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Tuesday May 11th, 2021
Economy

Sri Lanka per capita GDP drops in 2021 amid Covid-19, monetary instability

ECONOMYNEXT – Sri Lanka’s per capita gross domestic product has dropped to 3,682 US dollars per person amid a 3.6 percent fall in real GDP amid a Coronavirus pandemic and monetary instability.

Sri Lanka’s nominal GDP only fell marginally to 14,973 billion rupees in 2020 from 15,013 in 2019 amid inflation.

Sri Lanka began to suffer higher levels of monetary instability and lower growth from around 2015 with ‘flexible’ inflation targeting and ‘flexible’ exchange rate, worsening dual anchor conflict that is already found in soft-pegged monetary regimes.

Per capita GDP peaked at 4,077 dollars in 2017, a year with relative monetary stability with the rupee falling only from 151 to 153 to the US dollar.

In 2018 per capita GDP fell to 4,057 dollars as Sri Lanka was hit by money printed to target and output gap while taxes were hiked to improve budgets.

Analysts say 2018 is an important year because the currency was busted from 153 to 183 to the US dollar while the overall budget deficit was brought down from 5.3 percent from 5.5 percent exposing the oft-repeated claim that deficit budgeting was a reason for monetary instability.

The resulting currency crises from the monetary stimulus then pushed the deficit to 9.6 percent of GDP in 2019 worsened by sudden tax cut in December in a fiscal ‘stimulus’.

The fiscal stimulus blew a big hole in the budget amid a Coronavirus crises, worsening monetary instability and triggering downgrades.

Sri Lanka’s rupee ended the year around 186 to the US dollar pushed up by interventions in the last week of December but fell back to 194 in January.

In 2021 the central bank is expecting per capital GDP to bounce back to 2,873 US dollars, or around 2019 level with the real economy growing 6 percent. (Colombo/May01/2021)

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