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Central Bank Projects steady growth in 2021

26 Mar 2021

Central Bank projects Sri Lanka to surpass and recover from the turmoil faced in the previous year, with the covid -19 pandemic coupled with the mounting debt crisis, in 2021. The Central Bank’s “Sri Lankan Economy: Towards a New Era” report claims enhanced foreign exchange earnings and increased investment inflows are expected to assist Sri Lanka in reducing its dependence on external debt and improve macroeconomic resilience Although the second wave of Covid-19 posed setbacks in the latter end of 2020, the country had managed to contain the virus and continue the local immunisation efforts.  The report further claims that based on the latest economic indicators; the country’s economy is foreseen to steadily progress. Tea production is witnessed to have gained momentum, whilst rubber and coconut production is on an upward trend. Further, the normalisation of power generation is claimed to contribute further to the path laid out for recovery. Data usage has shown strong growth in work-from-home arrangements during the pandemic, indicating continuity of economic activity through online platforms.  Despite the setback in 2020, a strong pipeline of FDI inflows is anticipated to be attracted, especially with the introduction of the Colombo Port City Commission law. In addition, export earnings are witnessed to have recovered while imports remained subdued. Accordingly, the trade deficit has narrowed whilst the external current account deficit improved. Speaking at a press briefing, Central Bank Governor W.D. Lakshman stated: “Sri Lanka had recorded a surplus in the external current account in the third quarter of 2020 and is expecting a marginal surplus in 2021.” According to central bank data, Sri Lanka recorded an external current account deficit of $ 792 million in the six months up to June 2020, up from $ 351 million in 2019. In the nine months up to September 2020, the current account deficit had fallen to $ 630 million, indicating a surplus of around $ 142 million in the third quarter. A rebound is expected to be seen, particularly in the second half of the year, since Sri Lanka has opened its border to tourists. Despite the sovereign rating downgrades, the report stated: “Debt servicing obligations were duly met, dispelling adverse speculation and uncertainties. Macroeconomic aspirations for 2021 are backed by concerted efforts to enhance non-debt creating foreign exchange inflows, and the central Bank has conducted monetary policies with an aim of easing measures to lower interest rates, thereby passing the benefit of low inflation to entrepreneurs.  “In addition, the novel economic model of the Government is focused on strengthening macroeconomic fundamentals with a focus on supporting the economic recovery along with supportive economic policies and necessary reforms towards improving the business environment.”


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