Sri Lanka cannot afford to deviate from the path it has embarked upon and ensuring political stability is of paramount importance to attain sustained economic growth for the country, according to Central Bank Governor Dr. Indrajit Coomaraswamy.
“The elephant in the room is the political situation in the country. I’m not aware of any country that has been able to make significant progress without political stability. Restoration of political stability is of paramount importance,” Dr. Coomaraswamy said. He was addressing the inaugural session of the National Financial Inclusion Strategy launch, which took place at The Hilton Colombo, on Tuesday.
Sri Lanka’s current political landscape remains awfully toxic with the main two parties of the coalition government—the UNP and SLFP— finding it difficult to work in unison due to political differences.
At present, a no-confidence motion is being mooted against Prime Minister Ranil Wickremesinghe and several SLFP cabinet ministers have openly supported the move.
The differences between the two parties were seen exacerbating with the embarrassing loss for both the parties at the recently-held local government election, where the former strongman Mahindra Rajapaksa proved that he is still the main force in Sri Lanka’s hinterland.
Analysts have expressed concerns whether the election upset could reverse the economic reform process the coalition government has set in motion with the assistance of multilateral lenders such as the International Monetary Fund and World Bank.
Specially since last year, Sri Lanka’s macroeconomic indicators have improved and a significant progress can be seen in the fiscal front with higher taxes and better tax collection.
Despite the elevated cost of living, the headline inflation remains at benign levels and the core inflation has been around the Central Bank’s target of 4 to 6 percent.
The country’s external front has also seen marked improvement with the foreign reserves improving to almost US $ 8 billion by end-2017 from US $ 6 billion in 2016. The quality of the reserves too has improved.
The exports have also performed well as Sri Lanka saw record export earnings last year, although coming from a very low base.
However, the island nation’s growth remains disappointing. But the underlying fundamentals in terms of the growth framework seem to be improving. “We are moving in the right direction. But I should mention here that we should guard against the danger of going for short-term expedient solutions to push up the growth rate,” Dr. Coomaraswamy said.
“But the important thing is to keep working on the growth framework that gives you sustained growth, which is driven by exports. As you know in a market of 20 million, external demand plays a major role in terms of providing sustained growth in the long term. The important thing now is to keep on track. We must not deviate from what we have embarked upon,” he added.
Economy grows 3.2% in 4Q17; full-year growth slows to 3.1%
The Sri Lankan economy expanded by 3.2 percent in the fourth quarter of 2017 compared to the same period in 2016 helped by a recovery in the agriculture sector, although the annual growth in 2017 was lower at 3.1 percent.
The Census and Statistics Department yesterday said that the agriculture sector, which made up a 6.8 percent share of the country’s gross domestic product (GDP) in 2017, grew by 7.1 percent year-on-year (YoY) during the final quarter of the year.
Industrial activities grew by 2.7 percent YoY, contributing 24 percent to GDP, while services, which contributed 53.6 percent to GDP, grew by 3.2 percent YoY during the fourth quarter.
The annual GDP growth was 3.1 percent compared to 4.5 percent YoY.
The Census and Statistics Department said that the inclement weather experienced during the last two years contributed to the negative growth with a contraction in the agriculture sector during 2017.
Except for the fourth quarter, agriculture recorded negative figures with 0.8 percent contraction YoY, while contributing 7.7 percent to GDP in 2017.
The industrial sector, which claimed 27.2 percent of GDP, grew by 3.9 percent YoY, with the largest activity – food, beverages and tobacco manufacture, recording less than half the industrial sector growth, while the second largest activity – textile and apparel manufacturing, grew by 5.7 percent YoY due to Sri Lanka regaining GSP Plus from the European Union.
Rubber and plastic manufacturing and the production of basic metals, fabricated metals, machinery and equipment grew at much higher rates than the sectoral average.
The services sector, which was the highest contributor to GDP with 55.8 percent, recorded a growth of 3.2 percent YoY with robust growth experienced by the programming and broadcasting, telecommunications, financial services, healthcare and insurance.
The Central Bank is projecting growth this year to reach 5-5.5 percent.
