Sri Lanka’s economic growth losing steam: former Central banker


May 18, 2015 (LBO) – Sri Lanka’s economy is at cross road and is losing steam due to the lack of a resource base and external sector vulnerability, an ex-Central Banker said.

“No government would be able maintain high levels of economic growth continuously like Sri Lanka, unless it has a massive source of resources,” W.A. Wijewardena, former Deputy Governor of the Central Bank said.

“Especially in a country like Sri Lanka where we have a low rate of lending and the government also has disparities in its income,”

“The resource base is gradually contracting and as a result now the economy is losing steam.”

Sri Lanka growth performance has strengthened since the civil war ended in 2009, in part due to reconstruction efforts on road networks, hospitals and schools while the economy expanded by 7.4 percent in 2014, up from an average of 6.8 percent over 2012/13.

Wijewardena says another risk factor facing the economy is the external sector vulnerability due to the end of the bonus cycle.

“The bonus cycle we had is now coming to an end with the global oil prices now rising again.”

From 2010 until mid-2014, world oil prices had been fairly stable, at around US 110 dollars a barrel, but since June prices have more than halved backed by weak demand in many countries due to dull economic growth, coupled with surging US production.

Brent crude oil dipped below US 50 dollars a barrel for the first time since May 2009 and and hit a low of US 48 dollars a barrel and is now slowly creeping back up to US 66 dollar mark.

Wijewardena says that the global low interest rates that the Island has been enjoying are also now, coming to an end.

“The global interest low rates are pretty much coming to an end with the stimulus introduced by the US Federal Reserve due to end soon and as a result global interest rates will start rising,”

“And as a result that bonus will also not be available to us and it will increasingly become difficult for Sri Lanka to have market access and raise funds overseas, like it used to,”

“We had a time staring 2009 when our sovereign bond amounting 500 million would get offers 5-6 times but now a with global rising interest rate and the monetary policy tightening at the latter stages we will not have the same access like earlier.”

This will make Sri Lanka look at other ways to increase reserves, Wijewardena said.

“So we will have to look at the reserve mobilization from inside the country as well as outside.”

He was speaking at the launch of “Economic and Social Survey of Asia and the Pacific 2015” at the Institute of Policy Studies in Colombo, recently.

Sri Lanka’s will maintain high growth rate of 7.5 percent in 2015 on continued strength in private consumption, the United Nations Economic and Social Commission for Asia and the Pacific (ESCAP) said.