SL to lead South Asia growth with India - WB
Real GDP growth in Lanka remains buoyant
Agricultural output growth boosted
Tourist upsurge benefits services
Sri Lanka is expected to lead South Asia’s strong economic growth
together with India and Bangladesh, the World Bank said.
Releasing its Global Economic Prospects 2011 earlier this week, the
World Bank said South Asia’s relatively strong projected growth path,
reaching 7.9 percent in 2013 compared with six percent on average from
1998 through 2008, will be led by India, Sri Lanka and Bangladesh, where
“acceleration of investment activity is expected to support higher
growth out turns”.
The World Bank estimates that global GDP[1], which expanded by 3.9
percent in 2010, will slow to 3.3 percent in 2011, before it reaches 3.6
percent in 2012. Developing countries including Sri Lanka grew 7 percent
in 2010, and will grow 6 percent in 2011 and 6.1 percent in 2012, WB
estimated.
The World Bank warned the regions against inflation and high fiscal
deficits and public debts which could crowd out private sector
investments required to address the supply side constraints facing these
economies.
“Inflation remains a key downside risk to growth, as policymakers
face numerous challenges in reducing price pressures. If inflation
remains elevated, unless offset by exchange rate depreciation (itself an
inflationary impulse) it is likely to begin eating into the region’s
international competitiveness and discourage foreign investment—creating
headwinds to gains in productivity.
“Elevated international commodity prices are also a negative risk
factor, particularly given political resistance to reducing subsidies.
In countries such as India that maintain price controls on food, farmers
are not fully participating in the global upswing in prices.
Higher monetary policy interest rates aimed at crimping price
pressures, however, could also prompt a rise in capital inflows and
complicate monetary policy-emphasizing the need for fiscal
consolidation,” the World Banks said.
“Real GDP growth in Sri Lanka remains buoyant, but has decelerated in
early-2011, due to floods that damaged a significant share of this
year’s early crop.
GDP growth in 2010 (calendar year) registered 8 percent and has been
strongly underpinned by the peace dividend following the end of the
decades-old civil war. The recovery was led by private consumption and
investment.
Agricultural output growth was boosted by the return to production of
previously fallowed land with the cessation of fighting, while services
activity benefited from an upsurge in tourism.
Activity in the first few months of 2011 has slowed due to waning of
these rebound effects from the end-of-conflict and more normal growth
rates in agriculture (aside from the negative impact of floods),” the
World Bank said.
Inflationary pressures are elevated across South Asia reflecting
various factors, including higher international food and fuel prices,
tight capacity utilization, and past macroeconomic loosening, which have
led to elevated inflation expectations and higher core prices.
High international fuel and food prices are key factors in South Asia
because of its heavy reliance on imports of oil and some staples, such
as edible oils.
Additionally, food represents a large share (about 40 percent) of the
regional household consumption basket, a key concern from a poverty
perspective. In particular, international wheat and edible oils prices
have surged, while rice prices have remained more stable.
Afghanistan, the Maldives and Sri Lanka-where at least one-third of
domestic consumption of grains (including rice, wheat, pulses) and
edible oils is imported-are most exposed to an imported pass-through of
higher international commodity prices,” the report states. |