This article looks at the implications of over-due re-basing exercise on the size of the Sri Lankan economy, its sectoral composition and growth rates.
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.
In an independent and incisive take on Sri Lanka’s current external stability position, IPS Deputy Director argues that the build-up of external payments stress is a cumulative process, where the lines between external public debt, public-guaranteed external debt, and private sector external debt become blurred, and virtually disappear at times of external payments crises. The most prudent strategy to insulate an economy from rising exposure to foreign debt is to ensure a healthy growth in earnings from exports of goods and services, and build-up a ‘war chest’ of non-borrowed official reserves.
Fiscal consolidation efforts as set out in the Budget 2013 were not entirely unexpected. With revenue collection falling short of the target, adjustments to ensure that the deficit for 2012 remains close to the forecast 6.2% of GDP is to …