial crisis.
The recent slide in food and fuel prices has provided South Asia with a welcome relief. But overall, the evidence suggests that growth, investment, exports and employment have been hurt. The outlook for 2009 is bleak as the global downturn deepens further. Growth in South Asia decelerated in 2008, falling from 8 percent in 2007 to 6 percent. It is projected to decline to 5 percent in 2009, before recovering to 6 percent in 2010.
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Additional Resources
- Global Financial Crisis
Are storms gathering over South Asia. (Read More »)
- World Food Prices: South Asia's poor at risk
Expanding existing social assistance programs that directly targets poor households is necessary to protect South Asia’s poor. (Read More »)
- World Food Prices: Revival of Agriculture is Key
In recent years agricultural growth in South Asia has been less than 3 percent, far below the growth rates of other economic sectors. (Read More »)
- U.S. Subprime Mortgage Crisis: South Asia will continue to grow
The impact will be mild because of the structure of the region’s trade and financial flows, and partly because of compensating effects. (Read More »)
- South Asia: Development Data
A wide range of social and economic measures on South Asia, including links to the World Bank's most important online development databases. (Read More »)
- South Asia: Analysis and Research
Compilation of all the World Bank's publications on South Asia, with 'search' options and links to analysis and research on other South Asian countries. (Read More »)
- World Bank Program in South Asia
Launching pad to all information on World Bank activities in Afghanistan, Bangladesh, Bhutan, India, Maldives, Nepal, Pakistan, and Sri Lanka.(Read More »)
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