South Asia Buckles Under High Prices

With global energy markets on high alert for demand destruction, South Asia is a key area to watch. High oil, gas and coal prices have added to the economic turmoil caused by the pandemic in the import-dependent region. Pakistan and Sri Lanka are struggling to keep the lights on, while India and Bangladesh are dealing with slowing economic growth. All eight South Asian economies are net oil importers, making them particularly vulnerable to price shocks, particularly under a stronger dollar. India meets 85% of its oil, 50% of its gas and 25% its coal demand via imports. Pakistan imports 70% of its oil and 25% of its gas needs. Bangladesh meets about a fifth of its gas demand, and like Sri Lanka, imports almost all its crude. The region last witnessed oil prices of over $120 per barrel in 2008 but bounced back quickly. This time, the pain may hurt more since economies are still fragile from Covid-19 and high prices could stay longer due to supply issues. The World Bank recently cut its outlook for real GDP growth in South Asia this year to 6.8% from 7.6% in January.