Asian economist predicts 4% growth for Sri Lanka

A senior Asian economist yesterday forecasted Sri Lanka’s growth to be at 4% this year and is expected to grow to 6% in 2010. While stating that the US recession has ended, the US Dollar was predicted to weaken in the coming years as the Euro gained strength.

*US recession now over; European region to still feel the after effects; Asia bouncing back with help from China
*Says country can survive without the IMF loan
*Sri Lanka must draw higher FDI currently low compared to
$ 11.5 b by Vietnam

HSBC Singapore based economist for the Asia Pacific region Prakriti Sofat explained that the US recession which reached its peak on March 28 will end after the average 4.7 week estimated cycle driven by stabilising consumer expenditure and a resurfacing housing market. She added that the European region will continue to face a retracting economy of -4.3% this year with the Asian economy bouncing back faster with support from China and India.
Speaking on Sri Lanka she stated that with the end of the recession in the USA, consumer spending will stabilise and result in a turnaround for the Sri Lankan economy as 60% of the country’s exports are to the USA. “However, the country’s growth is spurred on by the massive boost from the domestic economy that we expect will take place this year.”
The low levels of reserve money in the country appear to be a damper however, but rapidly evaporating levels of inflation indicate that there is going to be a turnaround.
She added that the country can survive without the IMF loan which has become a ‘highly politicised’ issue. “The IMF loan is required to boost foreign reserves and it is unfortunate that it has become political. If it does not come through however, we believe that the Central Bank can look for other sources of international funding such as the World Bank and ADB,” she said.
The economist also informed that inflation levels in Sri Lanka which is predicted to be 4.5% for 2009 will increase to the 11.1% in 2010, which is an average for the country and not too damaging to the economy as the high rates were last year.
Compared to the rest of the region, Sofat explained that the Capacity Utilisation Rates were high in Sri Lanka with not enough investment coming in. She added that foreign exchange entering the country through Foreign Direct Investments has been at low levels compared to the rest of Asia. Sri Lanka received USD 550 million as FDI (2% of GDP) in 2008 compared to USD 11.5 billion to Vietnam. She expected this amount to grow with dawning of peace in the country.
“However in terms of remittances that are flowing in to the country, Sri Lanka has only been marginally affected in comparison to the rest of the region with a decline of about 1.7% in the first quarter of this year.”
She called on the Government to focus more on public investment which is currently at a level of 6% of GDP (in the ranks of India). “With the Government currently spending close to 4.5% of the GDP on military needs, it is expected that with the war, this spending would be transferred to public investment in the next few years.”
The economist also stated that the “Government is crowding out the private sector” with all of the domestic credit generated within the country obtained by the State. “Credit to the private sector has declined,” she informed, “And the Government must carefully construct its policies to ensure that the private sector contributes to development.” She added that since Sri Lanka is classified as a middle income country, the number of concessional loans would decrease. “We can see it happening already with the 96% of the country’s debt on concessional basis last year and that amount reducing to 83%.”