Adverse global trends likely to impact Sri Lanka's growth forecast

21 Feb '24

1 min read

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Insights

Central Bank of Sri Lanka's February 2024 report warned of risks to economic growth from global factors, VAT amendments, and skilled labour outmigration.
Despite challenges, growth is anticipated, though constrained by the uncertainties.
Report indicated risks to near-term inflation projections are skewed towards upside, primarily due to supply-side factors.

The Monetary Policy Report – February 2024, issued by the Central Bank of Sri Lanka, highlighted significant risks to real economic growth projections in both the near and medium terms.

These risks stem from adverse global developments affecting export recovery, the outmigration of skilled labour leading to productivity loss, and structural obstacles hindering growth.

This is as per media reports, which underlined, despite a rapid disinflation process, current inflation levels remain close to the target.

However, projections suggest a deviation from the target due to amendments to the Value Added Tax (VAT), implemented in January 2024.

This deviation is expected to gradually retract towards the 5 per cent target by the end of 2024.

While this uptick in inflation is anticipated to be temporary, it poses no substantial threat to maintaining inflation at the targeted level over the medium term.

The report indicates that risks to near-term inflation projections are skewed towards the upside, primarily due to supply-side factors. Conversely, risks to medium-term inflation projections are deemed balanced.

Despite these challenges, the report maintains an expectation for economic growth to persist.

However, the extent of growth may be constrained by the risks and uncertainties as mentioned above.

Fibre2Fashion News Desk (DR)