Tuesday, February 10, 2009

A poorer Lanka next year?

World Bank forecasts country’s economic growth to slump to lowest level of 4% in 2009; Central Bank to make its stand known on January 2

Midst worsening global crisis the World Bank yesterday signalled what could be the lowest in a decade of economic growth of 4% for Sri Lanka next year though Government officials remain more optimistic. Releasing its latest assessment via a report titled “Global Economic Prospects 2009: Commodities at the Crossroads” the World Bank projected a 4% GDP growth for Sri Lanka, down from 6.3% in 2008.

However the downward revision is more in line with overall forecast for South Asia though India and Bangladesh are projected to grow by near 6%. South Asian GDP growth is projected to step down to 5.4% in 2009 from 6.3% in 2008. The forecast by the World Bank along with risks for growth outlook is telling since the Government officials remain confident with some have even taken the comfortable view that Sri Lanka was well shielded from the global crisis.

Central Bank Governor Nivard Cabraal when contacted by The Bottom Line for his reactions to the downgraded outlook said that the monetary authority will make its stand known on January 2 when the Roadmap for 2009 is unveiled. “We are reviewing the post global financial crisis scenario and we will make our forecast known next month,” he added. In his 2009 Budget presentation last month President Mahinda Rajapakse who is also Finance Minister painted a rosy picture by predicting a near 7% growth for 2009.

This was after revising the 2008 GDP growth forecast down to 6.5% from the original 7.5%. Analysts have warned of the danger of complacency or failure to admit that the economy is in real crisis. With export markets under stress and overall business sentiments down in the domestic market, revenue streams for the Government is waning. The Opposition has been warning about dwindling foreign reserves in addition to the looming threat of immediate debt service commitments. Most private sector establishments are facing a cash crunch whilst the Government has also put off certain projects. The report noted that Sri Lanka has a large public debt (equivalent to 83 percent of GDP in 2007), with 44 percent of the debt external, albeit primarily concessional; the country’s fiscal position is thus vulnerable to higher interest rates and exchange rate depreciation. The Sri Lankan currency peg against the dollar could come under pressure, because the foreign reserve cover is relatively low, it added. World Bank report noted that the outlook for South Asian countries is highly uncertain, because of the sustained degree of volatility and synchronized nature of the slowdown across countries and because the full extent of financial disruption on both the regional and global economies remains unclear.

It noted that continued financial sector volatility and balance sheet weakness will translate into ongoing risk aversion. That is expected to lead to a further contraction in portfolio inflows and mute the prospects for FDI. In turn, these factors are projected to lead to a sharp falloff in private investment growth. Furthermore weakening foreign demand is expected to lead to a significant slowing in regional export growth, including services. Recession in high-income countries and a slowdown in growth among the Gulf oil exporters are expected to depress remittances inflows, as well the report warned. However, the set of unfavorable global conditions are anticipated to lead to lower commodity prices, which will not only provide a fillip to real household incomes, but also provide governments with greater scope for fiscal stimulus. To help cushion the downturn related to the financial crisis, South Asian governments are seen to pursue countercyclical measures, although fiscal space is limited. The World Bank noted that even with tight budget envelopes, regional governments can improve the efficiency of public outlays by more directly targeting safety net programs to the benefit of the poor.

In addition, and particularly where both fiscal and monetary policy responses are constrained, expansion of structural reforms should be pursued to stimulate growth in the near term and improve prospects for the medium and longer terms. Despite the downgrade, the Bank was of the view that given strong underlying growth dynamics in South Asia, the negative feedback effects of the global financial crisis are expected to be temporary. A relatively rapid rebound is expected in 2010, with a projected revival of GDP growth to 7.2 percent by 2010.

Note - Got this through a mail & what was said above now become a reality.Only now Global Finance Crisis starts to have a huge impact on Sri Lanka. As per Economist projection 51million people will loose there Jobs in days to come.


Post a Comment


Malindaz Blog - සයිබර් අවකාශයේ සිහින සක්මන. Copyright 2008 All Rights Reserved