The Sri Lankan economy is making headway, despite the pandemic related disruptions and with the gradual return to normalcy Governor Central Bank Ajith Nivard Cabraal told the Monetary Policy Review press briefing yesterday .
‘After phasing out the COVID-19 related lockdown measures, alongside the successful rolling out of the C-19 vaccination programme and growth supportive policy measures, the momentum of economic activity is expected to sustain in the period ahead. The Sri Lankan economy witnessed a strong recovery during the second quarter of 2021, recording a real growth of 12.3%, year-on-year, following the growth of 4.3% year-on-year, in the first quarter of 2021.
“We see several positive sentiments in the economic activity and along with the bounce back of tourism we project that Sri Lanka will end 2021 with a 5% growth rate and in the first quarter of 2022 growth increase to 6.5%.”
He said though there are dips in foreign remittances this too will increase as currently over 100,000 people are bound for overseas employment in the next two months. “Monthly exports too are passing the USD one billion mark,” he said.
The global economic recovery is expected to continue, despite large disparities across countries and is projected to grow by 5.9% in 2021 and 4.9% in 2022.
Expenditure on imports has also increased, partly reflecting the surge in global commodity prices and the recovery in domestic economic activity, resulting in an expansion in the trade deficit during the eight months ending August 2021, over the corresponding period of last year. He said that the global energy prices have increased drastically and hinted that there may be another price revision to match this.
“Several other commodity prices like LPG Gas,milk powder too have increased in the global market and hence there is a local commodity price increase,” he said. The surge in global commodity prices prompted the Government to remove maximum retail prices on several essential commodities. Reflecting the increased demand for credit amidst the low interest rate environment, credit extended to the private sector expanded as envisaged during the eight months ending August 2021.
Meanwhile, credit obtained by the public sector from the banking system, particularly net credit to the Government, also increased notably during the eight months ending August 2021. The momentum of credit expansion is expected to continue during the remainder of the year, with the recovery in economic activity and continued efforts to channel credit flows to productive and needy sectors of the economy.
“We want this to continue and hence will maintain policy rates at current levels, ” he said.
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