World Bank gives South Asia a 'wake-up call' to reform for growth

Says high ratios of fiscal deficits and public debt to GDP are of particular concern

Growth in South Asia will dip in 2013-14 and countries must revitalize structural reforms to ensure their region returns to the ranks of the world's fastest-growing economies and cuts poverty, the World Bank said on Wednesday.

The development lender subtitled its semi-annual South Asia Economic Focus report "A Wake-Up Call" to alert India, Pakistan, Bangladesh and their smaller neighbors to address vulnerabilities laid bare by volatile capital flows in 2013.

"South Asia's performance has been trending downward," Philippe Le Houerou, World Bank vice president for the South Asia Region, told a news conference.

"All of a sudden, this is not the second-fastest growing region" after East Asia, he told reporters. "Even Europe is now taking over and then Africa," he said.

Martin Rama, the World Bank's chief economist for South Asia, said the shift of capital out of emerging economies as investors anticipated the unwinding of the US easy monetary policy had highlighted structural weakness in the region.

"The countries that were most affected were those that were perceived by investors, by capital markets, as the most vulnerable," he said.

"Those vulnerabilities are related to features that are quite unique in South Asia," added Rama.

Of particular concern in the region were high ratios of fiscal deficits and public debt to GDP, and inflation running twice as high as that of other regions, he said.

Le Houerou said it was critical to get South Asia back on track to higher growth in order to fight poverty, a central World Bank goal.

"The region has the most poor in the whole world," he said.

With 500 million people living in extreme poverty, South Asia - India, Pakistan, Bangladesh, Nepal Sri Lanka, The Maldives and Bhutan - has more poverty than Africa, Le Houerou said.

"The challenge is not to be happy with a five% growth rate," he added.

The bank has projected that regional GDP will grow by 4.4% in calendar 2013, 5.7% in 2014, and 6.2% in 2015. India, which accounts for 80% of South Asian GDP, would expand 4.7% in fiscal 2013-14, down from 5% the previous year, it said.