The South Asia Macro Watch - March 2026

The South Asian region has been recovering and has maintained its positive momentum in the past year. India was able to secure a favourable tariff deal with the US, Bangladesh successfully carried out its elections, Sri Lanka continued on its consistent path, recording twin surpluses, and Maldives saw a boom in tourism during the peak season. However, the region is now heavily impacted by the Middle East war, which brings both immediate and longer-term risks. The most immediate and obvious impact on the region is the rise in oil import costs. With crude oil prices at least 50% higher than pre-war levels, South Asian countries, which are primarily oil importers, will begin to feel the pressure. However, the impact of rising oil prices will be lower than in the past, as there has been an increase in solar power generation across the region, which can offset some of the price increases through a slight reduction in volume demand. Nevertheless, the overall impact remains negative, and countries have already resorted to measures such as for fuel rationing and increasing fuel prices. While the balance of payments impact can be managed for a few months using existing buffers, the immediate effect on inflation is more concerning. Although most countries in the region have recently recorded low inflation, Bangladesh is likely to be the most affected, as its inflation is already at elevated levels. The impact of the conflict goes beyond oil. A significant portion of worker remittances for the region, particularly for countries like Bangladesh, Pakistan, and Sri Lanka comes from the Middle East and has been a key source of foreign exchange inflows in recent times. While we do not expect an outright fall in remittances just yet, a prolonged conflict could slow migration and, in turn, reduce the growth of remittances from the region. Moreover, there is also an immediate impact on tourism earnings, particularly for countries like Maldives and Sri Lanka, as key travel routes may be disrupted during periods of escalation. Overall, we believe that the region could manage a conflict that remains escalated for a month or two using its existing buffers. However, a prolonged conflict could pose significant risks and potentially derail the current momentum the region has built over the past couple of years.

The 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,

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