Rapid economic growth forecast in 2014 and 2015 - ADB
Asian Development Outlook 2014 (ADO 2014), the flagship annual
economic publication from the Asian Development Bank (ADB) released last
week forecasts 7.5 percent economic growth in Sri Lanka in 2014 and
expects it to remain at that level in 2015.
The report said that the improved external environment, higher
investments, and recovery in domestic consumption will sustain a rapid
pace of GDP growth in the next two years. “Sri Lanka's economic
performance will further strengthen with the improvement in the external
environment over the next two years,” said ADB's Senior Country
Economist for Sri Lanka, Tadateru Hayashi, at a media briefing in
Colombo last week.
“Domestic conditions, with relatively low inflation, improving
consumption demand and a falling fiscal deficit augur well for a higher
growth trajectory,” he said.
Sri Lanka's economy recorded 7.3% growth in 2013, supported by
strengthening domestic demand on an eased monetary policy and
improvement in exports and tourism.
Faster growth in the wholesale and retail trade, hotels and
restaurants, transport, banking, insurance and real estate lifted
performance in the large service sector providing the impetus for the
Favourable weather helped maintain agricultural growth.
Inflation is expected to remain in the mid-single digits in 2014 and
2015. Steady international fuel, stable food prices and assuming normal
weather, will help to keep inflation in check over the next two years.
Exports are expected to strengthen with better economic performance
in the European Union and the United States, Sri Lanka's main export
destinations. After declining in 2013, imports will pick up in 2014 as
domestic demand materialises.
Workers’ remittances expanded in 2013 as a result of increased labour
migration under the professional and skilled category, the expansion of
formal channels for remitting money, and the introduction of a web-based
money transfer system.
Continued strong performance in remittances will help contain the
current account deficit at 2.6% and 3.5% in 2014 and 2015.
The fiscal deficit steadily shrank to 5.8% of GDP in 2013, from a
peak of 9.9% in 2009. However, while the government has reduced
expenditure and attempted to improve revenues to narrow the deficit, the
revenue ratio did not pick up as expected. Better economic performance
and more imports are expected to catalyse higher revenue collection in
2014 and 2015.
Continued policy action is also needed with improved revenue
administration, to achieve a higher revenue ratio, the report said.
The report also said that developing Asia will extend its steady
economic growth in 2014 as higher demand from recovering advanced
economies will be dampened somewhat by moderating growth in the People's
Republic of China (PRC).
It forecasts developing Asia will achieve GDP growth of 6.2% in 2014,
and 6.4% in 2015. The region grew 6.1% in 2013.
The report said that widening income gaps are undermining decades of
successful poverty reduction in developing Asia and said governments
should proactively use fiscal policy to close gaps and promote more
ADB's Deputy Chief Economist Juzhong Zhuang said that fiscal policy
can and should play a bigger role in promoting inclusive growth in Asia.
Asian policy makers must act now to integrate inclusion targets into
their budget planning to transition to a path where the benefits of
growth are broadly shared, he said.
Fiscal Policy for Inclusive Growth, the special theme chapter in the
ADO notes that during the 1990s and 2000s, more than 80% of the region's
population lived in countries with worsening Gini coefficients, a common
measure of inequality.
The same market forces that have enhanced growth in the region -
globalisation, technological progress, and market reform - now
International experience shows that public spending can reduce income
inequality. Government spending on education and health care, for
example, broadens access for the poor to these vital services and helps
level the playing field. Making infrastructure affordable and accessible
allows the poor to take better advantage of the opportunities that come
with improved education and health, the report said.