- South Asian region also projected to grow by 3.3% in 2021
- Expects COVID-19 vaccine to be distributed on a large scale in the region in second half
- Says economies rely on external sources of growth such as tourism likely to record only modest recovery
- Global economy expected to expand 4% assuming COVID-19 vaccine rollout becomes widespread
The World Bank projects Sri Lanka’s economy to grow at the modest rate of 3.3 percent this year before decelerating to 2 percent in 2022, the global lender said in its January 2021 Global Economic Prospects report released this week.
According to the Department of Census and Statistics, Sri Lanka’s economy contracted 16.3 percent in the second quarter of 2020 and recovered to 1.5 percent in the third quarter. The fourth quarter GDP estimates are yet to be released.
However, the Central Bank on Monday said the economy is estimated to have contracted by 3.9 percent in 2020. According to World Bank’s estimates, Sri Lankan economy in 2021 is expected to have contracted by 6.7 percent.
According to the World Bank’s latest report, the South Asian region is projected grow by 3.3 percent in 2021.
“Weak growth prospects reflect a protracted recovery in incomes and employment, especially in the services sector, limited credit provisioning constrained by financial sector vulnerabilities, and muted fiscal policy support,” the report said.
The forecast assumes that a vaccine will be distributed on a large scale in the region starting the second half of 2021 and that there is no widespread resurgence in infections.
Meanwhile, the World Bank pointed out that economies that rely on external sources of growth such as manufacturing exports (Bangladesh) and tourism (Bhutan, Maldives, Nepal, Sri Lanka), the recovery is likely to be particularly modest. “Tourism revenue is likely to remain significantly below pre-pandemic levels because of depressed demand as potential tourists remain wary of social interactions and continued restrictions on international travel, although recent vaccine news offers hope.”
Meanwhile, the global economy is expected to expand 4 percent in 2021, assuming an initial COVID-19 vaccine rollout becomes widespread throughout the year, the World Bank said. A recovery, however, will likely be subdued, unless policy makers move decisively to tame the pandemic and implement investment-enhancing reforms, the development lender said.
“While the global economy appears to have entered a subdued recovery, policymakers face formidable challenges—in public health, debt management, budget policies, central banking and structural reforms—as they try to ensure that this still fragile global recovery gains traction and sets a foundation for robust growth,” World Bank Group President David Malpass said. “To overcome the impacts of the pandemic and counter the investment headwind, there needs to be a major push to improve business environments, increase labour and product market flexibility, and strengthen transparency and governance,” he added.