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Sri Lanka’s growth is expected to pick up, public debt levels are projected to fall

Despite significant challenges, Sri Lanka’s economic performance remained broadly satisfactory in the first half of 2017and the Economic Growth is expected to reach 4.6 percent in 2017 and increase marginally over 5.0 percent beyond, driven by private consumption and investment growth, a World Bank report released Wednesday says.

The World Bank today released the most recent edition of Sri Lanka Development update – “Creating opportunities and managing risks for sustained growth”, which analyses key developments in Sri Lanka’s economy over the past six months and provides a more in-depth examination of selected economic and policy issues, and analysis of medium-term development challenges.

The reports says Sri Lanka is in many ways a development success story, and yet faces a number of critical challenges as it pursues its goal of becoming an upper middle-income country.

As the Sri Lankan government is slowly progressing on an ambitious reform agenda, the report projects a relatively favorable outlook in the backdrop of policy reforms.

While Growth is expected to reach 4.6 percent in 2017 and increase marginally over 5.0 percent beyond, driven by private consumption and investment growth the Inflation will stabilize around mid-single digit level towards the end of 2017.

Continued fiscal consolidation is projected to bring the public debt burden to a downward path again in 2017 with a marginal decline in public debt-to-GDP ratio, ending a 5-year consecutive rise.

Fiscal consolidation will put the debt back on a declining path and the public debt levels are projected to fall, provided fiscal consolidation remains on track.

The report says staying on the fiscal consolidation path is a key priority as raising more revenue while controlling current expenditure is needed to reduce the fiscal deficit and bring public debt to a sustainable path.

The global lender emphasizes raising tax revenues structurally without relying too much on non-tax revenues driven by State-Owned Enterprises and says implementing the new Inland Revenue Act is a good start.

It suggests that the new Inland Revenue Act should be followed up by further reforms to widen the tax base, make the current tax system simpler and more stable, and make administration more efficient.

The World Bank report points out that while Sri Lanka has grown rapidly in the past, the non-tradable drivers of such growth are unlikely to remain adequate for inclusive and sustainable growth in the coming decade and Sri Lanka’s march towards Upper Middle-Income status hinges on the economy’s competitiveness and its ability to pursue an export-led growth model.

To sustain growth, job creation and poverty reduction, Sri Lanka needs to change its growth model, and manage risks, the report says adding that managing these risks well would lead to new opportunities for households, firms and strengthen the public sector and macro economy.

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