Ukraine war will slow down post-Covid recovery in South Asia: World Bank

13 April 2022

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Washington, Apr 13:The World Bank has said in a new report that the war in Ukraine will slow down South Asian countries recovery from economic devastation caused by the Covid-19 pandemic, though the impact on India will be “moderate” compared to some of other countries that are already feeling the brunt of it.

The World Bank said that the Indian economy will grow at 8 per cent, which is slightly less than 2021, dding that the lingering impact of the investment programmes will keep the economy growing in the first half of 2022-23.

“The negative impact of the war in Ukraine on FY2022/23 growth is expected to be moderate, so growth will begin to taper off in the second half of 2022,” the report said.

The World Bank attributes its India projection to constrained purchase by Indian households, incomplete recovery of the labour market in which unskilled workers were hit the hardest, and inflation.

On the negative side, business expectations and investment, which had improved, might sour amid elevated input prices and a faster-than-anticipated increase in borrowing costs, the World Bank said, adding that the travel services balance may improve as India allows international flights to resume, while exports of computer and professional services are expected to remain strong.

Other countries of the region are projected to be hit harder by the war and they are already dealing with its impact, such as the balance of payment crisis in Sri Lanka, crisis in Pakistan, and the humanitarian disaster in Afghanistan.

“South Asia has faced multiple shocks in the past two years, including the scarring effects of the Covid-19 pandemic. High oil and food prices caused by the war in Ukraine will have a strong negative impact on people’s real incomes,” Hartwig Schafer, World Bank Vice President for South Asia, said in a statement released along with the report.

“Given these challenges, governments need to carefully plan monetary and fiscal policies to counter external shocks and protect the vulnerable, while laying the foundation for green, resilient and inclusive growth,” Schafer added.

The war will severely reduce the inflow of tourists to Maldives, a mainstay of its economy, especially from Russia and Ukraine, while it deals with large energy import bills.

The report said that in Sri Lanka, the economic outlook is “highly uncertain; higher food prices will further exacerbate food insecurity in Afghanistan; and the most serious challenge facing Pakistan will be its energy subsidies, which are the largest in the region. And Bangladesh will be hit by weakened demand in Europe for its exports”.

The war has also brought the region an opportunity to review its reliance on oil and fuel, the World Bank said, adding that it can provide a much-needed “impetus to reduce reliance on fuel imports”.

The report recommends that countries should “steer away from inefficient fuel subsidies that tend to benefit wealthier households and deplete public resources”, and move towards a greener economy by gradually introducing taxation that puts tariffs on products which cause environmental damage.

“The introduction of green taxation can have multiple quantifiable benefits for South Asia, including improved energy security, environmental gains and increased fiscal revenues,” said Hans Timmer, World Bank Chief Economist for the South Asian Region.

“These revenues could be utilised for adaptation against climate-related disasters and to strengthen social safety net systems,” Timmer added.