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Brexit Vote Ripples Across South Asia

A monitor displays the exchange rate of the Japanese yen against the British Pound as a trader works at a foreign exchange brokerage in Tokyo, Japan, June 24, 2016.
A monitor displays the exchange rate of the Japanese yen against the British Pound as a trader works at a foreign exchange brokerage in Tokyo, Japan, June 24, 2016.

Judging by the South Asian media's coverage of Brexit, one would think Britain's historic vote to quit the European Union is of little consequence to a region that is home to several former British colonies. The press in Pakistan, India and elsewhere largely treated Brexit as a dispute between Britain and the EU.

But experts say Brexit is likely to have far-reaching economic, political and social implications for a region with deep historic ties to Britain.

"South Asia will be more affected than a lot of other countries," said RAND Corporation senior political scientist Jonah Blank.

Here are Five Ways Brexit Could Affect South Asia

Ripple Effect of an Economic Downturn: South Asian economies are expected to grow by more than 7 percent this year and next, the World Bank says. But the region is likely to miss the forecast if the vote triggers an economic contraction.

"If Britain goes into recession, that will affect India and Pakistan more than a lot of other countries," Blank said. "They have much closer ties, and Brexit has a real possibility not only of destroying the EU but also destroying the U.K."

If Britain's access to European markets is restricted, India could scale back on its vast investments there. Indian conglomerate Tata Group employs 65,000 in Britain, and Indian exports of $35 billion to the EU could shrink if New Delhi loses preferential trade terms with Europe.

Investing in the U.K. "becomes a lot less attractive if the only market they can reach is Britain," Blank said.

Pakistani exports to Europe are smaller, but they could go down if they lose preferential trade incentives and the pound continues to depreciate, making Pakistani goods more expensive, said Uzair Kayani, an economist at the Lahore University of Management Sciences in Lahore, Pakistan.

"There will be an effect, but I don't think it's going to be very large," Kayani said by telephone.

Foreign Aid Could Shrink: Pakistan and Afghanistan are among the largest recipients of civilian aid from Britain, Germany and other European countries.

"Europe provides some of the most generous civilian assistance to Afghanistan and Pakistan," said Michael Kugelman, a South Asia expert at the Wilson Center in Washington. Any economic contraction in Europe "will have a big impact on donor assistance to Afghanistan and Pakistan."

Remittances Likely to Shrink: Millions of South Asians working abroad regularly send money home, and the World Bank calls that money a key driver to growth. World Bank data show the eight member nations of the South Asian Association for Regional Cooperation received an estimated $117.8 billion in remittances in 2015. For Pakistan, the U.K. is the third-largest source of remittances after Saudi Arabia and the United Arab Emirates, according to Kayani.

With the British pound and the euro depreciating, and European economies struggling, the remittances destined to the region will decline, Kayani said. Blank added that restrictions on cross-border movements could make "it much more difficult for South Asian workers to send money home."

Migration May Slow Down: Europe is likely to lose its lure as a destination for many South Asian emigrants. Britain is home to more than 3 million South Asians. Many others live in continental Europe, where anti-immigrant sentiment is rising.

"If there is more vitriol against immigrants and less [economic] opportunity, an immigrant is less likely to go to the U.K. and Europe, in general," Kayani said.

Some Pakistani immigrants may even choose to go home, as many did after the 9/11 attacks, he added.

Rising Gold Prices Increase Marriage Cost: Thanks to soaring gold prices after Thursday's Brexit vote, getting married in the region just got more expensive.

"Gold is a big part of the culture," Kayani said. "People take out loans to be able to afford the jewelry for their wedding."

The economic effects of rising gold prices could be even greater on India, a major importer of gold.

What's more, Kayani said, Brexit could make it difficult for some regional governments to raise debt, as local investors increase their gold holdings on expectation of rising prices.