South Asia’s outlook is shaped by both good and bad news in the global economy. Lower commodity prices, a strong recovery in the services sector, and reduced disruptions in value chains are aiding South Asia’s recovery but rising interest rates and uncertainty in financial markets are putting downward pressure on the region’s economies. Countries in South Asia, especially those with large external debt, face difficult tradeoffs as they respond to these pressures. Growth prospects have weakened, with large downside risks in most countries given limited fiscal space and depleting foreign reserves. Going forward, broad reform programs, including a sustainable fiscal outlook, are needed to put South Asia on a more robust and inclusive growth path. Inequality of opportunity, which is higher in South Asia than in other regions of the world, is both unfair and inefficient. Reducing inequality of opportunity and increasing economic mobility will help broaden countries’ tax base and boost support from the population for the critical reforms.
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