Floods, landslides drag Lankan economy

Sri Lanka’s natural disasters have become a “drag” on the macro economy and reforms are said to be the order of the day for an economy still struggling to manage its national debt crisis.

Since the last six months natural disasters have a widespread impact and continue to be a “drag” on the macro economy and expectations ride high on policy reforms in the financial, lands, labour and State Owned Enterprises ( SOEs), the World Bank’s Senior Country Economist Ralph van Doorn said at a media briefing and panel discussion held at the Taj Samudra in Colombo this week to announce the launch of the bank’s bi-annual report titled “Sri Lanka Development Update” with special focus on “Managing Risks and Creating Opportunities for Sustained Growth.”

He noted that disaster risk management should be an integral part of growth adding that the impact of floods and landslides in late May this year affected 15 of 25 districts resulting in loss of life amounting to 213 and property loss estimated at Rs.70 billion; recovery was estimated to be at 1 per cent of GDP.

It was also pointed out that the Sri Lanka had currently engaged the construction and investments to be its key drivers.

However, Mr. van Doorn noted that the growth drivers were non-tradeable sectors and a shift towards tradeable activity was imperative to sustain growth.

Economic growth was expected to settle at 4.6 per cent this year and go marginally over 5 per cent beyond this year.

In terms of inflation it was noted that the increase this year was mainly attributed to the Value Added Tax (VAT) component and this is expected to stabilize going forward.

Meanwhile the fiscal deficit was expected to dip to 5.1 per cent of GDP for this year, the World Bank stated adding that overall the outlook remained steady.

Improvements in the credit growth is required despite a stabilising monetary policy but the external sector needs to improve as even remittances have dropped and tourism slowed blamed on the country’s only international airport partial closure and the dengue outbreak.

However, FDI was said to have more than doubled in the first half of this year due mainly to the Port City developments currently underway but Mr. van Doorn noted that the external risks continue to remain high. Reforms in terms of fiscal policy, trade policy were spelt out calling for a restructuring of the VAT and energy prices; an improved tax system; removal of VAT exemptions; and increase the cost of living; a liberalisation of trade in the wake of a declining export-to-GDP; better jobs in the export oriented FDI; phasing out of import tar- iffs; revenue loss from reduced tariffs.

The World Bank economist also noted that there could be new opportunities for Sri Lanka if risks are managed well.

He noted that the economy needed to strengthen capacity to analyse risks and design and implement mitigation mechanisms. During the panel discussion on the issues pertaining debt management, National Policies and Economic Affairs Deputy Minister Dr. Harsha de Silva said that the issue is not next year on debt payments but following 2018 when there is a “bunching in of debt payments.”

He pointed out that the government was very conscious and proactive in collecting the funds they have in establishing a liberality mechanism.

Finance Ministry Senior Advisor Mano Tittawella talking on reforms pointed out that the SOEs would see reforms as they are a liability problem and an inherent cost to the government and the business.

Some of the SOEs would get supplemented with public private partnerships and it was noted that a fair formula in pricing energy would be carried out to resolve the issues. He also spoke of the Liabilities Management Act that would put in some structures to ensure transparency is set out in terms of disclosing the management of liabilities through public funds.

“It has been somewhat held up,” he said adding that at present the proposed piece of legislation was with the Legal Draftsman.