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GDP sees record fall, but Cabraal buoyant

17 Dec 2020

By Dayan Surendranathan Despite official statistics reporting an all-time record economic contraction in the second quarter (Q2) of 2020, State Minister of Money and Capital Market, and State Enterprise Reforms Ajith Nivard Cabraal welcomed the new figures yesterday (16) as indicators of Sri Lanka’s positive macroeconomic outlook going into 2021, placing emphasis on the 1.5% GDP growth rate achieved in Q3. “...We have seen momentum, particularly in the third quarter which shows an over 30% rise in growth since the second. We’ve also held a stable exchange rate, which is a hallmark of our macroeconomic management in the past few months. Given these, a target of 5.5% GDP growth as mentioned in Budget 2021 is an attainable target,” claimed Cabraal. He was delivering the keynote address during day two of the Asia Securities Forum on “Investor’s Dilemma 2021” held yesterday. However, it must be noted that GDP growth or contraction rates are traditionally arrived at comparing Year-on-Year (YoY) performance, and not Quarter-on-Quarter (QoQ) performance. The much-delayed macroeconomic indicators for 2020 were released by the Department of Census and Statistics on 15 December. The numbers revealed an unprecedented contraction in Q2 GDP of 16.3%, driven by a sharp fall in industry and services sectors though Q3 (July-September) rebounded to a growth rate of 1.5%. With the contraction of 1.6% in Q1, the cumulative GDP contraction for the first nine months of 2020 stands at 5.3%. The officially released numbers are a far cry from the optimistic predictions posited during the Budget 2021 speech of Prime Minister and Minister of Finance Mahinda Rajapaksa recently, which forecast a real GDP growth of 1.5% for 2020. It is distant even from the Central Bank’s less optimistic prediction in October 2020, which was -1.7% for 2020. However, Cabraal remains buoyant that Sri Lanka is moving towards recovery in the long term and achieving the Government’s lofty goal of 5.5% GDP growth for 2021. Samagi Jana Balawegaya (SJB) MP Dr. Harsha de Silva criticised the Government shortly after the release of the figures on Monday, claiming the budget forecast is inaccurate and that the Government has lost credibility. “So #SriLanka GDP growth for 9mo 2020 -5.3%: Q2 -16.3% [and] Q3 +1.5%. So as I argued, but shouted down [by] Min @an_cabraal etc. Figures presented by PM @PresRajapaksa at budget were wrong. 2020 growth will be negative and deficit well over 10%. Can’t fool everyone; but credibility lost.” Meanwhile, when questioned by Asia Securities Chairman Dumith Fernando at the conference yesterday on quelling investors’ worries on whether the Central Bank would be able to maintain low interest rates for much longer, Cabraal stressed that maintaining the interest rate stable and boosting business confidence would be key to Sri Lanka’s economic recovery post Covid-19, citing a cricket example. “This isn’t a T20. It’s more like a Test match. The whole world was taken aback by the shock of Covid-19, which is reflected in the 2Q numbers. However, through the policies that our government has implemented within the last six months, we have laid a stable base for growth in the long run, which is about three to four years from now. Of course, we are going to face dips and scares in the short term, but the calm set of macro-fundamentals we have put in place will ensure Sri Lanka’s success in the long term,” assured Cabraal.


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