COLOMBO: The World Bank says Sri Lanka’s economy will rebound in 2018 with annual growth averaging 4.5 percent in the medium term, driven by private consumption and investment but warned against delaying reforms.
Sri Lanka’s economy grew 3.1 percent in 2017, a 16-year low, on adverse weather and political uncertainty.
“A further slowdown in reform implementation, in a challenging political environment, remains the key risk, the World Bank said in a report, ‘South Asia Economic Focus Spring 2018: Jobless Growth?’
“The economy will rebound in 2018 and the outlook remains favourable, provided the government is committed to the reform agenda of improving competitiveness, governance and public financial management.
“Together with the IMF programme, these reforms will add to confidence and support fiscal consolidation efforts,” it said. However, the upward trend in oil prices may exert some upward pressure. Sri Lanka’s rupee collapsed in 2015 and 2016 after the central bank printed money, from 131 to 150 to the US dollar, but oil prices also fell at the time.
With oil prices rebounding the effect of the currency collapse will now pass on to the economy when prices are adjusted, analysts say.
The external sector will continue to benefit from tourism and GSP+ preferential access to the European Union, despite slowing remittances growth, the World Bank said.
“Foreign reserves are expected to improve, with emphasis on purchasing foreign exchange, maintaining a more market-determined exchange rate, and increased FDI,” the report said.
The overall fiscal deficit is projected to fall in the medium term, supported by the on-going implementation of revenue measures, but there were risks.
Delays in implementing tax reforms and improving tax administration will further strain fiscal and debt management.
“Sri Lanka faces several challenges that increasingly put its future economic growth and stability at risk, which must be addressed through macro and structural reforms”, the World Bank warned.
Broadening and simplifying the tax base and aligning spending with priorities will help the government stay on course towards fiscal consolidation, it said.
Sri Lanka should also shift towards a private investment-tradable sector-led growth model by improving trade, investment, innovation and the business environment.
Implementing the Right to Information Act will improve governance and citizen engagement. State-owned enterprises need to see improving performance and service delivery.
