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p. 34 of 46 BACK | NEXT Moving the Poverty Reduction Agenda Forward: Priorities and Outcomes Strategic Priorities Crosscutting Strategic Themes Regional Perspectives East and Central Asia Mekong The Pacific South Asia Afghanistan Bangladesh Bhutan India Maldives Nepal Pakistan Sri Lanka Southeast Asia

Annual Report 2003 : Moving the Poverty Reduction Agenda Forward: Priorities and Outcomes

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South Asia

Economic growth in South Asian DMCs—Afghanistan, Bangladesh, Bhutan, India, Maldives, Nepal, Pakistan, and Sri Lanka—rebounded to 6.9% in 2003. Inflation remained at 5%, and the current account balance showed a surplus of 0.6% of GDP. Increased remittances from abroad and strong export growth allowed the rapid buildup of foreign exchange reserves; India’s alone reached $106 billion. This led to monetary expansion in some countries and its attendant pressure to appreciate exchange rates, especially against the US dollar.

A key factor in the improved economic performance was aboveaverage agriculture sector production due to exceptionally good rainfall. This led to a recovery in agriculture incomes that in turn boosted consumption and investment. Another factor was improvements in the global economy that increased exports. This, added to remittances and expansion in the service sector, especially in information technology, boosted domestic demand.

Fiscal consolidation frees up resources and encourages private investment. Several countries in the region made progress in this area by collecting more revenue and controlling expenditures. More needs to be done, however, particularly in India where the fiscal situation could deteriorate because of upcoming elections. Structural constraints will also inhibit sustainable growth. These include weak institutions and regulatory and legal frameworks and inadequate competition in the manufacturing sector due to policy restrictions, labor market inflexibility, corruption, and poor governance. In the medium term, the South Asian countries must address their fiscal problems or rising imbalances could hamper future growth.

Most loan projects in the region are designed to contribute to the MDG of eradicating extreme poverty and hunger.

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