The South Asia Macro Watch - February 2026
South Asia has got off to a positive start in 2026, despite risks still remaining. A major highlight during the past month was the trade deals signed by countries in the region and increasing bilateral relationships, along with the elections in Bangladesh. Overall, the region has seen improving fiscal and external conditions, though at different levels for each nation.
During the past month, India got off to a good start by securing a much-needed trade deal with the US, lowering tariffs to 18% compared to the higher rates of 25% imposed earlier. While this can create some space for exports to the US to further grow compared to last year, given the comparable tariff rates across other competitive nations in the region, the higher prices could still damper US demand for Indian exports to some extent. On the other hand, India also finalized its long-standing trade deal with the EU, which could create more opportunities in the years to come. However, something to note is that most trade deals signed by South Asian nations have created some noise at the beginning but have later failed to materialize and reap full benefits as expected.
Bangladesh, on the other hand, has finally seen through its long-awaited elections post the Sheikh Hasina era, and the newly appointed party would ideally intend to bring much more stability to the nation. Along with this, Bangladesh has also been able to marginally lower its US tariff rates further, while providing preferential access to the US in Bangladesh markets. Adding to the positives is the continuous improvement in remittance inflows to the country, which is helping stabilize the balance of payments current account, despite inflation being slightly higher than anticipated.
The Maldives and Sri Lanka continue to record high tourism inflows during the peak season right now, and it is helping the countries’ foreign inflows. Foreign reserves in both nations, despite not being at their highest, have marginally risen, giving some stability on the external front. Further, Sri Lanka is seeing a significant increase in private sector credit-led growth while maintaining twin surpluses for the third consecutive year now.
Overall, the start of 2026 has broadly remained positive for the region, despite underlying challenges of high debt and climate-related risks still remaining. However, the positive momentum could potentially create a buffer to act against any shocks that could materialize if they do.
The full report full report covers further details, including:
1. Top 3 things you should know about the regional countries.
2. Summary of key economic indicators for the month.
3. Key news articles in detail,
Clients with access to Frontier Athena can view the full report at athena.frontiergroup.info. For limited-time access, please contact us at research@frontier.info