Impressive Sri Lankan bounce back | Daily News
HSBC Global Research predicts

Impressive Sri Lankan bounce back

Ajith Nivard Cabraal, State Minister Money and Capital Markets and State Enterprise presents a memento to outgoing NCCSL President Asela de Livera. Picture by Saliya Rupasinghe
Ajith Nivard Cabraal, State Minister Money and Capital Markets and State Enterprise presents a memento to outgoing NCCSL President Asela de Livera. Picture by Saliya Rupasinghe

A research report published by HSBC Global Research last December expects Sri Lankan GDP to grow by 7% y-o-y in 2021, largely due to base effects since they estimated a 5% drop in GDP during 2020, new President of the National Chamber of Commerce of Sri Lanka (NCCSL) Nandika Buddhipala told the 62nd AGM at Kingsbury Hotel on Tuesday.

This report predicted that Sri Lanka should bounce back impressively. This will be the biggest upgrade to their forecasts. Mainland China, Taiwan, Vietnam, and Korea, as well as Sri Lanka, have seen among the fastest increase in shipments, with others lagging the recovery.

The CBSL policy rate cut by 250 bps, bringing down Standard Lending Facility Rate (SLFR) to 5.50% has been fully transmitted through lending rates easing off by 280 bps during the same period. They are of the view that public debt sustainability is amongst the biggest risks for Sri Lanka for the next five years.

Rating agencies including Fitch and Moody’s predict growth. Fitch in September 2020 estimated GDP growth for 2021 as 4.7%, whereas for 2020 they estimated a negative growth of 3.7%. Moody’s on September 29, 2020, estimated GDP growth in 2021 to be 3.6% whereas in 2020 they estimated negative growth of 3.2%. All rating reports expressed their concerns regarding Lankan debt sustainability and the government revenue collection target.

The Sri Lankan economy was gradually recovering from the severe impact of the Easter Sunday terrorist attacks in 2019 when the country was hit with the global pandemic.

The situation was made worse with increasing numbers of Sri Lankan employees overseas wanting to return home. The government was forced to limit imports to save the outflow of USD. The country has a considerable amount of loan repayments during the year 2020 and moving forward.

Buddhipala said that as a strategy to face the difficult situation the Central Bank introduced many measures. The regulator acted to reduce interest rates, enhance market liquidity, manage foreign exchange flows, maintain exchange rate stability, preserve international reserves, maintain the financial system stability, enhance credit flows, and ensure uninterrupted currency operations.

“Lower interest rates reduced the burden on entrepreneurs who were facing various difficulties, while announced debt moratoria and working capital loan schemes provided concessions to businesses and individuals.”