“..the parliament’s recent initiation of i mpeachment proceedings against the chief justice has raised concerns about institutional credibility,” Standard Chartered Bank noted in its report.
“Despite the government’s widespread popularity, as reflected in its strong performance in Provincial Council elections in 2012, it faces ongoing international criticism for the role towards the end of the civil war in 2009, and political reconciliation with the Tamil minority is still at an early stage,” it added.
The prominent good governance activist and former Ceylon Chamber Chairman, Chandra Jayaratne this week also urged the local business community to expose economic and financial repercussions of the ongoing tussle between the judiciary and the legislature.
In its credit alert, SCB while commending the policy correction made in early 2012 by the Central Bank, expected the growth to pick up to 7.2 percent in 2013, supported by higher investment spending, strong remittance inflows and steady growth in the tourism and construction sectors.
“Given that credit growth has slowed and inflation is expected to moderate by Q2-2013, the Central Bank is likely to ease monetary policy to support growth in 2013,” the SCB forecasted.
On the Fiscal consolidation the report expressed skepticism over containing the fiscal deficit to 5.8 percent of GDP because of the overly optimistic revenue targets and projected the government would overshoot the target to reach 6.5 percent of GDP.
“The government’s 5.8 percent fiscal deficit target for 2013 is based on a 19.2 percent increase in revenue, which will be difficult to achieve in our view. The poor performance of the state oil and electricity companies will continue to act as a fiscal drag (the combined losses of the two entities were 1.5pc of GDP in 2011)”, the report stated.
The bank is also of the opinion that the country’s external debt is high where the proportion was at US $ 28.9 billion (48.8% of GDP) while 76 percent of which constituted government debt as of December 2011.
“The maturity profile appears manageable with short-term external debt at only 9 percent of total external debt. The bulk of the external debt is from multilateral and bilateral creditors at concessional rates which lower the debt servicing burden. However, as Sri Lanka rises to middle income status, the incremental share of concessional funding is declining (48.4pc in 2011, versus 80pc in 2008)”, SCB opined.