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Tuesday, March 5, 2024

Lanka’s economic slowdown likely to intensify: report * Monetary policy could ease 100bps, exporters hit by GSP Plus withdrawal

The economic slow down experienced in 2012 is expected to intensify this year on high credit costs, a weak currency and the fragile state of export markets, a leading ratings and research agency said.
 Business Monitor International (BMI), a leading, independent provider of proprietary data, analysis, ratings, rankings and forecasts covering 175 countries and 22 industry sectors in a special report on Sri Lanka pointed out that economic growth would reach 5.4 percent this year, lower than estimates of the IMF (6.25 percent) and government ( 7/7.5 percent).

“We do not see the island’s economic growth turning up until H213 at the very earliest, implying that the ongoing slowdown will likely intensify in H113,” the agency, specialising in emerging markets, economics, country risk, forecasts, analysis, industry research and company intelligence said.

“We are keeping to our 5.4% full-year real GDP growth forecast for the year. The island’s economy is still feeling the pinch on multiply fronts – the high credit costs, the weak Sri Lankan rupee, and the fragile state of developed markets,” it said.

“With price concerns gradually coming off the table, we believe that the primary focus of the Central Bank of Sri Lanka (CBSL)’s policies over the coming twelve months will be fixed on economic growth. We are projecting 100 basis points (bps) worth of additional easing in 2013, taking the reverse repo rate to 8.50% by end-2013. Crucially, the CBSL’s annual Road Map signals further loosening of monetary policy in the months ahead.

“Currency stability is likely to be the overriding theme going forward as the central bank looks to foster some sense of it after a fairly volatile 2012. The CBSL explicitly expressed exchange rate stability as one of its policy priorities in its annual Road Map for the year ahead, reiterating its willingness to intervene if need be.

“We have long cautioned that the political unassailability of the ruling United People’s Freedom Alliance (UPFA) greatly increases the risk of government overreach. Recent developments, such as the highly controversial impeachment of the chief justice, have only bolstered our view.

“More than two and a half years after the EU decided to withdraw preferential tariff benefits to Sri Lanka, it appears that the country’s exporters are now beginning to feel the economic squeeze. The ruling government’s inadequate progress on the human rights front suggests to us that these privileges are unlikely to be reinstated any time soon.”


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