CB expects economy to grow 5-5.5% this year

• Growth to be driven by domestic private investments and FDIs
• Strong growth in global economies such as US, EU and Japan positive for SL
• Targets an inflation rate of 4-6% 

The Central Bank expects Sri Lanka’s economic growth to pick up pace this year despite the subdued growth in 2017, which is estimated to be below 4 percent, lower than the projected 4.5-5 percent growth at the beginning of the year.

“We expect the growth to pick up somewhere between 5 to 5.5 percent this year. The economy is stabilising and is on the right path,” Central Bank Governor Dr. Indrajit Coomaraswamy told reporters in Colombo yesterday, unveiling the Central Bank’s ‘Road Map 2018: The Monetary and Financial Sector Policies for 2018 and Beyond’.

He said the growth will be driven by domestic private investments and higher foreign direct investment flows. Sri Lanka is believed to have achieved US $ 1.5 billion in foreign direct investments (FDIs) in 2017 and expects US $ 2-3 billion in FDIs this year onwards.

Dr. Coomaraswamy also said that the current positive developments in the US, European and Japanese economies are favourable to Sri Lanka and will help Sri Lanka achieving a relatively higher growth rate this year.

“I think this was the first time since the economic crisis in 2008 that the US, European and Japanese economies are growing at the same time,” Dr. Coomaraswamy noted.

He also said the growth in export earnings during the past several months has been encouraging. However, despite the higher export earnings, Sri Lanka still runs an unsustainable trade deficit, somewhat cushioned by workers’ remittances, which are also seeing a declining trend of late. 

Meanwhile, Dr. Coomaraswamy stressed on the need to avoid the charm of cheap credit and fiscal imprudence to generate economic growth, a trap Sri Lanka fell into many times. “We have to drive growth through economic reforms,” he said.

The growth in 2017 was hampered by intermittent floods and a severe drought in the main cultivating areas of the country. 

Further, the tight monetary and fiscal policies adopted by the Central Bank and government to regain macroeconomic stability affected the public and private investment spending, which also contributed to slow economic growth.

Meanwhile, the governor said although the fiscal sector has recorded notable improvements, in terms of revenue collection, some slippage in the budget deficit is likely in 2017, mainly as a result of weather-related fiscal costs and higher interest payments. 

“This could have an adverse impact on achieving the envisaged fiscal consolidation path, while complicating the conduct of monetary and exchange rate policies,” he said.

Sri Lanka was targeting a fiscal deficit of 4.7 percent of gross domestic product in 2017.  Dr. Coomaraswamy also said Sri Lanka is targeting an inflation of 4-6 percent this year.