Sri Lanka to sustain stronger growth throughout 2011-2015

Sri Lanka is expected to sustain a slightly stronger growth momentum of 6.6 percent on average throughout 2011-2015, states a RAM Ratings report titled “Economic Outlook Sri Lanka.”

It says that this would boost the country’s standing in terms of GDP per capita among its peers rated the same or a notch or two higher and in turn strengthen Sri Lanka’s financing ability while attracting more foreign investment thereby boosting the progress of its economic development.Although inflationary pressures have increased this year they are expected to moderate next year.

However, Sri Lanka is highly susceptible to volatile commodity prices (for energy and food) unexpected supply shocks remain of utmost concern to policy makers and industry players.

Moving forward the country anticipates to show strong improvement in its management of price stability while its average consumer price inflation is expected to be halved over the next five years.

The persistent uncertainties plaguing the global economy remain a key downside risk for developing economies. Currently more than half the nation’s exports are still centered on the US and EU markets. Given this a shift away from its present dependence will help cushion growth due to the apparent downside risks.

From the domestic viewpoint further policy initiatives are needed, to rationalise the Governments moderately high budget deficit to maintain sustainable growth and achieve medium term growth estimates for continued economic development. On a positive note both current account and fiscal deficits are expected to be reduced as brighter economic prospects will shift the burden of growth and employment creation to the private sector on the assumption that the government maintain its fiscal consolidation, states the report.

The report says that the sudden rise in preference for consumer durables formally viewed as luxury items and properties is a welcome boon that indicates revived optimism on political and economic stability. The report says that “ We anticipate a full year’s growth of 12.5 percent for private consumption in 2011 which is seen to taper to a more sustainable 8.8 percent in 2012. Public investments have helped Sri Lanka's economy sustain through the war era that had also been increasing foreign interest in the country largely led by India. Fiscal consolidation efforts have underscored the government’s commitment to macro economic stability while boosting investor confidence. Investment activity is expected to accelerate 11.7 this year followed by 8.1 percent in 2012.