Central Bank says economy on recovery path

The Central Bank of Sri Lanka (CBSL) said on Saturday (26) that Sri Lanka, having contained the domestic spread of the Covid-19 pandemic, is on a steady recovery path after the economic slowdown during the islandwide lockdown from mid-March to mid-May 2020.

It pointed out, using the latest data, that people’s movements have normalised ahead of neighbouring countries, and the usage of expressways, particularly the Southern Expressway, has also increased above pre-lockdown levels. Petroleum sales to the transport sector reached pre-Covid levels while electricity generation is steadily normalising, with greater reliance on hydropower generation.

In spite of the slowdown in global trade, the CBSL noted that activity at the Colombo Port has increased and even motor vehicle registrations hit the previous year’s levels, in spite of restrictions on new imports. The construction sector gradually gathered pace while industrial production has rebounded, and the purchasing managers indices display expansion in manufacturing activity as well as services.

Following a bumper Maha harvest, the CBSL expects a bumper Yala production of paddy while tea and rubber production have returned to the levels observed last year and coconut production has recovered to a great extent, with fish production on a recovery path.

On the external front, merchandise exports reached the level of $ 1 billion a month and the trade deficit narrowed as the contraction in imports outpaced the contraction in exports. However, the tourism sector that suffered twin shocks within the span of a year awaits the recovery of global tourism. A steady year-on-year growth in workers’ remittances is observed while FDI (foreign direct investment) inflows have slowed, but the investment pipeline is strengthening, the CBSL said. With these developments, the Sri Lankan rupee has strengthened and remains stable.

A pickup in domestic credit is observed, and private sector credit has begun to accelerate and with accelerating domestic credit, broad money expansion remains strong. A sharp easing of monetary policy resulted in historically low market interest rates, supporting economic activity, while fiscal policy remains conducive to economic recovery. These expansionary policies have been supported by well-managed inflation and inflation expectations.

The low interest rate environment and political stability also supported the recovery of stock market performance, particularly in terms of local investors. The CBSL said that business confidence has regained momentum, according to the LMD-Nielsen Business Confidence Index.

“These hard facts and indicators enable us to reasonably conclude that Sri Lanka is on a steady path beyond recovery towards high economic growth,” the CBSL said.