Sri Lanka (Commonwealth) _The benefits of the loosened monetary policy approach and the low inflation environment are still trickling down to the economy, and the Central Bank projects 3% growth this year. The prediction is based on the economy’s strong showing in the second half of 2023, which followed six quarters of year-over-year declines. In its Annual Economic Review 2023, which was published last week, CBSL stated that “a sustained recovery is expected in the period ahead.
“It said that the tourist industry’s quicker than anticipated recovery is anticipated to sustain the economic momentum in the near future, with favorable spillover effects on other connected industries. Recent favorable changes, including the removal of import restrictions, the falling cost of credit, and the price of raw materials, are anticipated to assist the industry sector.
In view of the aforementioned changes and the government’s restart of some previously suspended infrastructure development projects, leading signs also point to a rebound in the construction sector’s activity. Based on information currently available, the recently concluded 2023–24 Maha season is anticipated to have recorded positive yields across major crops, highlighting the improved performance of the agriculture sector.
This positive trend is anticipated to continue for the remainder of the year, barring unfavorable weather conditions. The notable increase in remittances could help to increase aggregate demand as well. The better fiscal space anticipated when debt restructuring is completed is anticipated to assist the trajectory of economic growth in the near future.
Additionally, CBSL stated that a steady increase in salaries will also assist to boost demand. “Policy continuity and certainty will stay vital to the development path of the economy during 2024, amid expected elections, despite the renewed sense of macroeconomic stability,” the statement stated. Exterior demand for domestic services, especially through tourism, is predicted to stay high. If continuing efforts to boost exports are successful in light of the better medium-term economic prospects of Sri Lanka’s major trade partners, there may also be a resurgence of demand for exports.
The government’s determination to push through the structural reform agenda, prompt completion of debt restructuring, and Sri Lanka’s continued participation in the IMF-EFF program are all critical to the economy’s upward development trajectory in the short- and medium-term. Redirecting the resources made available by these reforms—particularly with regard to State Owned Business Enterprises (SOBEs)—into productive industries would assist spur long-overdue increases in productivity and expand the economy’s potential.
But according to CBSL, one major weakness in the economic recovery process is the noteworthy ongoing exodus of human capital, particularly highly qualified individuals, in the face of unfavorable demographic trends brought on by aging.
In the close to medium term, the quickly materializing effects of climate change may potentially have a greater than anticipated negative impact due to frequent supply shocks, affecting not just agricultural production but also other economic sectors including electricity generation, building, and tourism. In light of the continuously changing global environment, the absence of economic diversity continues to be a cause of economic risk as well as a hindrance to economic potential.
At this point, it is crucial to launch more targeted programs to raise overall productivity and efficiency across all important economic sectors. In order to increase short-term resilience and empower people to take action, current efforts to enhance social safety nets through increased efficiency and sufficient budgetary allocations must be accelerated at the micro level. While rationalizing spending is essential for fiscal sustainability, government spending on essential social infrastructure, including health and education, should be more effectively spent to guarantee that these services are provided fairly and to support long-term prosperity. Furthermore, the advancement of the nation’s economy and populace depends critically on the prompt execution of the actions that have been discovered to resolve risks related to corruption and governance.
After a severe economic crisis in 2022, Sri Lanka’s economy is expected to achieve moderate growth in 2024, indicating indications of stability. Yet, the most recent bi-annual assessment from the World Bank indicates that the nation continues to confront high rates of poverty, economic inequality, and labor market issues.
According to the recently released Sri Lanka Development Update, Bridge to Recovery, the country has experienced decreasing inflation, increased revenues as a result of new fiscal policies, and, for the first time in almost 50 years, a current account surplus driven by rising remittances and a rebound in tourism.
Nonetheless, for the fourth consecutive year, poverty rates increased, with a projected 25.9% of Sri Lankans projected to fall below the poverty line in 2023.
