The World Bank’s latest South Asia Development Update, titled “Taxing Times”, paints a sobering picture of the region’s economic outlook for 2025. Here’s a quick summary and key takeaways:
📉 Slower Growth Ahead
- Regional Growth Forecast:
Projected at 5.8% in 2025, down 0.4 percentage points from the October forecast.
A modest recovery to 6.1% is expected in 2026. - Country-specific Highlights:
- India: Growth to slow from 6.5% (FY24/25) to 6.3% (FY25/26). While private investment benefits from policy measures, global headwinds and policy uncertainty act as drags.
- Bangladesh: Slowing to 3.3% in FY24/25 due to political and financial challenges. Recovery downgraded to 4.9% in FY25/26.
- Pakistan: Gradual recovery projected — 2.7% in FY24/25, rising to 3.1% in FY25/26, as it rebuilds from natural disasters and inflationary shocks.
- Sri Lanka: Expected rebound in 2025 at 3.5%, dipping slightly to 3.1% in 2026, aided by debt restructuring and investment.
🧾 Tax Reforms: A Priority
- Despite relatively high tax rates, South Asia lags in tax collection:
- Average govt revenue (2019–23): 18% of GDP
vs. 24% in other developing economies. - Tax gaps: Estimated at 1–7 percentage points of GDP below potential.
- Average govt revenue (2019–23): 18% of GDP
- Challenges:
- Widespread informal economy.
- Large agricultural sector.
- Complex and loophole-ridden tax systems.
- Weak tax administration.
- Recommendations:
- Remove exemptions and loopholes.
- Simplify and unify tax regimes.
- Boost compliance via digital tools and taxpayer tracking.
- Strengthen enforcement and streamline processes to lower the cost of formalization.
💬 World Bank Commentary
“Low revenues are at the root of South Asia’s fiscal fragility… especially in times of elevated uncertainty.”
— Franziska Ohnsorge, Chief Economist, South Asia
“Now is the time to open to trade, modernise agriculture, and boost private sector dynamism.”
— Martin Raiser, VP, South Asia
Economic Growth in South Asia is expected to slow down in 2025: The World Bank
Before the 6.1 recovery in 2026, the forecast for October is expected to be 5.8%, 0.4% points (PPT). By increasing domestic income mobilization, the region can strengthen its fragile financial position and increase its resilience to future shocks, the World Bank said in its forecast for two annual regions. And political uncertainty.
In Bangladesh, growth in the fiscal year, which is related to political uncertainty and sustained financial challenges, is expected to be slowed by 3.3% from 24/25 fiscal year, and GJ25/26’s growth return is expected to be downgraded to 4.9%. GJ24/25 and 3.1% on GJ25/26.
In Sri Lanka, the government is making further advances in restructuring of Sri Lanka’s debt, with the projected backlash of investment and external demand expected to increase growth by 3.5% in 2025. It’s now time to modernize the agricultural sector and increase private sector dynamics to unleash resistance and faster growth and job creation. Tax rates in South Asia often exceed the average in developing countries, but most tax revenues are low. On average in 2019, South Asia’s state income was 18% of GDP, among the 24% of GDP average in other developing countries. The revenue shortage is particularly pronounced in sales taxes, but also substantial in corporate and individual income taxes, the World Bank said in a press release. This lack is explained in part by widespread informality and the large agricultural sector in the region. However, even after taking into account these significant taxes, there is still a need for improved tax policy and management. Tax duties in South Asia are relatively high, but the survey is weak so those paying taxes at high loads pay insufficient funds to improve basic services. This includes refusing to tax exemptions. Simplification and standardization of tax systems to reduce incentives for operation in the informal sector. The use of digital technology to identify taxpayers and promote collections.
