Sri Lanka’s growth is expected to reach 4.7% percent in 2017 and grow marginally over 5 % beyond, driven by private consumption and investment growth, said Idah Z. Pswarayi-Riddihough, World Bank County Director for Sri Lanka and Maldives.
Speaking at the latest Sri Lanka Development Update (SLDU) of the World Bank she said that although the short to medium term growth will continue to be driven by non-tradable sectors, successful implementation of reforms should help the country to rely on productive tradable sectors in the long run.
“Inflation will pick up towards upper single digit level in the first half of 2017 because of past high monetary growth along with the increase of VAT collection. However, the base-effect will see inflation stabilizing around mid-single digit level towards the end of 2017.”
Low international commodity prices, though gradually increasing, will help maintain the downward pressure. In the medium term, the announced shift by the Central Bank to flexible inflation targeting will keep inflation in the single digits, while the exchange rate is left to adjust to market forces. Sri Lankan Government led reforms to improve competitiveness, maintain macro-fiscal stability and strengthen institutions, with broad support in the country, are key to robust economic growth, job creation and poverty reduction. She said that the lack of variety in Sri Lanka’s export basket is a grave area of concern and the regaining of General System of Preferences Plus (GSP+) is a good area to focus on.
The fiscal deficit narrowed from 7.6 percent in 2015 to 5.4 percent of GDP in 2016.
The real GDP growth for 2016 slowed to 4.4 percent, as sustained drought took a toll on the agriculture sector.
“The Government of Sri Lanka’s efforts has strengthened growth performance. However, extreme weather among other factors, has hindered the execution of the budget and impacted economic growth and exports performance” she added.
“While robust contributions from construction and financial services sectors is a good sign, Sri Lanka needs to continue to take forward its reform agenda if it is to adequately boost revenues and provide its people with more and better jobs”.
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