CCC urges need to balance growth with stability
The Ceylon Chamber of Commerce (CCC) yesterday warned that the anticipated acceleration in economic growth could come at the cost of stability while calling for implementation of key structural reforms to sustain the growth momentum.
“As far as Sri Lanka is concerned, it’s a clear balance between growth and stability. Will we go back to resolving monetary and fiscal stimulus, which is not backed up by reforms and adjustments in interest rates and currency?” CCC Chief Economist Shiran Fernando said sharing the highlights of the CCC’S 2020 Annual Economic Outlook publication.
The new government has granted sweeping tax cuts and has announced plans to recruit around 150,000 to the state sector within the year.
Fernando noted that Sri Lanka tends to run into twin deficits leading to adjustments in interest rates and currency during election cycles as seen in 2010 and 2015.
Hence, he emphasised the need to balance growth with stability to avoid such issues in the future.
Despite a 25 percent YOY contraction in trade deficit during the first 11 months of 2019, Fernando warned that imports could expand during this year backed by the anticipated uptick in public expenditure, which could put pressure on the rupee.
“Imports are likely to very much pick up due to the consumption boost that we’ve seen through measures provided by the government and that will impact trade deficit. If the trade deficit expands, there will be more pressure on rupee,” he said.
Further, he noted that growth in exports was halted while contraction in imports was also slowed down during the last couple of months of 2019.
However, the CCC projects better performance across key sectors in 2020 in the domestic economy.
The CCC expects that lower interest rates and fiscal stimulus would boost the consumer durable sector while a pick up in consumption is also expected in nonessential categories of the FMCG sector.
However, Fernando said that the growth of the apparel sector would largely depend on market access and negating trade risks while the outcome on wage discussion would be crucial for outlook of the tea sector.
Moving forward, the CCC urged the government to focus on key structural reforms as well as low hanging fruits.
“Some are structural reforms and some are more low hanging fruits. For an example, Digital ID could potentially tie up loose ends such as welfare spending, tax collection and healthcare. Similarly, East Container terminal could boost logistic sector,” Fernando said.