Sri Lanka growth may have slowed to 3-pct GDP in 2018, 4-pct target in 2019
ECONOMYNEXT – Sri Lanka is expecting 3.0 percent economic growth in 2018, lower than earlier forecast but growth could pick up to 4.0 percent in 2019, Central Bank Governor Indrajit Coomaraswamy said.
In 2019, Sri Lanka would benefit from good harvests in the ‘Maha’ season following the end of a drought.
He said high reservoir levels would also help hydro power generation. Numbers may also be boosted by a base effect, with lower growth last year.
In 2018, Sri Lanka is likely to post gross domestic growth of 3.6 percent, Coomaraswamy said.
He said Sri Lanka had posted the highest-ever foreign direct investment and export growth for two years in a row, which he said was helped by a ‘competitive’ exchange rate.
It was ‘dismal’ compared to countries like Vietnam but it showed Sri Lanka was on the right track, he said.
Meanwhile a ‘potential growth’ according to an econometric model of the Central Bank had been lowered from an earlier 5.75 percent to 5.0 percent, he said.
At around 3.0 percent, Coomarswamy said the economy was still growing below potential, which pointed to a need to cut rates, but the Central Bank had maintained rates for stability.
Analysts had warned earlier that Sri Lanka, which seems to operate a pegged exchange rate, based on multiple convertibility undertakings, cannot simply print money and cut rates as it wished, without generating external instability.
Printing money expands credit beyond the deposit raised by banks, generates excess imports and pressures the exchange rate. Printing money for whatever reason, will make it impossible for the central bank to mop up liquidity and build up reserves. (Colombo/Feb22/2019-SB)