Regional highlights: South Asia
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South Asia continues its upward trend and competitiveness improves in most economies in the region, which is experiencing positive economic momentum, and in 2016 is set to grow more quickly than China for the first time in more than 20 years. Over the past decade, the subcontinent has focused on improving overall health and primary education levels and upgrading infrastructure, areas of particular importance for future diversification and preparedness given the resource-driven nature of the regional economies.
In the health and primary education and the infrastructure pillars, South Asia’s average score has increased by 0.5 and 0.3 respectively since 2007, but infrastructure remains the region’s second weakest pillar, just after technological readiness. Investment in these areas will be vital to fully unlock economic growth. As they move up the development ladder, it will also be increasingly important for South Asian economies to establish competitiveness agendas to improve the functioning of their labor and financial markets, which have deteriorated over the last 10 years (Figure 12).
The region remains diverse, with a core of three heavyweight economies—India, Pakistan, and Bangladesh—surrounded by smaller ones such as Bhutan, Nepal, and Sri Lanka, each with its own peculiarities and unique development path (Figure 13). Since 2007, the gap between the best- and worst-performing economies in the region has increased in some of the drivers of competitiveness, mostly as a result of the deteriorating situation in Pakistan. The quality of infrastructure has improved significantly (although from low levels) in India, Bangladesh, and Sri Lanka, while it stalls in Nepal and deteriorates in Pakistan. Pakistan is also the only economy that fails to improve its macroeconomic environment and health and primary education levels, falling behind other South Asian economies. Financial market development remains poor across the entire region, as does technological readiness; this last area improves significantly only in Bangladesh and Sri Lanka, which overtook India to become the best performer in this pillar in the region.
India leads the group of South Asian economies, climbing to 39th with improvements across the board, including institutions and infrastructure (42nd and 68th), which have been particularly important in increasing overall competitiveness (see Box 6).
The most advanced economy in the region, Sri Lanka, slips three positions to 71st, but with a stable score. After years of conflict, the country needs to concentrate on triggering the efficiencies that will drive further growth—for example, by restructuring the labor market and investing in technological readiness, where it lags significantly behind economies at a similar stage of development. The two Himalayan economies, Bhutan (97th) and Nepal (98th), both improve their positions this year, by eight places and one place, respectively. Infrastructure and connectivity are bottlenecks for both economies but, thanks to heavy investments in hydroelectric power, Bhutan can rely on a high-quality electricity supply (41st). Nepal boasts the best macroeconomic environment in the region and, after significant recent improvement, the second highest level of health and primary education.
Pakistan trails the group of South Asian economies. Its upward trend of recent years continues with an advance of four places to 122nd, although its score is still below the 2007 level. The climate of instability during this period has surely weighed down the country’s economic development.