COLOMBO: Recent policy reforms including monetary tightening and revenue-led fiscal consolidation have improved Sri Lanka’s outlook, The World Bank’s South Asia Economic Focus report says. “Continuation of the IMF program will add to the confidence and support fiscal sustainability while structural reforms supported by the World Bank are expected to yield benefits in the medium term,” it said. “The economy is projected to grow by 4.7 percent in 2017 and marginally exceed 5.0 percent growth in the medium term, driven by private consumption and investment.” However the report adds that the impact of past currency depreciation and the rise in the Value Added Tax rate will increase inflation in 2017 despite downward pressure from low international commodity prices.
The external sector is poised to benefit from the reinstatement of GSP+ preferential access to European Union and rapidly growing tourism, although the drought could adversely impact exports and increase petroleum imports. External buffers are projected to improve, with emphasis placed on purchasing foreign exchange, maintaining a more market-determined exchange rate, using monetary policy and the sale of selected government assets. The fiscal deficit is projected to fall to 5.0 percent of GDP for 2017 due to the implementation of revenue measures.
