ICRA Lanka sanguine on SL’s economic prospects this year

While the changes in the political front and the fiscal and monetary stimulus could revive the tepid Sri Lankan economy from its depths, its sustenance largely hinges on the political will to make tougher choices by way of prudent policies and implementing structural reforms, ICRA Lanka opined.  

Multiple agencies have forecast 2.7 percent growth for Sri Lanka in 2019, lowest since 2001. 

“ICRA Lanka is cautiously optimistic about the economic prospects in 2020 and expects modest growth, given no major external shocks take place,” the rating agency, which is part of Moody’s Investors Service, said in its latest report.

Soon after the dawn of 2020, the global economic outlook soured after the United States killed Iran’s most powerful General, escalating the aggression between the two countries.
Iran is among the largest trading partners of Sri Lanka for both oil imports and tea exports and a further escalation of the conflict between the two nations could deliver a blow to the Sri Lankan economy, at a time it is beginning to show some hope.  

ICRA Lanka pins hopes on the full recovery of tourism, relatively calmer political climate following the parliamentary elections slated in April and improved economic activity due to the expansionary fiscal and potential easing in monetary policy. 

“At the same time, we also emphasise the fact that in order to revive the economy, there must be political will to make tougher choices. This means the government must adopt prudent policies, maintain fiscal discipline and implement structural reforms.”

While there is a brewing debate over tax concessions announced, there is broader consensus on tackling key structural reforms in the economy, which have long been overdue. 

However, economic analyst Waruna Singappuli is of the view that Sri Lanka can afford to run a fiscal deficit at least for the next five years, provided the government spending is targeted on making critical structural reforms and providing stimulus to few key priority economic sectors. 

According to him, SMEs, technology and KPOs, tourism and port-related industries should be prioritised and they must be supported through fiscal policy ahead of others. 

“We can let the fiscal deficit expand, not to give goodies to the people but to put the key infrastructure in place, such as setting up universities, providing tax incentives to the identified industries, etc. 

Over a period of five years, you can see the labour force being developed, markets being developed and exports taking place from Sri Lanka and we will have locked up investors into Sri Lanka. And then beyond the fifth year, we can certainly look at improving the fiscal situation,” Singappuli added.

Sri Lanka is expecting to maintain a fiscal deficit not exceeding 4.0 percent of GDP and an economic growth of 4.5 percent for 2020.