According to the World Bank report, the GDP growth in India will be supported by a rebound in agriculture and stimulus from civil service pay reforms.
Washington: Driven by India's expected GDP growth of 7.7 percent in 2017 and 7.5 percent in 2016, the World Bank Monday forecasted gradual acceleration in South Asia's economic growth from 7.1 percent in 2016 to 7.3 percent in 2017.
Given its weight in the region, India sets the pace for South Asia as a whole, the World Bank said in its latest twice-a-year South Asia Economic Focus report.
India's economic activity is expected to accelerate from 7.5 percent in FY 2016 to 7.7 percent in FY 2017 based on the expectation of strong private investment, a push in infrastructure spending, an improved investment climate, and improved corporate and financial balance sheets, it said.
"South Asia has been resilient to global turbulence due to its limited exposure to slowdowns in other major economies coupled with the tailwinds of favourable oil prices, capital flows, and remittances," said Annette Dixon, World Bank South Asia Vice President.
"However, fiscal and financial vulnerabilities remain and countries should strive to address them through generating revenue and creating more fiscal space," it said.
According to the report, the GDP growth in India will be supported by a rebound in agriculture and stimulus from civil service pay reforms.
However, delays in the adoption and implementation of key reforms could affect investor sentiment, it said.
Favourable overall trends mask important underlying divergences: between urban and agricultural households; between domestic and external demand; and between public and private capital expenditure, which should be addressed, it noted.
In neighbouring Pakistan, growth is projected to accelerate modestly from 4.5 percent in 2016 to 4.8 percent in 2017, supported by growing industry and services and greater investment as well as buoyed by low oil prices and substantial remittances.
For sustained growth, Pakistan needs to address power cuts, a cumbersome business environment, and low access to finance through the successful implementation of tax and energy reforms, the report said.
In Sri Lanka the economic growth is expected to grow at 5.3 percent in 2016 and 2017 driven by increased public investment and postponed investments in 2015.
The challenging global environment has taken a toll on the economy with reduced exports and remittances; and significant capital outflows, leaving Sri Lanka with higher public debt, lower reserves and rising inflation, it said.
However in Nepal, still reeling under post 2015 earthquake and cross-border trade disruptions, it has projected a low 1.7 percent in 2016 compared to 3.4 percent in 2015.
Disruptions increased inflation to double digits, affecting the welfare of the poor and vulnerable, while reducing revenue collection and slowing reconstruction efforts.
Normalisation in Nepal is expected by the end of 2016, leading to strong rebound in 2017 with GDP expected to grow by 5.8 percent, the bank said.
Bhutan and Bangladesh are the two countries that are projected to grow at high six percent.
Bangladesh will see sustained growth at 6.8 percent in 2017 compared to 6.3 percent in 2016 with most economic indicators being stable.
However, the country should be cautious about political, trade and financial shocks, the report said.
Economic activity in Bhutan is expected to gain momentum with its GDP expected to grow at 6.8 percent in 2017 compared to 6.7 percent in 2016.
This solid performance is driven by new hydropower investments, government consumption, and spending.
Bhutan runs a large current account deficit of which half is related to hydropower.
Private sector development and asset diversification are keys to reducing vulnerability to donor finance and address rising youth unemployment, it said.
Afghanistan is projected to have a low growth rate.
It is expected to only marginally increase from 1.9 percent in 2016 to 2.9 percent in 2017, the Bank said.
Afghanistan's future prospects hinge critically on improvements in security tapping into new sources of economic growth and creating an enabling environment for the private sector to invest, the report said.