Sri Lanka growth moderating, new equilibrium on currency

Oct 26, 2015 (LBO) – Sri Lanka’s economic growth numbers can be confusing after national accounts were rebased to 2010 from 2002, although it is clear that economic growth is moderating, Dushni Weerakoon an economist at the Institute of Policy Studies said at a forum in Colombo.

“What can be said with any confidence is that growth is moderating,” she said.

GDP growth is seen at 5.7 percent for the full year, from 5.5 percent during the first half, Ananda Silva, the deputy governor of the Central Bank, said at the economic forum organized by DFCC.

His estimate is higher than the 5 to 5.5 percent growth forecast by the IMF in September.

Inflation could pick up to 2 to 3 percent by the end of the year, and increase to 4 to 5 percent next year, he added. Private sector credit growth is still manageable, although its growth rate at 21.3 percent is high, he said.

Commenting on the rupee which was allowed to float against the dollar, Silva said: “We have reached a new equilibrium of the currency.”

The currency is now competitive based on the Real Effective Exchange rate, he said.

Gross official reserves, which stood at 6.5 billion dollars at end August 2015, are estimated to have increased to 6.8 billion dollars by end September 2015, according to the Central Bank.

Weerakoon said Sri Lanka may opt for a sovereign bond issue or IMF support to boost its foreign reserves, although an IMF option would be the better course of action.