Jan 16, Washington, DC: Despite high economic growth and low inflation Sri Lanka remains vulnerable to tightening of international financial conditions due to its high external debt, the World Bank's latest Global Economic Prospects (GEP) report, issued Tuesday says.
The External debt as a share of GDP is modest in most South Asian countries, but in Sri Lanka, it is close to 80 percent of GDP, according to the GEP report.
Sri Lanka's large current account deficit, high foreign debt, and openness to capital flows suggest that it remains especially vulnerable to tightening of international financial conditions, the report cautions.
Sri Lanka experienced a growth of an estimated 7.0 percent in 2013 rising from 6.4 percent in 2012, with stronger manufacturing and services activity and a rebound in agriculture in the third quarter of 2013.
Sri Lanka's growth is projected to accelerate to 7.4 percent in 2014, mainly as a result of infrastructure spending, and consumption and services activity maintained by remittance inflows.
Over the medium term, however, Sri Lanka's growth is projected to slow to a more sustainable rate. The GEP report projects a growth rate of 6.5 percent for 2015 and 6.3 percent for 2016.
However, for South Asia regional GDP growth is projected to improve to 5.7 percent in 2014 in market price terms, and to rise to 6.3 percent in 2015 and 6.7 percent in 2016.
Lower international commodity prices helped ease inflation in Sri Lanka which experienced a significant decline in inflation momentum during the course of 2013.
Remittance flows to Sri Lanka experienced double-digit growth of 10 percent of GDP in the 2013 calendar year.
Sri Lanka's deficit has fallen in recent years, but is estimated to be nearly 6 percent of GDP in 2013.
The Current Account Balance as a Percentage share of nominal GDP is expected to decline to a projected -3.2 percent in 2016 from -4.4 forecast for 2014.