World Bank forecasts Lanka’s GDP to grow by 6.8% in 2013

Thursday, 17 January 2013 00:56 - - {{hitsCtrl.values.hits}}

The World Bank is forecasting Sri Lanka’s economy to grow by 6.8% this year, reflecting a rebound from an estimated 6.1% improvement in 2012.

The multilateral donor agency is also expects Lanka’s growth to accelerate further to 7.2% by 2015, a relatively weaker pace compared with over 8% growth in 2010 and 2011, as the earlier boom in investment and reconstruction following stabilisation after political conflict tapers off, implying a more sustainable pace of growth in line with underlying macroeconomic fundamentals.

The latest forecast is contained in World Bank’s latest publication Global Economic Prospects released yesterday.

The World Bank said South Asia’s GDP growth is projected to rise to 5.7% in the 2013 calendar year from 5.4% in 2012. Commenting further on Sri Lanka, the World Bank said GDP growth in 2012 slowed in part from policy efforts designed to limit excessive credit growth and contain overheating, exacerbated by weakening demand for exports and a drought.

Sri Lanka’s imports also slowed due to weaker domestic demand, policy measures to curb imports, and currency depreciation. Electricity cuts resulting from the effect of drought on hydropower generation capacity also adversely affected economic activity. Although policy reforms in Sri Lanka acted as a drag on growth in 2012, they are also likely to boost growth outturns during the forecast horizon, the World Bank added.

It also said a pickup of tourism during the forecast horizon will also contribute to economic activity in the country.

The World Bank report in general also said developing countries need to focus on raising the growth potential of their economies, while strengthening buffers to deal with risks from the Euro Area and fiscal policy in the United States.

In terms of South Asia, the World Bank said the region’s economic outlook is subject to several risks. A key domestic risk is that of fiscal consolidation not proceeding as planned. Although governments across the region have committed to fiscal consolidation measures, with elections coming up in several

“South Asian countries within the next two years, the pressures for populist spending measures could increase and cutting subsides may prove difficult. If in addition, growth outturns turn out weaker than anticipated or planned revenue raising measures (e.g. disinvestment plans for public enterprises) do not materialize, it could lead to higher than planned budget deficits and rising government debt, with potentially adverse consequences for sovereign creditworthiness,” the World Bank added.