Sri Lankan Government-led reforms to improve competitiveness, maintain macro-fiscal stability and strengthen institutions, with broad support in the country, are key to robust economic growth, job creation and poverty reduction, the new Sri Lanka Development Update (SLDU) of the World Bank launched on Thursday, underscored these priorities.
The SLDU, which is a half-yearly report on the Sri Lankan economy and its future directions, notes that despite challenges posed by natural disasters, Sri Lanka’s economic performance was satisfactory in 2016
The island nation celebrated a few recent landmark achievements, including the passing of the Right to Information Act and the regaining of General System of Preferences Plus (GSP+).
The fiscal deficit narrowed from 7.6 percent in 2015 to 5.4 percent of GDP in 2016. The real GDP growth for 2016 slowed to 4.4 percent, as sustained drought took a toll on the agriculture sector. “The Government of Sri Lanka’s efforts have strengthened growth performance. However, extreme weather among other factors has hindered the execution of the budget and impacted economic growth and exports performance,” said , World Bank County Director for Sri Lanka and the Maldives, Idah Z. Pswarayi-Riddihough.
“While robust contribution from construction and financial services sectors is a good sign, Sri Lanka needs to continue to take forward its reform agenda if it is to adequately boost revenues and provide its people with more and better jobs,” she said.
Among the report’s recommendations, are the need to raise more revenue while controlling current expenditures to bring public debt to a sustainable path. Implementing the new Inland Revenue Act, soon to be submitted to the Parliament, will make for a good starting point. For Sri Lanka to attain the status of an Upper-Middle-Income Country, it will have to bolster its economy’s competitiveness and ability to pursue an export-led growth model.
Among the risks identified by the report are delays in implementing structural revenue measures, slower than expected improvement in tax administration, less favorable growth in the global economy and faster than expected global commodity price rises. In addition, faster implementation of several vital reforms, identified by the government, such as those affecting state-owned enterprises like Sri Lankan Airlines and measures to strengthen accountability and transparency are crucial.Additional urgent reforms such as improving the ease of doing business in Sri Lanka and trade facilitation are designed to address the issue of the economy’s weak competitiveness. The country also attracts a much lower volume of Foreign Direct Investment than peer economies.
Ralph Van Doorn, Senior Country Economist and one of the authors of the Sri Lanka Development Update, emphasized that moving ahead with measures to increase exports and fiscal revenue should help Sri Lanka’s economy adjust.