Country Forecast Sri Lanka April 2018 Updater

Country Forecast Sri Lanka April 2018 Updater

  • April 2018 •
  • Report ID: 472453 •
  • Format: PDF


  • The Economist Intelligence Unit has revised its political outlook and now expects the ruling coalition to serve a full term (until 2020). We had previously anticipated the early dissolution of parliament.
  • Nevertheless, the remaining term of the ruling coalition government, comprising the United National Party (UNP) and the Sri Lanka Freedom Party (SLFP), will be marked by instability because of growing tensions between the two parties.
  • Parties within the coalition will seek to build their respective support bases with only limited success, following a poor performance in the February local polls, which saw the opposition populist Sri Lanka Podujana Peramuna (SLPP, Sri Lanka People's Front) capture the lion's share of the vote.
  • We maintain our forecast that no single party will emerge with a clear majority following the next parliamentary election, leaving the key political forces scrambling for partners to form what is likely to be another coalition government.
  • Sri Lanka faces the challenge of balancing ties with China and India, as the latter two compete fiercely for political and economic influence on the island through investments in infrastructure. Ties with Pakistan will improve owing to increasing links with that country under China's Belt and Road Initiative.
  • The government will make progress on implementing IMF-mandated economic reforms and narrowing the budget deficit in the early part of the forecast period. However, the process of fiscal consolidation will be halted after the IMF programme ends in 2019.
  • Real GDP will rise by 4.7% a year on average in 2018-22. The rate of economic expansion will accelerate significantly in the second half of the forecast period as government efforts to boost exports pay off and the authorities put the brakes on fiscal consolidation.
  • The Central Bank of Sri Lanka will gradually adopt a new exchange-rate and inflation-targeting framework. We believe that this policy change is credible and will result in a gradual increase in interest rates during the forecast period.
  • The slow rate of recovery in inflows of workers' remittances, along with a widening goods trade deficit, will keep the average current-account deficit high in 2018-22, at the equivalent of 3.4% of GDP annually.






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