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The Asian Development Bank (ADB) yesterday warned that politics is clouding Sri Lanka’s growth prospects despite being in developing Asia’s fastest growing sub-region, South Asia.
“Recent political uncertainty will cloud Sri Lanka’s growth prospects in the short term,” ADB said in its Asian Development Outlook Supplement (ADO Supplement).
This cautioning was after ADB acknowledged that Sri Lanka’s GDP grew by 3.7% in Q2 of 2018, and the first half of 2018 saw revived private consumption, continued tightening of government current spending, and stagnant fixed investment.
The uncertain outlook for Sri Lanka is despite it being in what the ADB described as the fastest -growing sub region in developing Asia. ADB said South Asia is on track to meet the Update growth forecast of 7.0% for 2018, but the forecast for 2019 is revised down marginally from 7.2% projected in September to 7.1%.
ADO Supplement said Bangladesh has maintained its growth momentum with exports growing by 19% in the first 4 months of fiscal year 2019 (FY2019, ending 30 June 2019), remittances also growing strongly in the period, and import growth slowing in Q1. Pakistan’s external conditions have worsened in the past few months with foreign exchange reserves continuing to fall in Q1 of FY2019 (ending 30 June 2019) and the local currency depreciating by 14% from July to October.
Tourist arrivals continued to grow strongly in Maldives. Nepal saw in Q1 of FY2019 (ending 16 July 2019) exports surge by 16.1% and remittances hit a record of $2.1 billion, up by 24.5%.
India saw GDP growth moderate to 7.1% in Q2 of FY2018 (ending 31 March 2019) from 8.2% in Q1, for 7.6% growth in the first half. The slowdown came mainly from weak food prices dampening rural consumption, higher oil prices delivering a negative shock in the terms of trade, and rising costs for raw materials.
While a gradual slowdown across the quarters in FY2018 was forecast in the Update, the slowdown in Q2 was a bit steeper than anticipated. Nonetheless, growth forecasts of 7.3% for FY2018 and 7.6% for FY2019 are retained from the Update despite some downside risks: tighter credit as the nonbank finance sector experiences stress, limited fiscal space for public capital expenditure, and escalating trade tensions. Some of these risks could be offset by a recent decline in oil prices and by exports becoming more competitive as the Indian rupee weakens, down by 10% since the beginning of 2018 despite a recent rebound.
Growth in Bhutan in FY2018 (ended 30 June 2018) is now thought to have moderated more than estimated in the Update as weak water flows caused hydropower production to decline and hydropower plant construction started to scale down as it neared completion.
Afghanistan made good progress on key reforms under the International Monetary Fund’s Extended Credit Facility and is, according to the World Bank, among the world’s top ten performers in improving the ease of doing business.
ADB said backed by robust domestic demand, developing Asia continues to weather external headwinds. The latest ADO Supplement maintains growth projections at 6.0% for 2018 and 5.8% for 2019, as detailed in Asian Development Outlook 2018 Update in September.
Excluding the newly industrialised economies, regional growth is forecast at 6.5% in 2018 and 6.3% in 2019, as envisaged in September.
East Asia growth projections are maintained at 6.0% for 2018 and 5.7% for 2019 despite lower forecasts for the newly industrialised economies. Growth in the People’s Republic of China is still expected at 6.6% in 2018, moderating to 6.3% in 2019.
The Southeast Asia growth forecast is retained at 5.1% for 2018, assuming robust consumption and infrastructure investment. Adjustments for Indonesia, Malaysia, and Thailand lower the 2019 outlook by 0.1 percentage points to 5.1%.
