Sri Lanka envisaged for positive economic growth from 2021 onwards | Daily News

Sri Lanka envisaged for positive economic growth from 2021 onwards

Panellists at the webinar.
Panellists at the webinar.

The Central Bank of Sri Lanka and HSBC Securities and Capital Markets (India) both predict that Sri Lanka will begin positive economic growth from 2021 onwards. The growth, however, might be constrained by the debt dynamics of the country and investor sentiment. Director of Economic Research Central Bank of Sri Lanka Dr Chandranath Amarasekera said that Sri Lanka experienced an unexpected growth in remittances last December. The Central Bank hypothesis is that with lockdown Sri Lankan workers abroad have fewer avenues to spend their earnings and therefore are remitting larger amounts. It is also possible that lower earnings domestically were countered through high transfers of income by workers abroad. Central Bank surveys show that there have not been significant job losses of Sri Lankans working abroad.

The Central Bank commended the government for incentivising remittances with a Rs 2 incentive on each dollar and expected remittances to total US$ 7.5 billion.

Amarasekera was speaking on a panel discussion following the release of the Economy + Sector Review — Outlook 2021 by the Ceylon Chamber of Commerce on 3 February held virtually.

The economy has seen 30% Quarter on Quarter growth in Q4 of 2020. The second COVID-19 wave had a lower impact on economic output. Sri Lanka is currently in discussion with the Reserve Bank of India, People’s Bank of China, and the China Development Bank to secure financing to ensure smooth debt rollover. Dr Amarasekera said, “We should have good news from at least 2 of them in February.”

Economist HSBC Securities (India) Aayushi Chaudhary expected GDP growth of 7% in 2021. She noted that this was due to low base effects and the resumption of tourism. Chaudhary noted that with the Easter Sunday bombings and structural under-investment the long-term growth trajectory of the country had been revised downwards to 3.5%.

Chaudhary noted that the 4% fiscal deficit target by 2025 was ambitious. She noted that the debt repayment problem for the country lasted over 5 years. HSBC predicts the LKR/USD rate to be Rs 191 by the end of the year. They, however, note that investor confidence and debt dynamics would play a role in this figure.

Chief Economist Ceylon Chamber of Commerce Shiran Fernando noted that there were many deficits in the economy that resulted in structural weakness. This combined with high global uncertainty was problematic to growth.

Fernando noted that financing through swap agreements was only non-debt creating so long as the exchange rates remained stable. He said that there were questions the policymakers had to answer on the issue.