ECONOMYNEXT – Sri Lanka’s gross domestic product could shrink 4.6 percent in 2020, India would shrink 10.3 percent, Maldives 18.7 percent, while Bangladesh would grow one of the fastest rates in the world amid a Covid-19 crisis, the International Monetary Fund has said.
Sri Lanka’s growth would recover to 5.3 percent in 2021, the IMF said.
Bangladesh would grow 3.8 percent, the fastest in the world other than Guyana in South America, Myanmar 2.0 percent, faster than China at 1.9 percent, the IMF said in its October World Economic Outlook Report.
Sri Lanka along with Bhutan, Cambodia, Mongolia and Vietnam are among countries that have controlled the spread of Coronavirus with quarantine and tracing deployed from January 2020.
However Sri Lanka has imposed severe import controls due its dual loosely anchored monetary framework involving ‘flexible’ exchange rate and ‘flexible’ inflation targeting which sent the rupee reeling in March and April 2020 as money was printed and the exchange rate was not defended.
The monetary instability had earned the country a downgrade and raised concerns over servicing foreign debt.
Sri Lanka has high levels of foreign debt, due to past depreciation and high interest rates coming from a depreciating currency.
Revenues had also weakened due to tax cuts announced in December 2019, which has been worsened by import controls imposed due to the forex shortages coming from the soft-peg.
IMF is forecasting revenues to fall to 9.25 percent of GDP in 2020 from 12.64 percent in 2019 and the deficit to rise to 9.6 percent. The 2019 deficit is calculated by the IMF at 8.1 percent.
The lender is forecasting government debt to rise to 98.2 percent of GDP from 86.7 percent in 2019 and stabilize thereafter. (Colombo/Oct19/2020)