The Asian Development Bank (ADB) predicts that South Asia will remain the fastest growing economic region, expected to maintain 9.5% overall economic expansion, despite regular outbreaks of the virus.
The performance of the region will largely be decided by the performance of India which will rebound from an 8% contraction in fiscal year 2020 and grow by 11% and 7%, in the current and following financial year.
Sri Lanka is expected to record an economic growth of 4.1% in 2021, which remains lower than prior projections made by the government at 5.5-6 %.
Growth is expected to slow marginally to 3.6% in 2022 and will depend on budgets and stronger global demand.
Strength of economic recovery in SL will be determined by key export markets, tourist markets as well as the rate of vaccination in Sri Lanka.
Sector by sector projections are as follows:
- Agriculture expansion is projected at 3.7% in 2021
- Services are forecast to grow by 4.2% based on gradual recovery of the tourist industry
- Growth in the manufacturing industry will be determined by export market recovery, import restrictions and domestic demand.In order to help with economic recovery the Government plans to increase public investment to 5.4% of GDP.
Budget deficits:
Meanwhile, the Government projects a budget deficit at 8.8% of GDP in 2021.Inflation averaged 3.5% in the first quarter of 2021, with a sudden increase to 4.1% (year on year) in March.
Foreign reserves
Foreign reserves dropped to $4.1 billion at the end of March 2021, and the rupee depreciated by 6.8% against the dollar in the first quarter of 2021.
External debt servicing:
Central Government external debt servicing in 2021–2025 is expected to average slightly more than $ 4 billion each year.
Exports:
Exports are likely to grow as demand recovers in major export markets.
With the hit taken by the economy and major losses suffered by informal and smaller enterprises, the poverty rate of Sri Lanka is likely to be affected on the whole.
Meanwhile, funding by The People’s Bank of China provided in March 2021 as well as the second loan tranche provided by China Development Bank worth $ 500 million will be released from its $ 1.2 billion term financing facility; in order to support economic recovery in SL.
