As it fights the spread of COVID-19, which comes less than 12 months after the terror attacks in April 2019, Sri Lanka’s economic growth is projected to fall to 2.2% in 2020 and recover moderately to 3.5% in 2021.
The ADB launched its Flagship Economic publication “Asian Development Outlok 2020” in Manila yesterday. The Asian Development Bank’s (ADB) flagship annual economic publication, the Asian Development Outlook (ADO) 2020, forecasts significant headwinds for Sri Lanka’s economy.
This slowdown comes against the backdrop of a global public health crisis that has halted economic activities across many economies in the region and beyond. Growth in Asia and the Pacific is projected to slow sharply to 2.2% in 2020 with a recovery to 6.2% in 2021, while growth in South Asia is expected to average 4.1% in 2020 and then improve to 6.0% in 2021.
“The projected slowdown is in sharp contrast to earlier signs of a growth rebound in 2020. COVID-19 and the measures required to contain it have curtailed movement of labor, disrupted livelihoods and supply chains, and created cash flow problems for businesses, representing simultaneous demand and supply shocks,” said ADB’s Senior Country Economist for Sri Lanka Utsav Kumar. “So, the longer this disruption lasts the greater the risk to Sri Lanka’s growth prospects.”
Support for public health services and financial support for households and businesses will add new spending pressures for the government amid lower revenue collection in 2020 as economic activity weakens. This will push the fiscal deficit up, amid already high public debt and external refinancing needs. Export and tourism earnings, as well as remittances will weaken amid a global slowdown.
However, lower imports reflecting the reduction in global oil prices and energy demand, subdued domestic demand, and restrictions imposed on imports by the Central Bank of Sri Lanka will help to keep the current account deficit in check, which is expected to widen to 2.8% of GDP in 2020 before falling to 2.6% in 2021.