Sri Lankan Economic Growth to recover gradually says ADB (Part 1)

Economic growth in Sri Lanka is projected to rise to 3.6% in 2019 and 3.8% in 2020 from 3.2% in 2018, according to a recent Asian Development Bank (ADB) survey. Asian Development Outlook (ADO) 2019, the flagship annual economic publication of ADB, predicts a gradual recovery backed by a turnaround in the construction sector and continued growth in services.

"While the economy is expected to recover over the next two years, fiscal and structural reforms remain necessary for Sri Lanka to sustain and accelerate growth," ADB's Senior Country Economist said. "To avoid repeated macroeconomic pressures and generate sustained sources of foreign exchange earnings, addressing policy constraints will be critical."

 Proposals announced in the budget for 2019 will support private spending and therefore growth. The ratio of public investment to gross domestic product (GDP) is expected to pick up and be a catalyst for development and construction. Overall, preserve the primary surplus balance in 2019 and 2020 and further increasing the fiscal deficit, while continuing the economic consolidation route is the aim of the budget.

Headline inflation, as calculated by the national consumer price index, is forecast to be up to 3.5% in 2019 and up to 4.0% in 2020 as a result of a pick-up in economic activity, a base impact on inflation, and stabilisation of non-food and core inflation from late 2018 and early 2019.

The current account deficit would decrease to 2.5% of GDP in 2019 and increase slightly in 2020. A recovery in agricultural exports, a steady increase in tourism receipts, and a reduction in vehicle imports will lead to a decline in the current account deficit.

According to projections, the effect of Brexit on the Sri Lankan economy as a whole is negligible, a downside threat to the textile sector emanates from a no-deal Brexit scenario involving a potential escalation in tariffs between Sri Lanka and the UK.

Because of external debt servicing and political uncertainty, large repayments could affect market sentiment and put pressure on the Sri Lankan rupee. Recurring weather-related disasters in 2016 and 2017, which have had several impacts, as demonstrated by slow economic growth, high domestic food prices, a high oil import bill, high government spending, and a high number of food-insecure households restricting daily minimum calorie intake, are a crucial policy challenge for Sri Lankan economy.

VBS/AT/02122019/Z_TB1

to be continued ...