Led by solid performance in India, economic growth in South Asia is expected to gradually accelerate from 7.1% in 2016 to 7.3% in 2017.

South Asia remains a global growth hotspot and has proven resilient to external headwinds such as China's slowdown, uncertainty around stimulus policy in advanced economies, and slowing remittances. The main challenges remain domestic, and include policy uncertainty as well as fiscal and financial vulnerabilities.

A reality check on the state of private investment in South Asia shows that the region has fallen short of expectations. Mobilizing domestic savings remains key at the aggregate level.

However, remittances and foreign direct investment prove very effective on a per-dollar basis, and the region should make the most of them. India can further rely on public infrastructure to crowd-in private investment, while finance may constrain investment in Pakistan. The business cycle matters all across the region, providing a potential accelerator from GDP growth to investment growth.

Ultimately, the investment climate sets the broader stage. Alas, most South Asian economies suffer from a challenging business environment and some are subject to broader uncertainty and insecurity, which is detrimental to investor confidence.

"Political economy risks are widespread across South Asia, and uncertainty will need to be managed, particularly with a view to creating an attractive environment for domestic and foreign investment alike," said World Bank South Asia Region's Chief Economist Martin Rama.

"Delivering the necessary energy, infrastructure, and regulatory improvements remains critically important to increasing private investment, thus boosting job creation and reducing poverty."

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