Oct 05, 2015 (LBO) – Sri Lanka’s growth is expected to increase to 5.6 percent in 2016 with the increase in state sector workers and disposable income, a World Bank report said.
“In Sri Lanka growth is expected increase to 5.6 percent due to higher public sector wages and higher disposable incomes,” the report said.
However, it says the looser fiscal stance behind this strong domestic demand is also putting pressure on the external balance.
“Maintaining the growth momentum will require higher tax revenue, rationalized public spending and greater competitiveness.”
Meanwhile economic growth is expected to accelerate to 7.4 percent in 2016 from 7 percent in 2015 the report said.
“Led by a resilient India, South Asia is expected to maintain its lead as the fastest-growing region in the world, with economic growth forecasted to accelerate from 7 percent in 2015 to 7.4 percent in 2016.”
According to the twice-a-year South Asia Economic Focus, this positive performance hinges on solid growth in services, domestic consumption, and a gradual rise of investments.
Limited exposure to the financial turmoil and an improved external position have given most South Asian countries important policy space, it said.
Given India’s weight in the region, its performance greatly influences the projections for South Asia as a whole.
Improved investor sentiment and resilience to external shocks are expected to increase India’s growth rate to 7.5 percent in fiscal year 2015 and further to 7.8 percent in 2016.
Thanks to low food and commodity prices, as well as a slowdown in the growth of administered prices, inflationary pressures have eased markedly in South Asia.
Yet the pace of disinflation varies depending on the price index considered.
Revisions to national accounts, together with new comparable data on purchasing power around the world, also raise questions regarding the measurement of prices in the region.
According to the report, South Asia could actually have cheaper prices, faster growth and bigger economies than previously thought.
“While the region is now in a position of strength, structural constraints holding back export and investment growth do persist,” Martin Rama, chief economist South Asia, World Bank said.
“To keep the momentum and accelerate job creation, governments should enact reforms easing infrastructure bottlenecks and paving the way to greater competitiveness.”
Fiscal space remains limited while financial sector vulnerabilities persist. He added.
Rapid growth has not yet translated into significantly higher government revenue generation and improved fiscal balances.
Budget deficits are expected to remain at 6.5 percent of Gross Domestic Product (GDP) in 2015, the highest among all developing regions.
Tax collection remains well below estimates, and has even deteriorated across major South Asian economies, the report said.