‘Lanka emerges among countries with fastest vaccination rates’ | Daily News

‘Lanka emerges among countries with fastest vaccination rates’

ICRA Lanka expects Govt to rollover USD 1.5 bn existing obligations
External sector forecasts in USD Bn (Note: * Actual)
External sector forecasts in USD Bn (Note: * Actual)

Sri Lanka, which was earlier expected to be a laggard, is now among the countries with the fastest vaccination rates in the world, says ICRA Lanka in their Economic outlook for 2H 2021. Expedited vaccine rollouts in many major economies have enhanced the global growth outlook for 2H 2021.

“First quarter recorded a modest economic growth (4.2%) but the rapid escalation of the third wave of COVID infections stalled the momentum telling us that the pandemic will continue to cast a long shadow over the economy. In this context, we slightly downgrade our initial 2021 GDP projection to 3.4%.”

At the end of 2020 total foreign currency obligations stood at USD 6.8 billion. This includes a settlement of USD 1 billion ISB maturing in July. “We expect the Government to roll over about USD 1.5 billion existing obligations and borrow about USD 4.5 billion via bilateral/multilateral arrangements.

“As per ICRA Lanka’s projections, in this setting total gross official reserves would fall to USD 3.8 billion by the end of 2021. Monthly exports may consistently stay over and above USD 1 billion for the remainder of 2021 beginning from June to bring total exports to USD 12.3 billion by the year-end but the troubles in the external sector will be far from over. Sri Lanka’s terms-of-trade will continue to deteriorate despite having import restrictions due to rising commodity prices.” “We expect the trade deficit to widen to USD 8 billion, current account balance to reach USD 1.4 billion, and gross official reserves would fall to USD 3.8 billion by the end of 2021.”

“We expect the state revenues to weaken to 9.1% of the GDP in 2021 from 9.2% in 2020 amid the current subdued domestic economic situation. However, the GoSL may observe gradual normalization of revenues in 4Q 2021.”

The overall expenditure in absolute terms may expand at the expense of capital expenditure. In this context we expect the fiscal deficit to improve to 10.7% of the GDP while the debt stock will further increase to 104.8% of the GDP.

ICRA Lanka views 2H to have a relatively higher inflation rise than 1H due to several reasons – (1) vaccination rollout is expected to add a boost to the consumer spending; (2) rising commodity prices; (3) scarcity of goods rendered by the import restrictions and speculative element that comes with it; (4) weaker rupee which makes imported goods even more expensive; and (5) vagaries of weather which results in supply shocks to agricultural produce.

“Thus, we revise our CCPI (Y/Y) average inflation forecast to be between 5-to-6% for 2H.”

ICRA Lanka revises its forecasts to reflect the impact of the third wave of infections on the fiscal variables.

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