By The Sunday Morning Business Desk
A World Bank report compiled prior to the detection of the new and largest Covid-19 cluster in Sri Lanka projects the island’s economy to contract by -6.7% this year, which would point to a far more severe contraction if the ongoing situation in the country is taken into account.
The forecast specifies that 30 September, the end of the third quarter, was the cut-off date for the report, which is four days prior to the detection of the Minuwangoda cluster, which means the ongoing health situation and curfews have not been taken into account in this forecast.
The report titled “Beaten or Broken? Informality and Covid-19” was released on 8 October and highlights that Sri Lanka avoided large-scale domestic transmission and experienced only a very small number of infections per capita.
Despite Sri Lanka’s “success” in containing domestic transmission as mentioned in the report, the projected GDP decline of 6.7% has been attributed to a number of factors including the impact on exports, private consumption, and investment.
“Tax revenues fell short due to the fiscal stimulus package implemented in November 2019, which included a reduction of the Value Added Tax (VAT) rate and an increase of the registration threshold, and severe disruptions in economic activity. As a result, despite a moderation in public investment, the overall budget deficit increased,” the report adds.
The forecast has also been attributed to the rise of the central government debt-to-GDP ratio to over 90% as of end-April 2020 (from 86.8% at the end of last year), with more than half of the debt denominated in foreign currency.
Nevertheless, the report says that Sri Lanka would be able to more than recover GDP losses under the pandemic by 2025, given the mitigation of domestic transmission before 4 October.
Furthermore, the baseline forecast suggests that Sri Lanka’s external debt will be very high compared to exports and remittance receipts. The report also projects Sri Lankan economy to grow by 3.3% next year, which could also be revised significantly in light of recent developments.
Last month, First Capital Research (FCR) estimated that Sri Lanka’s GDP would see its steepest contraction in history of -5.8% in 2020 following the unexpected contraction in Q1 GDP growth of -1.6%. This forecast too came before the latest outbreak.
The initial growth forecast of the World Bank for Sri Lanka for 2020 was 3.3%. World Bank forecasts major recession for SL even without new wave
11 Oct 2020
World Bank forecasts major recession for SL even without new wave
11 Oct 2020
By The Sunday Morning Business Desk
A World Bank report compiled prior to the detection of the new and largest Covid-19 cluster in Sri Lanka projects the island’s economy to contract by -6.7% this year, which would point to a far more severe contraction if the ongoing situation in the country is taken into account.
The forecast specifies that 30 September, the end of the third quarter, was the cut-off date for the report, which is four days prior to the detection of the Minuwangoda cluster, which means the ongoing health situation and curfews have not been taken into account in this forecast.
The report titled “Beaten or Broken? Informality and Covid-19” was released on 8 October and highlights that Sri Lanka avoided large-scale domestic transmission and experienced only a very small number of infections per capita.
Despite Sri Lanka’s “success” in containing domestic transmission as mentioned in the report, the projected GDP decline of 6.7% has been attributed to a number of factors including the impact on exports, private consumption, and investment.
“Tax revenues fell short due to the fiscal stimulus package implemented in November 2019, which included a reduction of the Value Added Tax (VAT) rate and an increase of the registration threshold, and severe disruptions in economic activity. As a result, despite a moderation in public investment, the overall budget deficit increased,” the report adds.
The forecast has also been attributed to the rise of the central government debt-to-GDP ratio to over 90% as of end-April 2020 (from 86.8% at the end of last year), with more than half of the debt denominated in foreign currency.
Nevertheless, the report says that Sri Lanka would be able to more than recover GDP losses under the pandemic by 2025, given the mitigation of domestic transmission before 4 October.
Furthermore, the baseline forecast suggests that Sri Lanka’s external debt will be very high compared to exports and remittance receipts. The report also projects Sri Lankan economy to grow by 3.3% next year, which could also be revised significantly in light of recent developments.
Last month, First Capital Research (FCR) estimated that Sri Lanka’s GDP would see its steepest contraction in history of -5.8% in 2020 following the unexpected contraction in Q1 GDP growth of -1.6%. This forecast too came before the latest outbreak.
The initial growth forecast of the World Bank for Sri Lanka for 2020 was 3.3%. Kapruka
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