‘Monetary policy revisions to boost SL’s GDP growth in ‘13’

Indunil Hewage

Sri Lanka’s current account deficit has reduced and foreign exchange reserves have stabilized, said Shuvojit Banerjee, Economic Affairs Officer, UN –ESCAP.

He expressed these views at the launch of ESCAP Annual Report “Economic and Social Survey of Asia and Pacific,” in Colombo. The easing of both monetary and fiscal policies in the country would help to improve the GDP growth to 6.5% in 2013 and all major sectors, particularly the agricultural sector will demonstrate improved performance.

Though, the budget deficit in Sri Lanka is still high, it has been reducing in recent years to 7.8% of GDP in 2011 and 8.1% of GDP in 2010. On the demand side, the investment to GDP ratio has been improving and crossed the 30% mark in 2012. Both exports and imports contracted in 2012 due to the global slowdown, which helped in containing the trade deficit.

Tighter monetary and credit policies slowed credit and import growth. Strong growth in workers remittances by 16.3% helped in narrowing the current account deficit to about 5% of GDP in 2012 from 7.8% of GDP in 2011,” Banerjee said.

Banerjee added, “A renewed look should be given to forward looking macro economic policies in countries in South Asia in general whilst investing in inclusive and sustainable growth.

Monetary policy needs to strike a balance between curbing inflationary expectations and reviving growth.

Measures should also be given to overcome a number of development challenges; poverty and hunger, rising inequality, poor level of human development, wide infrastructure gaps, lack of a diversified base for high value added products and exports, widespread food and energy security and high risk of disasters to achieve the desired economic growth in this region.