Country Report Sri Lanka August 2017

Country Report Sri Lanka August 2017

  • August 2017 •
  • Report ID: 1698182 •
  • Format: PDF

Outlook for 2017-21



  • The Economist Intelligence Unit expects the government to succeed in passing a new constitution at a national referendum, due by 2018. Under the new constitution, power will move from the office of the president to parliament.
  • After the constitution is passed, the ruling coalition will splinter along rival party lines, leading to early parliamentary polls. A repeat of the current fragile coalition is likely, as no single party will gain a simple majority of seats.
  • Successive governments will be broadly successful in implementing IMF-mandated macroeconomic and policy reforms. The fiscal deficit will narrow from the equivalent of 5.4% of GDP in 2016 to 3.8% in 2021.
  • We forecast that the economy will expand at an average annual rate of 4.9% in 2017-21. Growth will remain subdued in the early part of the forecast period but pick up from 2020, driven by stronger external demand.
  • Despite IMF support, macroeconomic risks will remain high. The widening merchandise trade deficit and sluggish growth in remittance inflows mean that the current-account deficit will remain large.
  • The persistent current-account deficit will exert downward pressure on the local currency. We forecast that the Sri Lanka rupee will depreciate from an average of SLRs154.1:US$1 in 2017 to SLRs177:US$1 by 2021.


Review



  • The foreign minister, Ravi Karunanayake, resigned on August 10th over corruption allegations related to the controversial sale of government bonds. Mr Karunanayake denied any wrongdoing but claimed that he took the step "to create a new political culture in Sri Lanka and ensure good governance".
  • On July 25th the cabinet approved a controversial agreement on a 99-year lease of the Hambantota port to the Merchant Port Holding Company, a partly state-owned Chinese enterprise.
  • The government put forward a new Inland Revenue Act in parliament, aiming to increase revenue by around 3 percentage points of GDP.
  • In its fifth monetary policy review this year, on August 3rd the Central Bank of Sri Lanka kept both its key interest rates, the standing deposit facility rate and the standing lending facility rate, unchanged at 7.25% and 8.75% respectively.
  • According to the Ministry of Health, more than 109,000 cases of dengue fever (a mosquito-borne viral infection) were recorded in January-July 2017.
  • According to data published by the Sri Lanka Tourism Development Authority, tourist arrivals fell by 1.8% year on year in July, to 205,482.


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