Sri Lanka’s Gross Domestic Product (GDP) is projected to grow by 4.1% recovering from the Coronavirus crisis on an expansive budget and stronger global demand with a marked rebound expected in the major advanced economies, as well as from a base effect following the contraction in 2020, Asian Development Bank (ADB) said in a new report released today.
However, the ADB expects the growth to slow down to 3.6% in 2022.
The pace of vaccination in Sri Lanka and in key export and tourist markets will be the key determinant of the economic recovery in 2021 and 2022.
Sri Lanka plans to vaccinate nearly half of its population by the end of 2021.
The sucesss of China-backed BRI projects and implmention of economic reforms are also expected to play a keyrole in Sri Lanka’s economic reovery.
“Growth will benefit in the near term from increased private consumption as pent-up demand is released, and consumption and investment will benefit from low-interest rates and ample liquidity. Progress on the Colombo Port City special economic zone is expected to foster foreign direct investment, as does development in the Hambantota Industrial Zone. The government’s reform priorities include deregulation to simplify governance structure, improvements to the judiciary, customs efficiency, financial sector regulation, and effective land use,” ADB said.
However, risks to the forecast stem from uncertainty generated by the ongoing pandemic, in particular the impact of new strains and the pace of vaccination.
Moreover, once forbearance measures under COVID-19 are lifted, the ADB cautioned that higher nonperforming loans may constrain private sector credit growth, as may crowding-out effects under fiscal deficit monetization, limiting growth in consumption and investment.
Other risks to recovery prospects are fiscal and debt challenges, import restrictions, significant external financing requirements, underlying structural issues, and extreme weather.