Economic growth - Central Bank optimistic despite ADB predictions
The Asian Development Bank (ADB) in its Outlook 2008 said that Sri
Lanka’s economic growth will slow down to 6 per cent this year and in
2009 while the Central Bank has forecast a growth of 7 per cent.
The ADB in its Outlook said the slow down from 6.7 per cent in 2007
is due to the high interest rates and global economic weakness. The
Central Bank said the country is still on target to achieve 7 per cent
growth and that it does not see any reason to revise the target, a
Reuter report said.
The ADB released its annual flagship publication with predictions
that Asia will post a solid growth during the year even as growth in
major industrial economies will slow down.
The Outlook attributed the decline in growth to the slow down in
private sector investment as investors are hesitant; a weaker
performance of the important garment industry due to the projected
global deceleration in growth, high oil prices and the conflict.
While predictions are that Sri Lanka’s economy will slump, China’s
economy is expected to grow by a solid 10 per cent and the Indian
economy is forecast to expand by 8 per cent this year.
The report said that inflation will remain high this year and taper
off slightly next year due to high inflation expectations, robust
aggregate demand and continued upward adjustments of fuel and
“Managing inflation and the rising cost-of-living entails a difficult
trade-off between short term options to bring down the cost-of-living
and medium term policies to rein in inflation.
An increase of US$ 10 per barrel on diesel will increase the price of
fuel by Rs. 8 per litre”, the report said. Sri Lanka’s inflation
recorded 20.2 per cent last year, the highest so far though predictions
are that it may drop to 16.2 per cent this year.
The Asian Development Outlook (ADO) warns that the risk of an
inflation spiral in Asia is obvious and urges policymakers to keep a
close watch on it.
Despite a slew of administrative measures and subsidies that are
reining in price increases, inflation is expected to spike in 2008 and
could hit a decade long regional high, the report said.
Analysts said that with the deceleration in growth for the next two
years achieving the 10-year development plan goals will be an uphill
task. Achieving the goals will depend on the implementation of policies
to improve productivity.
Continued tightening of monetary policy will restrict the growth of
private sector credit but it is unlikely to reduce inflation pressure
unless it fits with fiscal policies that reduce bank borrowings to the
level outlined in the Road Map.
The bank said if the government continues to introduce taxes and
duties on foodstuffs and fuel to reduce the cost-of-living it will add
to inflation pressure by increasing the budget deficit.
It is unlikely that the country will have a protracted period of very
slow growth despite the conflict but it is entering a difficult phase in
its economic development to improve the low-middle income country
According to a survey, the report said, that the trend of qualified,
skilled people emigrating is increasing with the pace of immigration
generally accelerating in 2007.
The ADO forecasts developing Asian economies to expand at 7.6 per
cent this year and 7.8 per cent next year.
The region posted the highest growth in two decades last year
averaging 8.7 per cent.