Oct 09, Colombo: Frequent natural disasters continue to weaken Sri Lanka's economic performance and are likely to increase poverty, a just released World Bank report says.
The biannual report, South Asia Economic Focus (SAEF) says despite a high budget deficit and high public debt, Sri Lanka's public finance improved and official reserves rose. Policy measures supporting fiscal consolidation and monetary tightening have contributed to an improved outlook, against the backdrop of the IMF program.
The report projects Sri Lanka's economic growth to grow at 4.6 percent in 2017 and achieve 5 percent growth in the years ahead.
Sri Lanka's macroeconomic performance remained broadly satisfactory in the first half of 2017, despite natural disasters and challenges posed by a complex political environment.
The benefit of low oil prices was offset by greater imports of food and petroleum due to the drought, while the impact on agricultural exports was masked by increased tea prices, according to the report.
It noted that the government is progressing on an ambitious reform agenda, albeit at a slower pace, aimed at improving competitiveness, governance and public financial management that would bring long-term benefits.
Continuation of reforms along with the IMF program will add to the confidence while helping reform the tax system to pursue a revenue led fiscal consolidation. The monetary authority has confirmed that it stands ready to take appropriate action in the direction of stability. These factors have contributed to an improved outlook.
The World Bank report said Sri Lanka faces several challenges that increasingly put its future economic growth and stability at risk and they must be addressed through determined policy actions. Accelerating reforms to promote competitiveness, better governance, and a more balanced budget are critical to ensure sustained growth and development, it said.
To address the economic challenges, the world Bank report suggests Sri Lanka to take four policy actions - (1) stay on the fiscal consolidation path by broadening and simplifying the tax base and aligning spending with priorities; (2) change to a private investment-tradable sector-led growth model by improving trade, investment, innovation and business environment; (3) improve governance and accountability by implementing the Right to Information Act for citizens engagement and improve SOE fiscal performance and service delivery; and (4) reduce vulnerability and risks in the economy by dealing proactively with the Eurobonds maturing from 2019 onwards, mitigating the impact of reforms on the poor and vulnerable with targeting spending, and enhancing disaster preparedness.
The just released report finds that after leading global growth for two years, South Asia has fallen to second place, after East Asia and the Pacific, due to temporary shocks and longer-term challenges slowing down growth.
It finds that slowdown in South Asia has mostly been driven by internal factors, most notably in India, such as a decrease in private investment, and an increase in imports and government spending. Given its weight in the region, India sets the pace for South Asia, it says.