Sri Lanka economic outlook positive; should watch external shocks, drought: IMF

May 30, 2014 (LBO) – The outlook for Sri Lanka’s economy was positive with low inflation and stronger growth driven by exports, but the country should watch out for a slowdown in developed nations and a domestic drought, an International Monetary Fund official said. Todd Schneider, who headed mission for annual ‘Article IV’ consultations, said recent growth exceeded expectations and strong growth was likely to continue given solid export growth and remittances.

Inflation was below 5 percent and was likely to remain moderate.

He said monetary policy was appropriate given weak credit growth but given stronger growth and the lag between policy measures and inflation observed in the past, a continued forward looking approach was needed with an eye on price pressures.

The Central Bank was also in a position to build up more foreign reserves, he said with strong export growth.

If growth slows in developed countries, Sri Lanka’s export may be hurt. A domestic drought may also hurt the economy, he said.

Sri Lanka was also cautioned on rising commericial debt, though Schneider said the budget deficit was trending down.

Sri Lanka has to invest borrowed money in high return projects that will make the economy and tax revenues grow, he said.