WASHINGTON, Sept 3: Economic growth in South Asia remains unharmed by a slow global economy and is expected to accelerate in 2003, says the World Bank in its annual report released on Wednesday.

A projected higher growth in India has contributed to this healthy trend in the South Asian region, the report adds.

At an expected rate of two percent in 2003, the global economy lags behind its potential for the third year in a row, the report says. But growth in South Asia is expected to accelerate to 5.4 per cent, says the World Bank report ‘Global Economic Prospects 2004: Realising the Development Promise of the Doha Agenda’.

“A projection of higher growth in India underpins this forecast, predicted on the continued growth of the service sector in the country. Pakistan, Bangladesh and Sri Lanka are expected to benefit from the continued macroeconomic stability and implementation of structural reforms,” the report says.

“Nepal is also expected to experience strengthened growth, assuming continued implementation of reforms and improvement in the security situation, along with a recovery in tourism receipt and domestic demand.”

The report points out that despite inequities in world trading system, including trade barriers and a higher tariff that drag down export growth of developing countries, India had helped to drive the export growth in South Asia.

“Driven largely by a recovery in India’s exports, trade volume growth accelerated for the region on average, despite sluggish external demand. Current account balances in both India and Pakistan posted surpluses, and in Bangladesh, the current account balance improved significantly,” the report noted.

During 2002-03, India’s export witnessed a high 19.18 per cent growth to notch a record $52.2 billion. This year too India was hopeful of recording 12 per cent growth in exports with the global demand picking up.

The World Bank report notes that remittances played a major role in the economic growth of the region as a number of countries, including India, Bangladesh, Pakistan and Sri Lanka, recorded a significant increase in inflows.

Higher remittances saw India’s foreign exchange reserves rise to a record $85.56 billion.

“Throughout the region, inflation remained stable and some progress was made in the consolidation of fiscal deficits,” the report said.

Assuming a return to normal agriculture production, as in the case of India helped by a good monsoon, and a recovery in external demand and continued improvements in political stability and regional security, the World Bank expects South Asia region to record 5.4 per cent growth this year, up from 4.2 per cent in 2002.

Adding a cautionary note, the World Bank report says that the forthcoming phase out of the agreement on textiles and clothing from January 2005 could result in increased competition for Bangladesh and Sri Lanka in particular as garment exports accounted for bulk of merchandise trade from these countries.

Should these risks prevail along with other geopolitical, weather and other global economic conditions, the growth prospects could be adversely affected.

On the plus side, the multilateral body has stressed that progress in the WTO negotiations in eliminating or reducing trade barriers for developing countries would be a sure recipe to spur global trade and eventually raise incomes across the world.