After years of recording a high economic growth in excess of 7 percent, a global rating agency yesterday said that the pace at which the Sri Lankan economy will grow could slow down but will still remain an outlier among the emerging Asian region.
According t o Fitch Ratings, Asia Pacific Sovereigns Associate Director, Sagarika Chandra, Sri Lanka’s GDP growth will soften to around 6 percent in the medium term but it is still a “healthy” growth.
“The so called ‘growth moderation’ – yes, perhaps, there could be a slight slowdown but this also a part of the overall Emerging Asia story. There has been moderation is the Emerging Asia growth and I think Sri Lanka is (also) following t he same trend,” Chandra said.
Post war Sri Lankan economy has been growing over 7 percent on average and the economy is expected to have expanded by 7.8 percent in 2014.
The key driver of this growth was the large commercial borrowing-led i nfrastructure development drive and the massive capital expenditure.
Meanwhile, Institute of Policy Studies Deputy Director, Dr. Dushni Weerakoon said the slowdown in government-led infrastructure development and the turning to domestic sources for fiscal deficit financing could have a negative impact on the growth moderation.
“We may see a going back on the state-led infrastructure drive that will have a drag on the immediate (term) growth,” Dr. Weerakoon said. Despite heaps of giveaways and concessions, the interim budget managed to contain its 2015 budget deficit to 4.4 percent (from 4.6 percent in the budget presented in October 2014), predominantly through curtailing capital expenditure.While global developments are less supportive towards Sri Lanka in the current context, Dr. Weerakoon believes much will depend on the domestic policies pursued by the policymakers in deciding the growth.
Access to finance is likely to become more difficult given the United States’ indications of hiking their treasury yields sooner or later.Sri Lanka’s debt maturing in the near term will also pose a fairly high risk in the external front as the country’s reserves have dwindled by US $ 2 billion since June 2014.
Sri Lanka last week was said to have negotiated a debt deferment and a fresh Stand-by Arrangement facility up to US $ 2.5 billion with the International Monetary Fund and a development financing facility with the World Bank.Sri Lanka is also reportedly planning a sovereign bond issue up to US $ 1.5 billion before the end of the first quarter of this year.Dr. Weerakoon said that accessing international capital markets would become more difficult when the growth is moderating.