Asian Development Bank (ADB) projects Sri Lanka’s economic growth to slowdown to 2.4% this year and to pick up slightly to 2.5% in 2023.
“The outlook is clouded by Sri Lanka’s debt overhang and large fiscal and external financing needs. GDP growth will be constrained by low foreign exchange reserves and macroeconomic imbalances, including double-digit inflation,” ADB said.
The projection is based on the assumption that the government will be able to meet its external financing.
“Uncertainty remains over the sources of this financing. All in all, risks to the outlook are tilted to the downside,” it noted.
Amid new COVID-19 waves and an energy shortage, ADB expected a slow down in economic activity in the first quarter of 2022
Monetary policy tightening, supply shortages, and heavy inflationary pressure would weigh on domestic
demand this year. Private consumption growth is expected to moderate due to strained incomes, shortages of basic goods, and macroeconomic challenges constraining investment. Rising interest rates would further discourage domestic demand, and increasing reliance on domestic financing of the fiscal deficit will crowd out private investment.
However, ADB said that exports will continue to grow on supportive policies and a recovering external environment.
” But faster growth in imports, aided by rising commodity prices, will lower growth in net exports in 2022. Crucially, economic activity will be impaired by acute fuel shortages and rising commodity prices,” it said.
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