Outlook for SL positive: World Bank

Saturday, 11 October 2014 00:00 - - {{hitsCtrl.values.hits}}

Sri Lanka’s short-term macroeconomic outlook remains positive overall, the World Bank says. In a report released this week on the economic outlook in South Asian countries, the World Bank says the outlook for Sri Lanka remains positive with an expected 7.8% GDP growth in 2014, subdued inflationary pressures, an improving external position and further fiscal consolidation and debt reduction. The report ‘South Asia Economic Focus’ forecasts 8.2% GDP growth for Sri Lanka while on average the South Asian countries, which include India, Nepal, Pakistan, Afghanistan, Bhutan, Bangladesh, Sri Lanka, and Maldives, will see a growth of 6.0%. The expected 7.8% GDP growth of Sri Lanka for 2014 is to be supported by major contributions from expansion of infrastructure facilities and growth in trade and services; especially in the areas of tourism, transport, telecommunication, ports and financial services. However, the World Bank noted that the sustainable growth over the medium to long term will depend upon the structural adjustments in the external and fiscal sectors and implementation of sound macro-management policies. “Physical infrastructure investments need to be followed by investments in human capital and Foreign Direct Investments (FDI) promotion and efforts to enhance competitiveness are important measures to attain the government’s sustained growth aspirations,” it said. Headline inflation ran to a 28-months low of 2.8% in June 2014 and inflationary pressures are expected to remain subdued for the rest of the year despite the prevailing drought in many parts of the country could trigger supply disturbances leading to temporary price fluctuations. Relatively stable international commodity prices and contained demand pressures against a backdrop of sluggish private credit growth will help to keep the inflation under control. The World Bank noted that the Sri Lankan authorities are committed to fiscal consolidation and debt reduction. A slight improvement in revenue collection and continued fiscal consolidation would help reduce the deficit to 5.3% of GDP, it said. Looking further ahead, increased revenue will depend largely on the government’s ability to support the growth through public investments, the report noted. Although risks to the outlook from the international environment appear moderate, Sri Lanka has to watch out for a likely rise in global interest rates as the advanced economies taper down their extraordinary stimulus measures with economic recovery. The World Bank report warned that although the improved growth outlook of advanced economies should increase demand for emerging market products, such as garments from Sri Lanka, it could also have negative spill-overs. Political tensions in other parts of the world could also affect the growth through factors such as higher oil prices, the World Bank said. Adverse weather conditions could undermine Sri Lanka’s domestic macro-performance hampering the agriculture sector, which employs one-third of the country’s labor force. “The effects of such an eventuality would be felt by industry and service sectors as well through value chain effects and reduced disposable income, given that agriculture produce is linked to a few key export-oriented industries and related services,” the World Bank report cautioned.

Jobs and migration key to addressing South Asia inequality

Jobs and migration are supporting substantial upward mobility across and within generations in a South Asia that is a land of extremes of side-by-side extravagant wealth and appalling poverty, a World Bank report said. ‘Addressing Inequality in South Asia’ shows that the gaps between rich and poor look moderate based on standard measures that focus on consumption per capita. But the picture is more mixed when considering inequality along non-monetary dimensions of wellbeing, such as child mortality or stunting. “This report shows that the standard measures, such as the Gini index, do not go far enough in capturing the nature and extent of inequality in South Asia,” said Philippe Le Houérou, Vice President for the South Asia Region at the World Bank. “High inequality in human development outcomes calls for greater efforts in providing access to basic services, such as health care and sanitation, especially for the most disadvantaged population groups.” Standard measures of inequality are increasing across the region – which includes Afghanistan, Bangladesh, Bhutan, India, Maldives, Nepal, Pakistan and Sri Lanka – except in the smallest, and richest countries. On non-monetary measures, the record is more mixed: the variation in health outcomes is increasing while gaps in education outcomes are stable or decreasing. Inequality should not be looked at in a static manner, the report argues, but from a life-cycle perspective. Well-being depends on opportunity in childhood, mobility in adulthood, and support throughout life. Policies to address inequality should not aim at attaining a target level for some standard indicator of inequality such as the Gini index. Rather, their focus should be on ensuring equality of opportunity, improving upward mobility and providing adequate support. South Asia performs poorly in terms of opportunity, the report argues, with access to basic services partial at best, and often dependent on circumstances such as gender, location, or caste. On the other hand there is substantial upward mobility in the biggest countries in the region, and it is driven by jobs and migration. Mobility has been increasing over time, and it is high even among socially disadvantaged groups. The quality of the support provided by government occupies an intermediate place. The South Asia region is home to some remarkable social protection programs, but the report claims that tax avoidance and evasion are pervasive and a large share of the tax revenue is spent on regressive subsidies. “When thinking about addressing inequality, access to basic services and adequate safety nets come immediately to mind, but policies for job creation and urbanisation are equally important,” said Martin Rama, Chief Economist of the South Asia Region and one of the authors of the report.