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The Central Bank yesterday denied that it has released any new macroeconomic projections, insisting that it remains true to its expectation that Sri Lanka will grow by 1.5% in 2020 as outlined in the Annual Report, and any adjustments will only be made once first quarter growth numbers are released.
Several media reports have been brought to the notice of the Central Bank of Sri Lanka (CBSL), in which certain macroeconomic projections are erroneously attributed to the CBSL, the monetary authority said in a statement yesterday.
“The CBSL has not released to the public any update to its macroeconomic projections since the publication of the CBSL Annual Report in April 2020. Given the conditions of uncertainty created by the COVID-19 pandemic, frequent updates to macroeconomic projections are required, and the CBSL has continued to monitor standard indicators of economic activity as they become available.”
The Central Bank said it has been using unconventional indicators as well on a real time basis in its analysis and policy guidance.
“However, a key input required for a broad-based revision of macroeconomic projections of the CBSL constitutes the estimates of Gross Domestic Product (GDP) for the first quarter of 2020, to be published by the Department of Census and Statistics,” the statement added.
Once these estimates become available, the CBSL will publish its revised macroeconomic projections. As such, the CBSL categorically states that media reports about the CBSL projecting a sizable contraction in GDP and a large expansion in the fiscal deficit for 2020 are totally false, and intended to mislead the public. Earlier this month, the Census and Statistics Department announced that the first quarter GDP numbers would be delayed due to the COVID-19 situation and related challenges. A specific date for the release has not yet been announced.
Even though no projections have been forthcoming from the Central Bank, other analytics, including rating agencies, have warned that Sri Lanka’s economy is likely to contract by as much as 3%. The World Bank earlier this year warned that debt could grow to 91.6% of GDP and the Budget deficit could expand to 9.8% this year.
Fitch ratings made a similar projection, estimating Sri Lanka’s growth to contract by 1% this year and projecting that the budget deficit will widen to 9.3% of GDP in 2020, from an estimated 6.8% in 2019.
Fitch observed general Government debt is high, and the pandemic has increased risks to public debt sustainability. The rating agency’s baseline forecast is for gross general Government debt/GDP to rise to about 94% in 2020 and 96% in 2021, from an estimated 87% in 2019, and to continue rising, increasing the risk of debt distress.
The Central Bank in its Annual Report acknowledged the challenges posed to growth in its outlook section and observed that annual real economic growth was projected to decelerate further in 2020, before rebounding thereafter towards the envisaged higher growth path.
“The envisaged growth path is contingent on the effective implementation of the Government’s policy agenda, maintaining macroeconomic stability, addressing the structural issues that constrain sustained growth, and a revival in the global economy in the medium term,” the Annual Report said.
At the time, the Annual Report also said stimulus provided by fiscal and monetary policy measures should be accompanied by policy reforms to address the structural issues in the economy, particularly in the energy sector, as well as labour, land and capital markets. “It is only with structural reforms that the country will be able to push its production boundaries further and sustain high economic growth without overheating the economy.”
The Annual Report projected inflation to be maintained within the 4-6% range over the medium term, with well-anchored inflation expectations supported by proactive monetary policy measures taken by the Central Bank under a flexible inflation targeting framework. This target has been largely met with June inflation tagged at 3.9% by the Census and Statistics Department.
