Colombo, March 20 (DDNews/ECONOMYNEXT): Due to continuous political instability and the drought since 2016, Sri Lanka’s GDP growth shrunk to 3.1% in 2017.
While the Department of Census and Statistics attributed the slow growth to declining agricultural output due to the drought since 2016, the Governor of the country’s Central Bank, Indrajit Coomaraswamy, held the divided and fractious government responsible.
Restoring political stability should be taken as a matter of priority and reversal of positive macroeconomic and policy gains should be avoided, he said speaking at the launch of the Development Process for Sri Lanka’s National Financial Inclusion Strategy on Tuesday.
The Governor said that he is not aware of any country that has made significant economic progress without political stability. Therefore, restoration of political stability is of paramount importance ,he stressed.
Coomaraswamy’s comments came as political uncertainty gripped the country, especially after former President Mahinda Rajapaksa’s party Sri Lanka Podujana Peramuna (SLPP) swept the local government elections held last month.
Rajapaksa is planning to bring a No Confidence Motion against Prime Minister Ranil Wickremsinghe to which several ministers have pledged support.
“Restoring political stability is particularly important at this time because I think, and I hope I am not being overly optimistic, we were beginning to see some progress in the positive direction,” Coomaraswamy said.
Sri Lanka’s headline inflation soared to over 7 percent in 2017, but has since slowed to 4.5 percent and is expected to range between 4 to 6 percent in 2018.
Foreign exchange reserves grew to 7.97 billion US dollars by the end of 2017, from 6 billion US dollars a year earlier. Progress was also seen in developing policy frameworks for long term sustainable growth.
Growth From Low Base
“This is reflected in the fact that we had a record year for exports, albeit from a very low base. I must admit there is nothing to write home about that. Our exports are still far too low, but it was a record year nevertheless,” Coomaraswamy said.
“The same applies to FDI and inflows to Colombo Stock Exchanvge. The overall levels are still too low, but we are moving in the right direction. So it seemed that things were coming together and we were moving in the right direction,” the Governor said.
“The important thing now, is to stay on track. The government should have done many things quicker, that’s for sure. Things have gone too slowly, but this is not the time to deviate,” the Governor warned.
“Sri Lanka should now guard against the danger of going for short term expedient solutions to push up the disappointing growth rate,” he said.
“The important thing is to work on a framework that will deliver sustained growth by exports. For a market of 20 million people, external demand plays a major role in terms of providing sustained growth in the long term”, Coomaraswamy pointed out.
(The featured image at the top shows the Sri Lankan Central Bank Governor Indrajit Coomaraswamy)