June 12, Colombo: The World Bank's latest Global Economic Prospects report, issued on June 10, says Sri Lanka will have the strongest economic growth in South Asia in 2014 reaching 7.2 percent.
According to the report, in Sri Lanka, where output is currently above potential, annual growth is forecast to remain broadly stable at 7.2 percent in 2014, and over time, to moderate to about 6.9 percent in 2015 and 6.7 percent in 2016, slightly higher than estimates of medium-term potential growth for the country.
Sri Lanka's annual growth picked up to a 7.3 percent pace in 2013 from 6.3 percent the previous year, led by services, stronger manufacturing activity, robust agricultural growth and a pickup in domestic demand partly reflecting easing of monetary policy.
As demand from the Euro Area and U.S improved in the second half of 2013, exports in Sri Lanka grew rapidly.
Despite acceleration in growth, Sri Lanka's inflation fell from 6.7 percent in October 2013 to 3.2 percent in May, (partly due to base effects) although inflation momentum is starting to pick up, the report noted. Sri Lanka's deficit has also fallen in recent years due to tight monetary policies.
With the exception of Nepal and Maldives, all countries in South Asia face significant revenue shortfalls regarding budgeted amounts, the GEP report says.
According to the World Bank, GDP growth in South Asia in 2014 will be at 5.3 percent, rising to 5.9 percent in 2015 and 6.3 percent in 2016.
The GEP report says most of the acceleration is localized in India, supported by a gradual pickup of domestic investment and rising global demand.
India will grow at 5.3 percent in 2014 and the World Bank projects India's GDP to grow at 6.3 percent for 2015-16 and 6.6 percent for 2016-17.
In South Asia while credit growth is slowing, domestic financial risks remain as non-performing loans (NPLs) remain an ongoing concern, the World Bank report says. Sri Lanka has the second lowest NPLs as a share of total loans in South Asia.
According to the global lender, South Asian countries are vulnerable to political developments in Ukraine and Russia that could result in tighter international oil supplies, given the reliance of South Asia on imported crude oil.
Energy shortages and a fragile security situation in some countries remain impediments to private sector activity, the Bank says.
The World Bank says weak monsoon rains can have significant impacts on agricultural production, consumption, and GDP growth on the countries in the region, including Sri Lanka.