IMF forecasts robust private credit growth to persist through 2022

• Expects private credit to grow 13% slightly down from 13.8% in 2021
• Projects inflation to soften to 8.3% from 12.1% in December 2021

Amid the growing absence of direction from the Central Bank or any other policy making body on inflation, private sector credit and growth, the International Monetary Fund (IMF) in its latest forecasts on Sri Lanka projected somewhat easing consumer prices and robust private sector growth numbers for 2022, although the economy is losing momentum. 

Sri Lanka was groping in the dark with the lack of direction from the Central Bank, and in particular from its Economic Research Department, which failed in its duty to provide an inflation guidance for the year and for the money supply.

According to the IMF staff projections, Sri Lanka’s year-end headline inflation measured by the Colombo Consumer Price Index could soften a bit to 8.3 percent from 12.1 percent in 2021 December and from 15.1 percent in February 2022. 

“It would therefore be important to adhere to international tax and regulatory standards and information exchange agreements established with foreign counterparts, including those guided by OECD’s Common Reporting Standard”, they added.  

The Colombo Port City Special Economic Zone Act, which ran into much controversy, gives power to a Commission which is empowered to grant sweeping tax concessions and holidays such as tax breaks up to 40 years, and exceptions on Value Added Tax, income tax, excise tax, debit tax, custom duties, ports and airport levy, Sri Lanka Export Development Act levies, betting and gaming laws, and labour laws to qualified businesses.

While this may be in conflict with how the IMF and their economists look at the taxes and tax rates, low tax rates are among crucial determinants for those nations at their early stages of development to attract global wealth in an ethical and a legal fashion.  

However, Sri Lanka has to offer much more than low taxes to attract investors as the country is plagued with lack of globally competitive talent, severe dearth in labour, inefficiency and lethargy in the existing labour, stinking politics and bureaucracy and rampant culture of bribery, all of which would not place Sri Lanka in investors’ radar.