Saturday, 18 April 2015 00:00
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Regional growth in the South Asian region is tipped to increase from 7% in 2015 to 7.6% by 2017, according to the biannual South Asia Economics Focus Report issued by the World Bank. According to the report, the projected growth will be assisted by maintaining strong consumption and increasing investments. Furthermore, the strengthened expansion seen in India along with the favourable oil prices, the South Asian region is set to maintain its position as the fastest growing region in the world.
In fact due to India’s contribution to the regional GDP, the World Bank’s projections largely showcase India’s expected growth acceleration. The region however has shown a rapid deceleration in inflation, taking it from having the highest inflation rate amongst developing regions to having the lowest in just over a year.
Against that backdrop, the World Bank report stated that the situation in Sri Lanka is somewhat different. Sri Lanka’s economy has consistently posted a growth rate exceeding 7% each year since 2012. In 2013, Sri Lanka’s economy was growing at 7.2% while in 2014 it increased to 7.4%. According to the World Bank, that growth rate is expected to decline to around 6.9% in 2015 due to slowing construction activity. The Asian Development Bank (ADB) recently shared a similar projection for Sri Lanka in its report.
The World Bank Report meanwhile stated that Sri Lanka’s new Government was focused on reassessing the previous investment-led growth model, while it partially attributed the trend to consumption growth as a result of increased public sector wages and higher disposable income. The Government has so far focussed on encouraging private consumption and strengthening purchasing power which means that construction will likely slow down as well, with large-scale infrastructure projects taking a backseat. While the cost of living has reduced as a result of decreased food and fuel prices, investment has somewhat slowed down.
Even with the current regime’s optimistic outlook on the situation, the numbers will not likely improve until the concerns and uncertainties surrounding the upcoming general election are allayed. As expected, investors are unlikely to gamble on a transitional Sri Lanka until the political situation in the country stabilises.
With the global investment eye being cast firmly on the South Asian region, it is the ideal time for Sri Lanka to capitalise, especially taking into consideration the renewed alliances with its regional partners. A swift end to all the lingering doubts over the country’s political situation will only help the island get on track in terms of growth.
Although those in power claim that the projected decrease in economic growth can be attributed to the previous regime’s highly-inflated growth rates, it is unlikely that investors will risk investment based on any dubious premise. It is evident that the numbers will do the talking in terms of boosting investor confidence.
The Government now has the task of balancing good governance with maintaining economic growth. Ensuring that that the business community as well as private investors are given confidence to invest in the country even during the country’s pivotal political transition will be one of the Government’s topmost priorities.
