Sri Lanka expects 4.0-4.5-pct growth in 2020, inflation 4-pct: CB Governor

ECONOMYNEXT – Sri Lanka is expecting 4.0 to 4.5 percent economic growth in 2020 and inflation below 4.0 percent and a higher 6.5 percent growth in the medium term with better policies Central Bank Governor W D Lakshman said.

Sri Lanka’s growth has fallen sharply in 2019, after the collapse of the rupee currency in 2018 and a suicide bombings in April. Second quarter output growth was 1.6 percent.

Director of Economic Research Chadranath Amarasekara said growth is likely to be around 2.7 to 2.8 percent in 2019.

“We expect economic growth to accelerate to around four to 4.5 percent and inflation to remain below 4 percent in year 2020,” Lakshman told reporters after his maiden monetary policy meeting.

“Beyond 2020 with necessary reforms, annual growth is expected to accelerate to over 6.5 percent while inflation will be managed between 4 to 6 percent.”

Sri Lanka has sharply cut taxes to reduce the burden of the state on the people, and has said spending will be curtailed in an almost classical liberal policy of ‘state austerity’.

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Income taxes have been cut to a maximum of 18 percent in the style of a flat or proportionate tax demanded by Western libertarians.

The last administration changed a 16 percent proportionate tax to a socialist style progressive tax of up to 24 percent.

However concerns remain over how spending will be managed in the first few months of 2020 as private credit recovers and whether monetary stability can be maintained.

The central bank has held rates at 8.00 and 7.00 percent. The agency however is printing money at around 7.50 percent to generate excess liquidity at the moment. (Colombo/Dec27/2019)