Sri Lanka’s economic growth is projected to recover in 2018 with the agriculture, apparel and construction sectors expected to expand together, with the implementation of a reform-oriented budget, a new Asian Development Bank (ADB) report said.
The ADO forecasts GDP to grow moderately at 4.2% in 2018 and pick up pace to grow at 4.8% in 2019.
“Beyond the short term drivers, to sustain long term growth, there is an urgent need to implement much needed reforms, as well recognized in Vision 2025 and Budget 2018” said Utsav Kumar, ADB’s Country Economist for Sri Lanka.
“The proposed reforms will provide the underpinnings for attracting private investments and generating export led growth. It is necessary to ensure continuity of the reform agenda and insulate it from the political cycle. Our growth projections assume normal weather, but any inclement weather will affect growth, and may result in higher inflation”
Inflation is expected to decrease from 7.7% in 2017 to 5.2% in 2018 and further to 5% in 2019. Introduction of automatic pricing formulas for oil and electricity in 2018, and greater currency depreciation as foreign reserves are built up to meet debt service requirements are likely to exert inflationary pressures.
Gains in revenue collection are expected to continue with the new Inland Revenue Act coming into effect in April 2018. Budget 2018 targets the deficit to fall to 4.8% as a result of higher tax revenue following reforms.
As exports improve, partly due to the restoration of GSP+, the current account deficit is projected to be 2.7% in 2018 and improving to a projected deficit of 2.5% in 2019.
The ADO states that given the efficiency, fiscal, and distributional implications of an underperforming State-owned Enterprise (SOE) sector in Sri Lanka, continued SOE reform is essential beyond the IMF program. The report notes that for meaningful and sustained SOE reforms, there is a need to build a political consensus and ring-fence the reform process from changes in political order. Sri Lanka can learn from its own experience in SOE reforms from the past.
Meanwhile the report also indicates that the growth picked up across most of the economies in developing Asia, supported by continued high demand for exports and rapidly expanding domestic demand.
ADB forecasts gross domestic product (GDP) growth in Asia and the Pacific to reach 6 % in 2018 and 5.9% in 2019, a slight deceleration from the 6.1% registered in 2017. Excluding the high-income newly industrialized economies, growth is expected to reach 6.5% in 2018 and 6.4% in 2019, from 6.6% in 2017. ADO is ADB’s flagship annual economic publication.