WB cuts SL’s economic growth forecast to 2.7%

1. Says growth continues to be adversely affected by shocks
2. Expects growth to pick up as security concerns and political uncertainty dissipate
3. Lists out five priority reform areas in latest Asia Economic Focus report

In its latest edition of the South Asia Economic Focus, the World Bank expects Sri Lanka’s economic growth to decelerate to 2.7 percent by the end this year from earlier forecast of 3.5 percent in June amid security challenges and political uncertainty.
While stating that Sri Lanka’s economic growth continues to be adversely affected by shocks, the global development lender expects the growth to pick up to 3.3 percent in 2020 and 3.7 percent in 2020 as security challenges and political uncertainty dissipate. 

Sri Lanka, marred by a constitutional crisis in the latter part of the year, grew 3.2 percent in 2018. Growth rebounded in the first quarter of 2019 to 3.7 percent thanks to relatively benign weather that revived agriculture and related industry sectors.  However, the aftermath of the April terrorist attacks that killed over 250 people, including tourists, is expected to take a toll on the economy in the rest of 2019 with decelerating private consumption and investment.

During the second quarter of this year, the economy grew by 1.6 percent, the slowest pace in more than five years.
“The medium-term outlook is subject to the country’s ability to ensure political stability and a return to normalcy. Growth for 2019 is expected at 2.7 percent, as many important economic sectors show relatively weak performance.

In the medium-term, the economy is expected to recover from the disruptions in 2019, and growth is expected to accelerate towards 4.0 percent, gradually closing
the output gap. 

The drivers of recovery are anticipated to be investment and exports, as performance in the tourism sector improves and uncertainty is resolved after the elections are held,” the report said.

The World Bank cautioned that risks faced by the island nation are tilted to the downside.

The World Bank listed five priority reform areas for Sri Lanka in its report.

They are: (a) continuing fiscal consolidation by broadening the tax base and aligning spending with priorities; (b) shifting to a private investment-tradable sector-led growth model by improving trade, investment, innovation and the business environment; (c) improving governance and SOE performance; (d) addressing the impact of an aging workforce by increasing labour force participation, encouraging longer working lives and investing in skills to improve productivity; and (e) mitigating the impact of reforms on the poor and vulnerable with well-targeted social protection spending.

Meanwhile, the World Bank slashed India’s economic growth forecast to 6 percent from 7.5 percent while forecasting the region to grow 5.9 percent this year, lower by 1.1 percentage points from its June estimates.