CBSL expects a sharp reduction in economic growth

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The Central Bank of Sri Lanka (CBSL) envisages a sharp reduction in economic growth, as it is affected considerably by the ongoing supply shortages, energy related issues and social tensions.

According to the monetary watchdog, several leading indicators are showing signs of sharp contraction of the national economy.

The ongoing foreign exchange crisis has taken toll on the daily livelihood and business activity as shortages of fuel and essential commodities as well as raw materials for production are weighing heavily.

Across the country many citizens are seen standing in queues to obtain fuel, gas and other essential items for day-to-day life.

Prime Minister Ranil Wickremesinghe on Thursday advised public sector employees to work from home as the fuel shortage deepens and transportation has become a major issue.

Poor and rich alike are seen staying at multiple-hours long queues wasting much valuable man-hours, which otherwise could have been utilised for productive purposes.

CBSL in its annual report estimated that the Sri Lankan economic growth would contract to 1 per cent this year, a revision from 5.5 per cent predicted earlier this year.

Last year, the Sri Lankan economy managed to accelerate at 3.7 per cent after contracting to 3.6 during the previous year.

CBSL made the following views with regard to the current and potential economic climate. “Lanka’s economy is envisaged to grow modestly in the near term as the economy is to reset with a debt restructuring programme and long overdue structural reforms alongside an economic adjustment programme to be supported by the IMF, which is expected to facilitate the economy to gather momentum over the medium term.

“The build-up of macroeconomic instability in the economy, stemming from the heightened vulnerabilities on both the external and fiscal fronts, rising social unrest and political instability, effects of the pandemic, the domestic energy crisis, and elevated commodity prices both globally and domestically are expected to significantly dampen the growth prospects in 2022 and have lingering effects in the immediate future leading to a slowdown in growth.

“Also, economic activity is likely to further slowdown amidst the announcement of a suspension of external debt servicing by the Government for an interim period and commitment to a debt restructuring programme.

“However, the commissioning of prudent macroeconomic policies aimed at stabilisation of the domestic economy coupled with an IMF engagement, improved monetary and fiscal policy coordination and envisaged SOBE reforms is expected to restore the pace of growth over the medium term.”

By Mario Andree