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Sri Lanka to grow below 6-pct in 2015 under re-based GDP: Deputy Governor

ECONOMYNEXT – Sri Lanka will be challenged to show a 6.0 percent growth rate under the newly revised method of estimating gross domestic product Deputy Central Bank Governor Nandalal Weerasinghe said.

Sri Lanka has published revised GDP measurements under a 2010 base year, compared to the earlier 2002, which has captured a number of new activities which were not counted under the earlier system.

As a result the total output of GDP has been revised up, making the base bigger.

"It will be a challenge to reach 6.0 percent growth this year, with the new base," Weerasinghe told a business forum at Ceylon Chamber of Commerce.

Sri Lanka is forecasting 7.2 percent growth under the old method of estimating GDP.

GDP growth 3.4 percent under the new system in 2013 compared to 7.2 percent under the old system. The revised GDP was 4.5 percent in 2014 down from 7.4 percent reported earlier.

Weerasinghe said re-basing the GDP is a technical exercise that was started in 2011 with the advice of the International Monetary Fund and experts.

It is a mistake to directly compare the two rates of growth, he said.

Critics point out that with each new refinement that is developed usually in the West by statisticians paid for with people’s taxes, GDP tends to be revised up, while inflation is revised down. The net effect is that eventually bubbles are blown by Central Banks targeting an understated inflation.

The US Fed for example fired the bubble that generated the current downturn by tareting so-called core inflation, which ignored the rising commodity and food prices, while its overall consumer index was also understating price rises.

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Meanwhile Weerasinghe said inflation was expected to be maintained at low rates which will allow historically low interest rates to continue.

Foreign reserves were at ‘comfortable’ levels, and they have been further boosted by a swap with the Reserve Bank of India last week, he said.

After the elections there is expected to be a further recovery in credit and investment.

A new administration will have to focus on improving revenue, reducing fiscal deficits and improving debt management, he said. (Colombo/July 20, 2015)
 

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