Economists and think tanks say that Sri Lanka’s economic growth will remain around 4% this year and up to 2020, as there is no compelling reason to believe that it would grow beyond that level.
The Central Bank in its growth forecast for the year stated economic growth will hover around 4% this year despite tough global and domestic macro economic conditions.
However, the International Monetary Fund (IMF) made a downward revision of its initial economic growth forecast for Sri Lanka this year from 4.5 % to 3.8 %.
Professor of Economics, University of Colombo, Sirimal Abeyratne said that there are no specific reasons yet to believe that Sri Lanka’s economic growth will perform beyond its lukewarm average of 4% this year, but the continuing economic recovery in the world and strong growth performance in the Asian region would support maintaining Sri Lanka’s normal growth rate, in the absence of growth stimulating policies at home.
“The fiscal expansion and the growth of non-trad-able sectors such as construction would contribute to growth, but they do not sustain long-term growth,” Prof. Abeyratne said.
However, economists are of the view that sustaining economic growth at higher rates is not possible without an increase in private investment and export expansion.
Former Central Bank Deputy Governor, W.A. Wijewardena said re-structuring the manufacturing sector for value added exports need at least three to four years of lead time and had that taken place three years ago the country would have reaped the benefits today.
The manufacturing sector contributes around 28% to the GDP and the services sector, a key cog in the economy makes a noteworthy contribution. However, agriculture has been a low contributor to the economy in the past few years due to adverse weather conditions.
“The country needs to cut down on consumption to slash imports which is double the size of exports. Reduction in consumption similar to what Malaysia did in 1985 and in 1997 when it faced a currency crisis is crucial to dampen the impact of a weak currency in the country,” Wijewardena said.
Sri Lanka’s rupee has been on a down ward trend since independence. The rupee which was Rs. 4.76 against the US$ in 1948 is today Rs. 159 against the greenback currency. The weak rupee widened the trade balance to $ 2.5 billion in the first two months this year.
Despite the revival in exports reaching US$ 11.4 billion last year the trade balance widened as imports doubled export income to $ 21 billion.
The rupee has weakened by around 2 percent so far this year, 2.5 percent last year and 3.9 percent in the previous year.
Meanwhile, the World Bank in its latest forecast predicts global economic growth to edge up to 3.1 percent this year. However, the Bank notes that this is largely a short-term upswing.