Sri Lanka’s economy...

The report also pointed out that a fall in remittances could adversely impact poor households that rely on them as an important source of income.

In 2019, worker remittances accounted for 7.8 percent of Sri Lanka’s GDP. In April, the World Bank forecast 19 percent decline in remittance earnings for Sri Lanka.

However, workers’ remittance earnings have recorded only 1.5 percent decline in the first eight months of 2020, to US$ 4.35 billion, compared to the first eight months of 2019.

Highlighting the risks and challenges for the country, the report stated that a longer than expected outbreak of COVID-19, that would extend the horizon and depth of related economic disruptions, would be a key risk to the country’s economic outlook. “… a longer downturn could push many small and medium enterprises from illiquidity to insolvency and the poverty rate could rise even higher, as more people suffer income losses. Low growth would also put additional strain on public finances,” the report said.

The World Bank also stressed the need for Sri Lanka to strike a balance between supporting the COVID-19-HIT economy and ensuring fiscal sustainability, as the country is highly exposed to the global financial condition with Sri Lanka debt repayment profits, requiring the country to access financial markets frequently.

“A high deficit and rising debt levels could further deteriorate debt dynamics and negatively impact market sentiment.”

Meanwhile, the World Bank forecasts Sri Lanka’s fiscal deficit to widen sharply to 11.1 percent this year, from 6.8 percent in 2019, the debt-to-gdp ratio to exceed 100 percent from 86.8 percent in 2019. The World Bank expects Sri Lanka’s debt-to-gdp levels to remain elevated over 100 percent levels in 2021 as well as in 2022.

Due to the decline in demand, Sri Lanka’s inflation is expected to remain below 5 percent in 2020 and 2021.