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Sri Lanka seen in extended period of low growth

ECONOMYNEXT – The lack of broad-based reforms that could spur economic activity may mean Sri Lanka is in an extended low growth and low inflation environment, an economist told a Ceylon Chamber of Commerce forum.

The government’s program with the International Monetary Fund is more of a stabilisation program and not one that pushes reforms needed to speed up growth, said Dushni Weerakoon, Deputy Director of the Institute of Policy Studies.

The macro-economic environment is expected to improve this year with fiscal sector reforms that have reduced inflation and improved state revenue and the government successful in holding down spending, she told the forum on the economic outlook for 2017.

But economic growth is expected to remain stagnant round 5% during the 2016-2020 period.

Tax hikes imposed by the government to raise revenue were hitting business and consumers with a reduction in demand seen, Weerakoon said.

“In this situation, you need broad-based economic reforms to restart economic growth. If not, you’ll have an extended period of low growth.”

The reforms being implemented by the government were mostly ad hoc and not the systemic reform effort the economy needs now to move from growth led by public investment in infrastructure to private investment and export-led growth, Weerakoon said.

“For that we need to look at the underlying constraints to private sector growth and labour market conditions.”

The government is focusing on trade deals and regulatory reforms but these were not broad-based enough to speed up growth, Weerakoon said.

“Unless we get broad-based reforms we will not see GDP growth reviving even as the macro-economic environment stabilises,” she said.
(COLOMBO, Jan 26, 2016)





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