SL economy outperforms in 1Q, but uncertainty looms due to elections: ADB

Sri Lanka’s economy outperformed expectations in the first quarter, but the outlook for the rest of the year and beyond remains uncertain, according to the Asian Development Bank (ADB). 

Despite surpassing the April forecast, the ADB cautioned that projections for 2024 and 2025 are clouded by the upcoming election cycle.

Economists and analysts have raised policy reforms and continuity as some of the key concerns as the island nation gears up for elections this year. 

Meanwhile, South Asia as a region is on course to largely achieve ADB April 2024 growth forecasts. 
According to the ADB, downward revisions for GDP growth in Bangladesh and Maldives over the forecast period are offset in 2024 by upward revisions for Bhutan, Nepal, and Pakistan, leaving the region’s 2024 growth forecast unchanged at 6.3 percent.

In terms of inflation, forecasts for South Asia are nudged up to 7.1 percent in 2024 and maintained at 5.8 percent in 2025. Although inflation forecasts of Bhutan, India, and Pakistan for FY2024 and FY2025 remain the same as in ADB forecasts for April 2024, the inflation projections for Bangladesh and Maldives are now expected to be higher.
In the case of Sri Lanka, the inflation forecast for 2024 is revised down as supply-side conditions improved alongside better external buffers and the availability of foreign currency, the Asian Development Bank said.

The Central Bank of Sri Lanka (CBSL) in its third monetary policy review in May, noted the incoming data suggests that headline inflation is likely to be below the targeted level of 5 percent in the upcoming months. It said this is due to the combined impact of the administered price adjustments and eased food prices, although some upside risks remain. 

However, inflation is expected to eventually align with and remain around the target level over the medium term, supported by appropriate policy measures.