Lanka to benefit from growth in advanced economies - IMF

Sri Lanka’s economic growth has been one of the fastest among Asia’s developing economies in recent years.

After falling to 6.3 percent in 2012, real GDP growth accelerated to 7.3 percent in 2013 — driven primarily by a pick up in services activity and supported by manufacturing and construction, but also benefiting from an increase in net exports, International Monetary Fund (IMF) Sri Lanka Mission sources said at the conclusion of Article IV consultation1 and second Post-Program Monitoring discussion with Sri Lankan officials.

Inflation has remained low, falling to 4.7 percent at the end of 2013 and to 3.2 percent year-on-year in May 2014.

Fiscal consolidation has continued, with the overall fiscal deficit falling to 5.9 percent of GDP in 2013.

A strong recovery in exports in the second half of 2013 and into 2014, combined with declining imports and continued inflow of remittances and services receipts, has bolstered the balance of payments and with issuance of external debt, has allowed the Central Bank to accumulate international reserves.

Monetary policy has been accommodative, but private credit growth has been slow.

The short-term outlook appears broadly positive, as Sri Lanka is well positioned to benefit from the global economic recovery and particularly strong growth in advanced economies.

Real GDP growth is expected to remain robust at about 7 percent in 2014, while inflation is likely to remain in the mid-single digits.

The government has targeted a further reduction of the fiscal deficit to 5.2 percent of GDP, which should allow for even more reduction of public debt.

With a continued robust export performance, the current account deficit is expected to narrow further and allow for some additional accumulation of international reserves.