The economic landscape in South Asia and developing Asia shows a mixed picture of recovery and challenges as we enter 2024–2025. Revised projections from the Asian Development Bank (ADB) and the Asian Development Outlook (ADO) reflect optimism for some economies like Pakistan and Sri Lanka, while highlighting setbacks for others such as India, Bangladesh, and the Maldives. Amid macroeconomic stabilization efforts and recovery from past challenges, regional growth is also being shaped by external factors, including geopolitical tensions, shifting global policies, and domestic demand fluctuations.

The Asian Development Bank (ADB) has adjusted Pakistan’s economic growth forecast for the fiscal year 2024-25, raising it to 3.0% from the earlier estimate of 2.8% made in September 2024. According to the ADB, this improvement is linked to greater macroeconomic stability following the implementation of a new International Monetary Fund (IMF) programme under the Extended Fund Facility, which is expected to support economic recovery. The report highlights that industrial growth is likely to pick up, aided by the removal of import restrictions, increased investor confidence, and improved access to foreign currency.

Additionally, Pakistan’s total foreign exchange reserves hit a three-year high of $18.7 billion in November 2024, bolstering the country’s external account. In the first five months of FY25, the country posted a current account surplus of $944 million, a significant turnaround from the $1.67 billion deficit recorded during the same period last year. As of January 3, the State Bank of Pakistan (SBP) reported foreign exchange reserves of $11.7 billion, enough to cover over two months of imports.

Workers’ remittances also surged, reaching $3.1 billion in December 2024, marking a 29.3% year-on-year increase and a 5.6% rise compared to November 2024. During the first half of FY25 (H1FY25), remittances totaled $17.8 billion, a 32.8% jump from the $13.4 billion recorded in H1FY24. This improvement is attributed to measures taken by the interim and subsequent governments, including crackdowns on goods and currency smuggling and stricter documentation processes. The government also narrowed the gap between dollar-rupee exchange rates in the open market, grey market, and interbank system by enforcing stricter regulations and revoking licenses of non-compliant entities. For the first time, law enforcement agencies and bank officials were held accountable for their involvement in illegal money transfers via Hawala and Hundi networks.

Inflation in Pakistan dropped sharply to 1.8% year-on-year in the week ending January 9, down from 3.97% the previous week. This marks the lowest inflation rate since October 2014, a significant improvement from the record high of 48.35% in May 2023, according to data from the Pakistan Bureau of Statistics (PBS). Economists attribute this decline to a high base effect but caution that consumers are still feeling the effects of previous price hikes.

Looking ahead, a more relaxed monetary policy, driven by faster-than-expected inflationary easing, is expected to boost private investment and economic activity. However, challenges remain in the agricultural sector, with heavy monsoon rains and flood-like conditions in mid-2024 likely to impact key crops such as wheat and cotton, which may hinder overall growth in FY25.

The Asian Development Outlook (ADO) has revised its growth forecast for Pakistan in FY2024 upwards to 2.5%, aligning with the updated official estimates. However, in South Asia, overall growth projections have been downgraded to 5.9% for 2024 and 6.3% for 2025. The reduction for 2024 is attributed primarily to weaker-than-expected second-quarter growth in India, stemming from a subdued manufacturing sector and slower government spending.

While Pakistan and Sri Lanka’s growth forecasts have been upgraded due to their recovery from the economic challenges of 2022–2023, projections for Bangladesh and the Maldives have been revised downward. In Bangladesh, the lingering effects of political unrest in July-August 2024 have dampened the outlook, while fiscal consolidation measures in the Maldives have contributed to slower growth expectations for both 2024 and 2025. Nepal’s growth outlook for 2025 has also weakened relative to earlier forecasts.

For developing Asia, the report trims growth projections to 4.9% for 2024 and 4.8% for 2025. The revised figures reflect adjustments based on recent economic data, with lower forecasts for East and South Asia offsetting stronger growth in regions such as the Caucasus, Central Asia, and Southeast Asia. This balance has reduced the region’s overall 2024 growth by 0.1%. For 2025, South Asia is expected to experience slower growth, primarily due to weaker domestic demand prospects.

Despite these challenges, developing Asia continues to demonstrate solid growth, supported by robust domestic demand and exports, although the pace has moderated. However, the global environment presents risks. The incoming U.S. administration under Trump is expected to bring significant policy changes, which could have implications for the region. Although most impacts are anticipated beyond the current forecast horizon, there are concerns about faster-than-expected shifts in U.S. policies, heightened geopolitical tensions, and a further decline in China’s property market.

The ADO emphasizes that while growth projections for 2024–2025 remain largely stable compared to September’s outlook, downside risks persist and could affect the region’s economic trajectory in the near term.

While South Asia and developing Asia are navigating a path toward economic recovery, the journey is marked by disparities among individual economies and ongoing global uncertainties. Countries like Pakistan and Sri Lanka have shown promising signs of overcoming past macroeconomic instability, but others, including Bangladesh and the Maldives, face persistent hurdles from political unrest and fiscal pressures. Regional growth remains solid, supported by strong domestic demand and export activity, yet risks such as policy shifts in the U.S., geopolitical tensions, and vulnerabilities in China’s property market loom large. Sustained recovery will depend on proactive policy responses, regional cooperation, and resilience in the face of these challenges.