Economy poised for strong rebound - Chief Economist, RAM Ratings

By Surekha GALAGODA

In the instance Sri Lanka can maintain a 6-10 percent growth in the medium to long-term, the country can move to an upper middle income country by the end of the decade, said Chief Economist RAM Ratings Malaysia Dr Yeah Kim Ling. He said one way of achieving this goal is diversifying the product structure to high end value added products which will earn a higher foreign exchange.

He said that having weathered the 2008/09 global downturn successfully Sri Lanka’s economy is poised for a strong rebound in 2011 with its estimated GDP growth approaching seven percent.

Speaking at the ICASL organised breakfast meeting on Sri Lanka’s Economic Outlook 2011, Dr Leng said that our medium to long-term GDP growth forecast for Sri Lanka has been revised upwards from 5.5 percent to 6.2 percent per annum for the 2011-2015 periods. Our projection for 2016-2020 has also been raised a notch from 66.1 percent.

The revisions are underpinned by several key factors such as a quicker than expected reduction in the country’s macroeconomic imbalances, the less severe impact of the global financial crisis on the domestic economy, the quick albeit fragile global recovery and the rising confidence in the post conflict economic rebound.

An improved macro economic environment, coupled with fiscal and other structural reforms to energise the private sector and harness market forces to raise economic efficiency and productivity will set the tone for the country’s transition from low middle income to middle income status. Dr Leng said the economy is projected to expand 6.5 percent in 2011 followed by 6.3 percent in 2012.

The moderately strong growth will be driven by domestic final demand as net trade contribution to GDP remains in negative territory.

Buoyant consumer and investor sentiments will contribute to the robust domestic demand while rising investment activity, specially from the foreign and domestic private sectors will provide an upside to our growth forecast.

The services sector will benefit from the healthy domestic demand.

This segment is expected to sustain a seven percent growth in 2011 and 2012. Underpinned by the sizeable manufacturing sub sector the industry sector is projected to expand 6.4 percent per annum over the next two years, said Dr Leng.

Dr Leng also identified the key challenges and risks and said that the country’s near term challenges are striking a judicious balance between the need for fiscal consolidation, to rein in the deficit without derailing the momentum of post conflict rebuilding and growth.

At the same time structural reforms are needed to enhance administrative efficiency and crowd in private investment by building on the prevailing positive sentiments.

Dr Leng said that the key risks include prolonged weaknesses of the advanced economies, accelerated inflation due to commodity price shocks, slow pace of reforms, investor’s perception of increased fiscal weakness and the inability to diversify domestic production structure.