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Tuesday, 24 March 2015 19:01

Sri Lanka's economy expected to moderate in 2015 due to political transition

Sri Lanka's economy expected to moderate in 2015 due to political transition

Postwar economic recovery in Sri Lanka is expected to moderate in 2015 as investors await clarity on the new administration's plans for governance reform and economic policy, the Asian Development Bank's flagship annual economic publication, Asian Development Outlook 2015 (ADO), released today says.

 

According to Colombo Page, Sri Lanka's economy posted a growth rate exceeding 7.0% in every year since 2012 and continued to grow robustly in 2014 posting a rate of 7.4%, up from 7.2% in 2013. However, this year the growth rate is expected to ease to an estimated 7.0%.

The report says the election in January 2015 brought a new president into office on a mandate for political and economic change and with the parliamentary elections expected in June 2015, the year will be marked by political transition.

Risks to economic growth arise from uncertainties during the transition and a wait-and-see approach adopted by investors, it says.

The ADB expects the growth in 2015 to be affected by the political transition and the revised priorities of the government.

Construction is expected to slow after leading growth in the recent years, driven by large government infrastructure projects. Political uncertainty would retard private investment. While investment is likely to lose momentum in 2015, consumption is expected to pick up. Price reductions for food and fuel will encourage private consumption, and government consumption will rise with the shift in the budget toward recurrent expenditure.

Export industries such as apparel and tourism are expected to benefit from the somewhat faster growth in advanced economies. Performance in the agriculture sector will depend on the weather, but increases in government-guaranteed prices for several agricultural products should boost production.

However, the outlook is for a continued strong economic performance aided by generally favorable global conditions.

Assuming that politics settle in the second half of 2015 and that investment rebounds, growth is projected to ease to 7.0% in 2015 and then strengthen to 7.3% in 2016, the ADB report says.

Inflation is expected to remain low in 2015, held in check by a series of reductions in fuel prices in September and December 2014 and January 2015 that are expected to restrain other prices.

With international oil prices expected to remain low this year and next and the tax reductions announced in the revised budget for several essential items including flour, bread, milk powder, and sugar, the inflation is expected to ebb to 2.0% in 2015 before rebounding to 5.0% in 2016.

Exports will continue to improve in 2015 and 2016 as Sri Lanka's partner economies pick up pace but imports are also expected to rise. Earnings from tourism and remittances are expected to continue current growth trends.

SS

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