ISLAMABAD, April 20: South Asia's GDP is bound to grow 7.2 per cent in 2004 owing to many reasons, including improved relations between India and Pakistan. The World Bank report, "Global Development Finance 2004" released on Tuesday said the outsourcing from OECD countries, IT exports from India, new regional trade initiatives, improved relations between India and Pakistan and continued reforms will contribute to the region's achieving this record growth next year.

Propelled by rising consumer and investment demand and good rains in India, South Asia reached 6.5 per cent growth in 2003. Workers' remittances and growing foreign direct investments are also increasingly important factors in South Asia's growth and prospects.

"Maintaining such high levels of growth is possible," said Shantayanan Devaragan, chief economist of the South Asia region at the World Bank. "But challenges, such as inadequate infrastructure, and anaemic growth in poor regions - not to mention large fiscal deficit in certain countries - need to be addressed for growth to be sustained over time."

Foreign reserves have more than doubled, with India and Pakistan leading the region, thanks to sharply rising workers' remittances, foreign direct investment and portfolio equity flows.

Globally, the report noted that net private capital flows to developing countries as a whole rebounded to $200bn in 2003, up from $155bn in 2002, but most of the increase is concentrated in just a few relatively better-off countries, while official development assistance to poor nations increased only marginally.

The report said despite the overall increase in capital flows to developing countries, however, net resource transfers from rich to poor countries remained negative. Also net ODA rose by only $6 billion to $58 billion in 2003, with half of this increase is accounted for in debt relief and some administrative costs to donor agencies, rather than new resources to developing nations. Another $1 billion of the increase consists of new flows to Afghanistan and Pakistan.

In south Asia, workers remittances brought in $18.2 billion to the region in 2003, as compared to $13.1 billion in 2002. India remained the second largest recipients of remittances worldwide with $8.4bn.

In Pakistan, receipts from remittances tripled between 2001 and 2003 and in Bangladesh, remittance flows increased by nearly 50 per cent during the same period. Pakistan was not the only country that reduced its external debt. Total external debt of the developing countries was 37 per cent of GDP in 2003, down from 44 per cent in 1999, the report said.