The World Bank’s latest South Asia Development Update, titled “Jobs, AI, and Trade,” has outlined a crucial two-pronged policy prescription for South Asian countries to sustain long-term growth: maximizing the benefits of Artificial Intelligence (AI) and lowering trade barriers. The report, released this month, emphasises that increasing trade openness and AI adoption could be transformative for the region, which is currently the world’s fastest-growing but faces a significant slowdown risk.

The Twin Challenge: AI and Trade Protectionism

The World Bank projects South Asia’s overall economic growth will slow to 5.8% in 2026, down from a robust 6.6% in 2025, citing global economic uncertainty, trade policy shifts (like higher-than-expected US tariffs on Indian goods), and disruptions from AI as key risks.

1. The Trade Barrier Obstacle

The report notes that South Asian countries remain among the least open to international trade and finance. High tariffs, particularly on intermediate goods (production inputs), are more than double those in other developing economies.

 * Manufacturing Hit: These high tariffs protect shrinking, non-competitive sectors but seriously hurt the manufacturing sector’s competitiveness by increasing the cost of production inputs.

 * Recommendation: The World Bank recommends carefully sequenced tariff reductions, especially on imported inputs, and the pursuit of broader free trade agreements. This move is expected to boost private investment, increase competitiveness, and generate significant employment, particularly in trade-related activities that employ younger, higher-skilled workers.

2. The AI Transformation and Job Shifts

Artificial Intelligence is both a risk and a massive opportunity for the region. The report notes that approximately 22% of jobs in South Asia are exposed to tasks that could be automated or augmented by Generative AI.

 * Vulnerable Workers: Moderately educated, young workers in sectors like business services and Information Technology (IT) are deemed most vulnerable to job shifts. Since the launch of AI tools like ChatGPT, job listings in AI-exposed occupations have fallen by around 20% relative to other roles.

 * The Productivity Dividend: AI can bring substantial productivity gains, particularly for the estimated 15% of South Asian workers in the “modern economy” whose jobs are complementary to AI (e.g., CEOs, doctors, teachers, lawyers).

 * Demand for Skills: Demand for AI-related skills is rising sharply, with such roles offering wages nearly 30% higher than other professional jobs.

Key Policy Recommendations for Maximising AI Benefits

To fully harness AI’s potential and mitigate its disruptive risks, the World Bank urges governments to lay the essential groundwork through targeted reforms:

 * Improve Core Infrastructure: Expand reliable electricity and ensure consistent and fast internet access throughout the region.

 * Upskilling the Workforce: Increase the share of skilled workers and support programs for worker mobility and skill development.

 * Facilitate Labour Mobility: Proactively remove obstacles that hinder workers’ reallocation to new firms, occupations, and locations.

 * Strengthen Safety Nets: Streamline and enhance social safety nets to protect vulnerable workers during the period of labour market adjustment.

World Bank Chief Economist for South Asia, Franziska Ohnsorge, concluded that the combined policy reforms of increased trade openness and growing AI adoption could act as the next big growth engine for the region, helping to create jobs for its rapidly expanding working-age population.

Headline Points:

 * Core Strategy: Maximize AI benefits and lower trade barriers to boost productivity and job creation in South Asia.

 * Looming Risk: Regional growth is projected to slow significantly to 5.8% in 2026, down from 6.6% in 2025, with trade conflicts and AI cited as key risks.

 * Trade Focus: High tariffs on intermediate goods are hurting manufacturing competitiveness; tariff cuts are essential.

 * AI Impact: About 22% of jobs are exposed to AI augmentation/displacement, but the technology offers a productivity dividend for the 15% of workers whose jobs complement AI.

 * Key Action: Policymakers must focus on upskilling, infrastructure improvements (electricity, internet), and strengthening social safety nets.