Sri Lanka recorded the lowest economic growth in the last 16 years. The Sri Lankan economy is expected to grow at 4% this year as per official data. The independent Sri Lankan economists believe that the political crisis will further affect the economy. They think that economic growth rate can further slowed.GDP Growth Rate has fallen to 2.6%, with the Central Bank estimating Real GDP growth to be 3.9% compared to around 5% during the same time, last year. This is compared to Sri Lankan fiercest regional competitors, namely Bangladesh at 7.05% & Vietnam at 6.8%.
Foreign Direct Investment, that should be the lifeblood of the economy stands at just US$ 117 Million as of the 1st Quarter of 2016, that’s lower than an average of US$128 Million since 2001.
The expectations were that the economy would bounce back to high growth in 2018 from the declining growth trend it has experienced from 2013. Thus, if the total economy could be equated to a cake, the size of the cake, measured as the real gross domestic product or real GDP based on the prices that had prevailed in 2010, has been enlarged by 3.2% in the first quarter 2018. The real GDP growth had amounted to 5% in 2015, to 4.5% in 2016 and to 3.1% in 2017.
The Central Bank had expected the growth to move up to 5% in 2018. But, the first quarter results show that the country’s real GDP in 2018 will be more in line with the prediction made by IMF in April 2018 than the Bank’s expectation. IMF in its prediction had put the growth possibility for this year at 3.8%. Even to reach this level, the real GDP growth has to accelerate on average to 4% in the three remaining quarters of the year. To reach the Central Bank’s expectations, the average growth rate in the next three quarters should be as high as 5.6%, a challenging feat for Sri Lanka’s economy, indeed.
The exchange rate was under pressure for a massive depreciation because the previous Government had kept the value of the rupee artificially at high levels by supplying dollars to the market from the country’s scanty foreign exchange reserves. When the reserve levels which had been built by borrowing and not by earning had fallen to a critically low level, the country could no longer continue to feed the market’s voracious demand for dollars. Exports, a means of earning reserves, had been declining both in dollar terms and as a share of the total GDP.
Meanwhile, imports had been ballooning creating a high trade deficit in the region of $ 9-10 billion annually. This was cushioned partially by the remittances sent to the country by Sri Lankans working abroad; but that also became saturated at around $ 7 billion in the recent past compelling Sri Lanka to borrow abroad to fill the gap.
The country’s freely available foreign exchange reserves, the money immediately available for meeting future foreign debt repayments and making payments for imports and other services, had amounted to $ 6 billion, a little higher than the identified future obligations. The Government budget was in a precarious situation with its revenue falling relative to the country’s GDP, generating stubbornly high overall budget deficits and making it necessary to borrow more to repay maturing debt stocks.
Sri Lanka continues to depending on garments as one of main revenue generator and that has been the case for the last 20–30 years. Other than that it relies on remittance, and on tourism.
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