If the policy reforms in the areas of fiscal operations, competitiveness and governance which the Government of Sri Lanka indicated as necessary, are successfully implemented it could help the country to reach Upper Middle Income status in the medium term, the World Bank said in a recent statement.
The World Bank said that Sri Lanka’s gross domestic product (GDP) growth will remain flat this year compared to 2015, and will marginally improve to just above 5 percent in 2017 as more investments flow in.
“Sri Lanka’s GDP growth to remain unchanged in 2016 and grow marginally over 5 percent in 2017 and beyond driven by public and private investment (including the resumption of postponed FDI), tourism and reduced negative impact on growth from commodity imports,” it said in the report.
Sri Lanka’s GDP grew at 4.8 percent in 2015, amid uncertainty surrounding an election year and due to the change of the base year of calculations to 2010, slightly down from 4.9 percent growth experienced in 2014.
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.
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.