GDP poised for 7.2% growth next year
3 December 2012 02:53 am
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Sri Lanka’s GDP is set to grow at 7.2% over the course of 2013, according to Standard Chartered Bank projections.
“Sri Lanka’s economy is on a stronger footing, heading into 2013 thanks to policy tightening measures implemented in 2012. We expect a GDP growth of 7.2% in 2013 supported by a pick-up in investment, strong remittance inflows and steady growth in tourism and construction sectors.”
“Weak demand from Sri Lanka’s key export markets, the US and the EU, is likely to persist, but we expect a modest improvement in 2013 as the global economic recovery gathers momentum. Domestic activity is likely to compensate for slower export growth,” the report stated.
Meanwhile, the country’s trade deficit was projected to narrow to 4.5% of GDP in 2013, from 6.1% this year with the requirement for investment goods continuing through the next year in order to support economic growth.
Further, downside risks to the country’s fiscal position include the possibility of higher food prices in international markets as well as the potential for oil price shocks amid continuing political uncertainty in the Middle East.
With oil imports currently accounting for approximately 25% of Sri Lanka’s total import bill, high oil prices over next year will significantly worsen the country’s financial position.
The report forecasts a rupee appreciation taking the USD-LKR to 126.5 by the end of 2013 on the back of higher capital inflows as a result of improving investor sentiment and stabilization of the trade balance.
It went on to state that despite government plans to increase reliance on domestic borrowing, foreign borrowing is likely to continue, possibly through the issuance of another sovereign bond.
“Given the success of the previous sovereign bond issues, we expect the government to continue with such issuance, reducing domestic market borrowing. As such, we remain Neutral on T-bond duration, as near-term upside risks to inflation
persist,” the report stated.