A future government having a two thirds majority in Parliament will help to create a stable economy said Head of Research, First Capital Holdings PLC, Dimantha Mathew at the ‘Investment Strategy 2020’ second Research Conference at Cinnamon Grand on Wednesday.
He said that a government with a 2/3 majority can also swiftly implement some of the delayed reforms to legislature and the economy. He also said that two parties ruling the country also had several draw backs and this was evident in the last four years.
“With the completion of the Presidential Elections, a new Cabinet was appointed, but the new government holds only a minority in Parliament. He predicted that it is most likely that at the end of the General Elections end April, one partly will be ruling the country. “Considering the current political environment with a weak opposition, we believe that it is possible for the current Government to obtain a majority in Parliamentary Elections.”
He said that Sri Lanka’s GDP growth is likely to pick to 4.1% in 2020 end. “The major contributing facts for this would be the easing of monetary policy measures. “We are already seeing a gradual improvement in consumer demand and credit.
The heavy tax cuts and the lower interest rate regime is expected to boost consumption and investments improving GDP growth.”
However, the acceleration is likely to take place towards the 2H-2020. ”Thereby; we expect growth to reach 4.1% during the year.” GDP growth 2021 end would be around 4.3% and this is due to significant rise in business activity and production during the Second Half of 2020. Improvement in macro conditions and political stability saw foreign inflows into the bond market at a gradual pace which also supported to improve the liquidity position in the system possibly with dollar purchases by the CBSL.
However, following the rate cut provided by the CBSL foreign selling returned to the market. Credit has also picked in the system though still at a gradual pace.
Thereby, liquidity in the system is currently positive only due to the R/Repo auctions being conducted. “Considering the developments with the foreign selling in the market and pick in credit growth is likely to result in lower level of liquidity in the system throughout 2020.”
Private Sector Credit may also accelerate to 14% in 2020 resulting in continued lower liquidity in the system Inflation is expected rise but stay around the range of 5 %-6% for most part of 2020.
Despite the adjustment with the supply improving inflation is likely to be around the 6 % mark during the 1H2019. World Bank Group expects South Asia’s growth to jump to 6.3% in 2020 and 6.7% in 2021 compared to 5.9% in 2019.
“Despite Sri Lanka feeling some foreign outflows, the significantly low level of foreign holding reduces risk of outflows.
However, Hefty tax cuts have prompted rating agencies to downgrade outlook of Sri Lanka to “Negative” indicating a possible rating downgrade in the future. It is likely to negatively impact when raising funds in the international market.”
He said that overall on the economic front though they remain bullish in an uptick in the economy in terms of growth, but the expansion budget and trade deficit may weaken outlook for 2H2020 increasing pressure on borrowing.”
On the external front also, the outlook is positive with growth expected from the South Asian region but the negative outlook by the taking agencies are a worry.”
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