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Ms. Manuela Goretti, Mr. Daisaku Kihara, Mr. Ranil M Salgado, and Ms. Anne Marie Gulde
Since the mid-1980s, durable reforms coupled with prudent macroeconomic management have brought steady progress to the South Asia region, making it one of the world’s fastest growing regions. Real GDP growth has steadily increased from an average of about 3 percent in the 1970s to 7 percent over the last decade. Although growth trajectories varied across countries, reforms supported strong per capita income growth in the region, lifting over 200 million people out of poverty in the last three decades. Today, South Asia accounts for one-fifth of the world’s population and, thanks to India’s increasing performance, contributes to over 15 percent of global growth. Looking ahead, the authors find that South Asia is poised to play an even bigger role in the global economy, in both relative and absolute terms. India has overtaken China as the fastest growing large economy and South Asia’s contribution to global growth is set to increase, while more mature economies decelerate. Greater economic diversification, with an expansion of the service sector, improvements in education, and a still sizable demographic dividend are among the key elements underpinning this performance. Based on demographic trends, more than 150 million people in the region are expected to enter the labor market by 2030. This young and large workforce can be South Asia’s strength, if supported by a successful high-quality and job-rich growth strategy. Amid a changing global economic landscape, the authors argue that South Asia will need to leverage on all sectors of the economy in a balanced way, supporting improvements in agricultural productivity and a sustainable expansion of manufacturing, while promoting higher-skill services, to achieve this goal.
Sérgio Pereira Leite and Mr. V. Sundararajan

. However, if rates are not at acceptable levels, a strategy needs to be designed to move them to more realistic levels. Section III discusses the transition from fixed to market-determined interest rates. For many countries, this transition can be traumatic if not properly managed. Thus, the monetary authorities should plan the proposed liberalization path carefully, so as to achieve this goal with minimal side effects to the economy. Section IV examines government intervention in the economy and its relevance for interest rate policies, focusing on the impact of

International Monetary Fund

with additional interest payments of more than 1½ percent of GDP by 2013, which in combination with the sharply declining GDP growth, levels off the long-term public debt path. In sum, an increase in the foreign currency premium would keep the 2020 public debt level more than 15 percent of GDP higher than under the main scenarios if the fiscal consolidation is delayed. This points to a need to carefully coordinate the fiscal adjustment path with the capital control liberalization path. Impact of a 200 Basis Point Increase in the FX Premium on Public Debt Dynamics

International Monetary Fund

interest rate changes so as to keep these rates always adequate. However, if rates are not at acceptable levels, a strategy needs to be designed to move them to more realistic levels. The experience of many countries which have undertaken this process of interest rate liberalization shows that the transition process from rigid interest rates to a system of more flexible and market-determined rates can be traumatic if not properly managed. Thus, the monetary authorities should plan carefully the proposed liberalization path so as to achieve this goal with minimal side

International Monetary Fund. Asia and Pacific Dept

. Figure 17. Poverty (Share of population below US$1.90 per day (2011, PPP), percent) Source: World Bank World Development Indicators. Note: PPP = purchasing power parity. South Asia’s liberalization path has been associated with increased diversification of exports and economic structures. Most economies in the region leapfrogged from producing raw agricultural products to services ( Figure 18 ). India’s success in the service sector has been especially remarkable as its share of the world’s information and communication technologies service exports almost

Ms. Manuela Goretti, Mr. Daisaku Kihara, Mr. Ranil M Salgado, and Ms. Anne Marie Gulde

Sources: Fraser Institute, Human Freedom Index; World Integrated Trade Solution database; WEO, and IMF staff calculations. South Asia’s liberalization path has been associated with greater diversification of exports—from raw products to services and garments. India managed to transition from exporting tea and fabrics to a more sophisticated export basket of services—car parts, capital goods, and pharmaceuticals—raising its export diversification to a level broadly comparable to that of regional peers, although still below China and more advanced countries in terms

International Monetary Fund
This paper discusses the transition strategy from administratively set interest rates to market rates. Despite worldwide trends toward financial liberalization, few monetary authorities are prepared to accept as reasonable any interest rate level that is market-determined. The paper suggests some helpful indicators to assess the adequacy of interest rates. It discusses factors which contribute to a smooth liberalization process. The main conclusion is that interest rate liberalization is not synonymous with laissez-faire policies. It requires, however, the replacement of the administratively set interest rates by indirect monetary management techniques which operate through the market.
Weicheng Lian, Fei Liu, Katsiaryna Svirydzenka, and Biying Zhu

less viable to more viable sectors. In this paper, we document South Asia 1 ’s progress on diversification and explore policy options to promote greater export diversification and economic complexity. The main findings of this paper are as follows: South Asia’s liberalization path has been associated with greater diversification of exports – from raw agricultural to garments and services. However, there is still substantial scope to increase the diversity of South Asian exports to catch up with its neighbors. India, Nepal, and Sri Lanka are especially well

Weicheng Lian, Fei Liu, Katsiaryna Svirydzenka, and Biying Zhu
While South Asia has gone a long way in diversifying their economies, there is substantial scope to do more. Some countries – India, Nepal, and Sri Lanka – can build on their existing production capabilities; others – Bangladesh, Bhutan, and the Maldives – would need to undertake a more concerted push. We identify key policies from a large set of potential determinants that explain the variation in export diversification and complexity across 189 countries from 1962 to 2018. Our analysis suggests that South Asia needs to invest in infrastructure, education, and R&D, facilitate bank credit to productive companies, and open to trade in order to diversify and move up the value chains. Given the COVID-19 pandemic, investing in digital technologies as part of the infrastructure push and improving education are of even greater importance to facilitate the ability to work remotely and assist resource reallocation away from the less viable sectors.
International Monetary Fund
In this study, during 2008, the financial crisis lead Iceland’s public debt to soar from under 30 percent of GDP to more than 100 percent of GDP, and while underlying external debt came down sharply, it remains elevated at close to 300 percent of GDP. First, external sustainability is overviewed, and second, growth of Iceland’s economy has been challenged, and finally, fiscal adjustments and its macroeconomic impacts are overviewed. Traditional external debt sustainability analysis (DSA) suggests that Iceland’s external debt is sustainable but is vulnerable to depreciation shock.