September 19, 2019 (LBO) – Sri Lanka has reported GDP growth of 1.6% in the second quarter ended June 30, 2019. This positive growth has been reported despite the country’s tourist industry being virtually shut down after the Easter Sunday terror attacks.
The Sri Lankan economy has been able to absorb serious shocks in the last year. The country has been in political chaos for the last several months with no confidence votes in Parliament, a constitutional crisis, and a tenuous relationship between the President and the Cabinet. Political uncertainty is likely coming to a close with Presidential elections now scheduled for November 16, less than two months away.
GDP growth is likely to start accelerating from now through the end of the year as the political storm clouds clear, and the tourism industry rebounds into its peak December season. A high level tourism industry executive, John Keells Holdings (JKH) Deputy Chairman Gihan Cooray, has stated that forward tourist bookings in has company’s large tourism segment have fully recovered.
Sri Lanka’s economy grew 3.7% in the first quarter of 2019. In his last round of comments on GDP, Central Bank Governor Indrajit Coomaraswamy lowered estimates for GDP growth stating that the annual figure should be 2.9% for 2019.
Sri Lanka’s monetary policy has been relatively tight over the last few years, keeping inflation under control, but leading to sluggish 3 to 4% growth. Although leading to sluggish growth, the tight monetary policy has added strength and stability to Sri Lanka’s economy. The stability resulting from tight policy that has luckily helped the country wether the above mentioned shocks with relatively minor economic damage. Because of disciplined monetary policy, Sri Lanka has been able to refinance billions of dollars of sovereign dollar denominated debt. The debt refinancing issue has been hanging over Sri Lanka’s head for some time.
After successful completion of significant debt refinancing, Sri Lanka’s Central Bank has recently begun using its dry powder to lower interest rates, giving the economy a needed boost into its recent economic downturn.
In addition to sound monetary policy, fiscal discipline in line with Sri Lanka’s IMF program has strengthened the fundamentals of the economy. However, this tight fiscal policy has also contributed to sluggish growth.