The Asian Develop-ment Bank (ADB) has downgraded the country’s GDP growth forecast to 7% this year compared to the 7.4% improvement recorded last year.
ADB’s Senior Country Economist for Sri Lanka Tadateru Hayashi said Sri Lanka’s economic growth would slow to 7% this year and the predicted growth for the year was likely to see a shift from investment to consumption in 2015.
He made these remarks releasing ADB’s flagship annual economic publication, Asian Development Outlook 2015, yesterday. The ADO in its previous report (2014) predicted a growth of 7.5% for 2015.
“Due to the prevailing political uncertainty, investments would be affected and it is very difficult for us to make an economic growth prediction,” he said.
Further he said price reduction of food and fuel would encourage private consumption and a shift towards recurrent expenditure in the Budget would increase Government consumption.
Hayashi pointed out that the policymakers should adjust their development strategy to focus on innovation such as higher skills and tertiary education, which meets market needs for a knowledge economy, should be emphasised.
Inflation is expected to remain low around 2% supported by a series of cuts in fuel prices at the end of 2014 and January 2015, which flow through into reduced prices of other goods and services.
In addition, tax reductions announced in the Government’s Interim Budget on several essential items will also contribute to lower prices. The annual average inflation rate is expected to dip to 2% in 2015, before rising to 5% in 2016.
Exports would pick up in 2015 and 2016 with economies of key trading partners picking up the pace. Imports are expected to rise, although lower investment by the Government and private sector may slow imports of investment goods this year.
The current account deficit for 2015 is projected at 1.4% of GDP, increasing marginally to 1.5% in 2016 as international prices rise and domestic investment picks up.