The World Bank which forecast global economic growth to edge up this year with strong input from Asia said Sri Lanka’s GDP is projected to rebound from last year’s 3.1% to 4.8% in 2018, and 4.5% in 2019.
“In Sri Lanka, economic activity has been recovering from the effects of last year’s natural disasters including floods and droughts.
With robust private consumption and investment, GDP growth is projected to rebound this year,” Ekaterine Vashakmadze and Temel Taskin, economists of the World Bank said. Sri Lanka’s economy took a dip last year recording one of the lowest GDP growth rates percentage in recent years partly due to adverse weather that suppressed agricultural output.
The Bank expects inflation to stabilise in the mid-single digit levels this year as the disruptions of natural disasters wear off.
Inflation dipped from 2.8 % in March to 1.6 % in April this year and is projected to remain below the single mid digit level this year by the Central Bank. “Fiscal deficit should narrow with measures improving revenues. The external sector will continue to benefit from the Generalised Scheme of Preferences plus preferential access to the European Union and from tourism receipts,” the World Bank’s economists said.
However, the Bank also notes that emerging market and developing economy policymakers need to be able to respond to a rise in inflation and cope with advanced-economy monetary policy normalisation, as well as manage possible bouts of financial market volatility.
The Bank further notes that the deteriorating debt dynamics have reduced fiscal space, underlining the importance of revenue mobilisation and medium-term fiscal frameworks to rebuild buffers. Emerging market and developing economies face various structural challenges to boost longer-term prospects.
They include the need to intensify economic diversification in commodity exporters, boost skills and adaptability to confront rapid technological change and promote regional trade integration.
According to a report by Moody’s Investors Service Sri Lanka’s debt dynamics are such that domestic debt repayment will reach a peak next year followed by a bunching up of external debt repayments from 2019 for three years.
In its projections for Asia the Bank notes that the position of developing Asia – defined as developing South Asia and developing East Asia and the Pacific - as the growth engine of the world economy has intensified over the past decades. While in 2000 the region accounted for less than 10% of world output, by 2018 this contribution had doubled and is projected to be above 20% in 2018. Developing Asia is expected to account for about two-fifths (about 41 %) of global growth and about 72% of emerging market and developing economy growth in 2018. Going forward, the contribution of developing Asia’s growth to global growth is projected to increase to about 45.8% by 2020.
China will continue to be the single largest emerging market contributor to global growth. Its contribution to global growth is expected to be around 27.4 % in 2018 and 29 % in 2020. India’s contribution to global growth is expected to increase from the projected 7.4% of global growth in 2018 to more than 9 % in 2020.