REUTERS: Sri Lanka will sell to a Chinese company 80 percent of a US $1.5-billion port in its south, where China has also been offered an investment zone, in a bid to cut the country’s debt burden, Finance Minister Ravi Karunanayake said. The move follows an offer made by Prime Minister Ranil Wickremesinghe during a visit to China in April, to swap equity in Sri Lankan infrastructure projects against some of the US $8 billion in debt the Indian Ocean island owes to China.
The World Bank said that past currency depreciations and the Value Added Tax (VAT) increase will impart upward pressure on inflation, despite lower global commodity prices.
“The current account deficit is projected to narrow in 2016 with reduced imports and increased tourism,” it added.
Finance Minister Ravi Karunanayake this month said that he was expecting the economy to grow at 5.5 percent this year, and had also refuted 2.6 percent GDP growth experienced due to adverse weather during the second quarter of the year.
According to the Census and Statistics Department, the country’s GDP had grown by just 3.9 percent during the first half of the year, though the Purchasing Managers Index shows signs of a pickup of the economy during the latter half.
The World Bank added that to sustain growth above 5 percent, Sri Lanka needs to increase revenue collection, remove tax exemptions which benefit the rich and set up pro-poor safety nets, improve export competitiveness, and work towards refinancing debt which will mature starting from 2019.
It added that tightening global financial conditions could lead to capital outflows and make borrowing more expensive.
“While the economy is unlikely to feel the direct impact of a slowdown in China and the Brexit, continued economic woes in the Middle East, the European Union and Russia could adversely affect Sri Lankan exports and remittances,” the World Bank said.
Taking into account the reduced spending of the Finance Ministry so far this year, the World Bank projected the budget deficit to improve to 5.7 percent of GDP, compared to government approved estimates of 5.9 percent of GDP.
The government had hoped to reduce the budget deficit to 5.4 percent with the introduction of the VAT increase, according to the World Bank. However, the legislation was halted in July due to legal troubles and was passed by parliament again this month.