ICRA Lanka estimates tourist arrivals to drop by 40-50% in the near term, following the terror attacks which took place in April 2019.
The fall in tourism earnings may expand the current account deficit by US$1-2 billion in CY 2019 and has muted the economic growth outlook, According to ICRA Lanka latest report on Sri Lanka: Recent Economic Trends.
The report further states that in line with fiscal consolidation objectives, the Government of Sri Lanka is targeting a Budget deficit of 4.4% of GDP for CY2019. However, the unanticipated financial support to the tourism industry to aid its recovery and compensation payments due to recent events, may weigh on the deficit. Real GDP recorded a subdued 3.2% year-on year (YoY) growth in CY2018, from 3.4% in CY2017, led by low industrial sector growth which offset the healthy YoY growth in services and agriculture.
The Headline National Consumer Price Index (NCPI) inflation decelerated to 2.1% in CY2018 driven by food items and the base effect, but has risen moderately to 3.6% in April 2019 led by non-food inflation.
The LKR has strengthened relative to the US$ by~4% so far in CY2019, supported by the contraction in imports, although capital outflows led by lower investor sentiment, loss of tourism earnings and possible increases in oil prices, may pressure the LKR going forward. Driven by an expanding trade deficit, the Balance of Payments (BoP) recorded a deficit of US$1.1billion in CY2018 in contrast to the US$ 2.1billion surplus recorded in the previous year.
Forex reserves rose to US$ 7.2billion in April 2019,boosted by the US$ 2.4billion International Sovereign Bond(ISB) issuance during the year, whilst remaining low relative to external debt.
In line with fiscal consolidation objectives, the Government of Sri Lanka is targeting a budget deficit of 4.4% of GDP for CY2019. However, the unanticipated financial support to the tourism industry to aid its recovery and compensation payments due to recent events, may weigh on the deficit, the report stated.
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