South Asia’s reliance on state-led development is concealing vulnerabilities to growing levels of unsustainable debt that could lead to financial crises, the World Bank warned.
Governments in the region, including India and Pakistan, are exposed to the risk of “hidden debt” via funding guarantees by State-owned banks and enterprises, as well as public-private partnerships, the World Bank said in a report on Tuesday, which also included policy reforms to help alleviate the risks.
“While the government must lead in reform, it takes a concerted effort by society to ensure that the off–balance sheet operations of government serve the right socioeconomic purpose and responsibly leverage public capital,” the bank said in the report. “Falling short of this task, South Asian countries face the threat of possible financial crises soon.”
The World Bank’s recommendations include clearly defining the purpose of…