Special Tariff Edition : South Asian Macro Watch - May 2025
The Big Picture
South Asia moved through May facing a mix of external pressures and domestic adjustments. The global tariff environment continues to be uncertain, with rising trade barriers beginning to affect export performance across parts of the region. While South Asia’s overall trade exposure remains relatively modest compared to other Asian regions, the indirect impact is starting to show, specially in sectors like apparel and electronics that rely on stable access to global markets.
Countries are responding in different ways. India continued to strengthen its trade ties, with the long awaited UK–India free trade agreement marking a key development this month. Bangladesh, though facing near term disruptions in its garment sector, is progressing with structural reforms, including a more flexible exchange rate.
On the other hand, tensions between India and Pakistan have resurfaced. While the direct economic fallout remains contained, Pakistan’s move to close its airspace to Indian flights has led to a decline in overflight revenues, adding further pressure to its already strained external position. Rating agencies have flagged this as a risk, though India’s broader outlook remains steady, supported by lower inflation and growing domestic demand.
Elsewhere in the region, there are signs of gradual progress. Bangladesh’s foreign reserves have improved, helped by rising remittances. Sri Lanka secured a new World Bank support package focused on job creation and private sector growth. The Maldives is pursuing long-term diversification through a new financial hub project, though funding and regulatory concerns remain.
Overall, the region continues to adjust to a more uncertain external environment. Global trade conditions, political developments, and financing constraints are shaping near-term decisions. While South Asia remains on a recovery path, the pace and strength of that recovery will depend on how effectively each country manages its domestic challenges and responds to external shifts.
The report covers further details, including:
1. Tariff impact and government response of each country.
2. Top 3 things you should know about the regional countries.
3. Summary of key economic indicators for the month.
4. Key news articles in detail.
For limited time access to the full note, please reach out to us on research@frontiergroup.info. Clients who have access to Frontier Athena can visit athena.frontiergroup.info
(Frontier Research is a Colombo-based firm that engages in macroeconomic research and advisory for corporate and investment clients on Sri Lanka, South Asia, and South East Asia.)