IMF WEO projects -0.5% growth in 2020 | Daily News


 

IMF WEO projects -0.5% growth in 2020

The evolving economic scenario for Sri Lanka could unfold to be even worse than the most difficult time during the 30-year civil conflict, According to a recent report on ‘Pathfinder beyond the Box’ by The Pathfinder Foundation.

The reports Sri Lanka’s growth in 2020 will be less than the historically low rate recorded in 2019. The IMF WEO 2020 projects a -0.5% growth in 2020 (down from 2.3% in 2019). Moreover, a V-shaped recovery in Sri Lanka in 2021 seems doubtful given many domestic and international risks and uncertainties; a more likely outcome seems a U- shaped recovery with a period of flat growth.

The report further highlights that: Overall, the focus should be on protecting human life, constructing a bridge to restore economic stability in the short-run and laying a sound foundation for robust, sustainable and inclusive growth in the medium-term. These were the parameters for the work of the Study Group. “The highest priority is that the hardship of the population should be mitigated to the extent possible. The sharp economic downturn coupled with a slow recovery implies a growing risk of mass unemployment and rising poverty in Sri Lanka.”

It has been suggested that the priority must be attached to building fiscal and external reserve buffers to increase resilience by de-risking the economy going forward.

“As a small relatively open economy with twin deficits, Sri Lanka is being severely affected by this exogenous shock. The lack of fiscal space is constraining the capacity of the government to respond. It is channeling mitigation measures through the CBSL and domestic financial institutions.

At this perilous juncture, the authorities need “to go big” in terms of borrowing domestically (including from CBSL) and from official development partners to overcome the lack of fiscal space. Such borrowing should be strictly allocated to fund social protection and productive investment.”

A third priority is that the investment climate needs improvement so that the private sector can restructure businesses to reap new opportunities and to create jobs. The report also suggests that a refined strategy offers the best chance of resetting the Sri Lankan economy and building its resilience.

 


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