WB trims Sri Lanka’s 2019 eco­nomic growth forecast to 3.5%

Daily Mirror (Sri Lanka) - - FINANCE -

„Cites rise in po­lit­i­cal un­cer­tainty and Easter Sun­day at­tacks im­pact on in­vestor sen­ti­ments as rea­sons

„Says eco­nomic ac­tiv­i­ties re­mained soft in the first quar­ter of this year, con­strained by tight mone­tary pol­icy

„Notes SL would re­main vul­ner­a­ble to ex­ter­nal shocks stem­ming from weak­en­ing global growth

„Warns Brexit process un­cer­tainty poses risk to cer­tain S. Asian economies in­clud­ing Sri Lanka

The World Bank (WB) has cut Sri Lanka’s eco­nomic growth forecast to 3.5 per­cent from ear­lier fore­casted 4 per­cent due to an­tic­i­pated rise in po­lit­i­cal un­cer­tainty and im­pacts of Easter Sun­day at­tacks on in­vestor sen­ti­ment and per­cep­tions.

“In Sri Lanka, a rise in po­lit­i­cal un­cer­tainty in the months lead­ing up to pres­i­den­tial and par­lia­men­tary elec­tions, which will take place in 2019 and 2020 re­spec­tively, could weigh on busi­ness con­fi­dence. In ad­di­tion, re­cent se­cu­rity-re­lated in­ci­dents could dampen in­vestor sen­ti­ment and per­cep­tions,” the WB stated in its lat­est flag­ship re­port “Global Eco­nomic Prospects, June 2019: Height­ened Ten­sions,

Sub­dued In­vest­ment”.

The WB ex­pects that eco­nomic growth this year will pick up marginally to 3.5 per­cent from 3.2 per­cent last year, driven by a pickup in ser­vices sec­tor ac­tiv­ity and solid in­fra­struc­ture in­vest­ment.

How­ever, the WB warned that an­tic­i­pated re-es­ca­la­tion of po­lit­i­cal tur­bu­lence amid elec­tions could po­ten­tially lead to fis­cal slip­pages with ex­pand­ing pub­lic spend­ing; and a resur­gence of non-bank fi­nan­cial sec­tor fund­ing is­sues.

The Cen­tral Bank (CB) re­cently said that the eco­nomic growth may come down to 3 per­cent or be­low this year due to im­pacts stem­ming from Easter Sun­day at­tacks on sec­tors such as tourism. Ac­cord­ing to WB, the eco­nomic ac­tiv­i­ties re­mained soft in the first quar­ter of this year, con­strained by tight mone­tary pol­icy.

Given the coun­try’s high ex­ter­nal debt and low in­ter­na­tional re­serves, the WB notes that Sri Lanka would re­main vul­ner­a­ble to ex­ter­nal shocks stem­ming from weak­en­ing global growth and ris­ing pol­icy un­cer­tainty.

“A sharper-than ex­pected de­cel­er­a­tion in ma­jor economies or a new es­ca­la­tion of tradere­lated ten­sions among ma­jor economies would likely re­sult in ad­verse trade and fi­nan­cial mar­ket spillovers to the re­gion.

“High ex­ter­nal debt and low in­ter­na­tional re­serves could limit the pol­icy room to ad­dress ex­ter­nal shocks in some coun­tries,” the WB pointed out.

Fur­ther, WB warned that un­cer­tainty on the Brexit process poses a risk to cer­tain South Asian economies in­clud­ing Sri Lanka which have pref­er­en­tial trade agree­ments or gen­er­al­ized sys­tem of pref­er­ences with the Euro­pean Union and sig­nif­i­cant ex­ports to United King­dom.

“A no-deal Brexit could have a sig­nif­i­cant im­pact on ex­ports of those coun­tries to the UK in the ab­sence of new trade agree­ments,” WB stated.

How­ever, the gov­ern­ments of Sri Lanka and UK al­ready have com­menced dis­cus­sions in­for­mally for a po­ten­tial trade pact in pre­par­ing for no-deal Brexit sce­nario.

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