In this article Dushni Weerakoon points out the need for Sri Lanka to confront difficult and delayed reforms to make the economy more efficient and competitive.
February 2014 marked five consecutive years of single-digit rates of inflation in Sri Lanka – supposedly the longest spell in the country’s post-independence history. Quite rightly, the Central Bank of Sri Lanka (CBSL) can take its share of credit for this success, especially in view of historic high and volatile inflation rates of the past. Indeed, the scale of monetary stability becomes clear when considering the fact that inflation rates hit a peak of 22.6 per cent in only 2008 before settling to single digit levels from February 2009. Despite five years of a moderate inflationary environment and higher average economic growth during that period, private investment trends have been modest. The monetary authorities are struggling to revive credit appetite in spite of signaling the end of a tight monetary policy stance way back in December 2012. Credit growth to the private sector was extremely sluggish at 7.5 per cent in 2013. It has continued in the same vein so far in 2014, recording a growth of only 4.4 per cent year-on-year in February.
Sri Lankan authorities often point out that Sri Lanka has not been as badly affected by the Federal Reserve’s tapering of quantitative easing (QE) as other emerging/frontier economies. In a conventional sense, this may be correct. Yet, this article considers how QE tapering affecting world gold prices impacted Sri Lanka through the gold pawning channel. It argues that US tapering has in fact had a very significant impact on the Sri Lankan economy, in terms of monetary contraction, consumption, bank asset quality and also in terms of financial inclusion.
Sri Lanka stands at important crossroads as it makes a decisive transition into a middle-income economy. With GDP growth targeted at 7.5 – 8% over the medium term, the need for effective fiscal consolidation cannot be overemphasized. In this light, …
Can a country bring about economic reforms in just four years after a war? This article looks at post-war Georgia where the progress was transformative. She argues that while circumstances differ between countries, the Georgian case demonstrates that coherent and focused efforts can bring about significant transformation in just four years. Yet, sustaining the positive trajectory requires a focus beyond aggressive reform to also include important elements of economic governance and institutional strengthening.