Central Bank projects Sri Lanka economy to contract by 1.7-pct in 2020, grow by 5.0-pct in 2021

Nov 01, 2020 (LBO) – Sri Lanka’s Central Bank projects the economy to contract by 1.7 percent in 2020, reflecting the impact of the pandemic induced fallout, particularly in the second quarter of the year.

The economy, however, is expected to rebound in 2021 as evidenced by the fast recovery of activity since the relaxation of the lockdown in May 2020, although a resurgence of COVID-19 cases, as observed in October, could affect the momentum to some extent.

“As projected under the medium-term macroeconomic framework of the CBSL, the economy is expected to grow by around 5.0 percent in 2021,” the Central Bank said in its latest report on “Recent Economic Developments: Highlights of 2020 and Prospects for 2021″.

“A significantly high growth is to be recorded in the first half of 2021 supported by the base effect arising from expected contraction in the first half of 2020 due to disturbances related to the COVID-19 pandemic.”

Meanwhile, the external current account deficit, which is expected to narrow to 1.5 percent of GDP in 2020, is projected to increase to 2.4 percent of GDP in 2021 and decline gradually to 1.2 percent of GDP by 2025.

The moderation of financial flows amidst the COVID-19 pandemic is expected to affect the financial account of the BOP in the near term.

As enunciated in the national policy framework, “Vistas of Prosperity and Splendour”, the Government is expected to achieve a budget deficit of 4.0 percent of GDP by 2025, along with corresponding improvements in the current account and primary balances.

Inflation is expected to be maintained within the desired range of 4-6 percent over the medium term.