Even the World Bank cannot predict Sri Lanka’s future
Amidst a crisis of economic uncertainty the World Bank has pulled out Sri Lanka from any growth forecasts for the next year alongside Afghanistan as the country is currently between a “rock and a hard place.”
There is no forecast that can be made for Sri Lanka, World Bank South Asia Region Chief Economist Hans Trimmer said on Wednesday during an online media briefing. For this year there is only a forecast of 2.4 per cent growth and because of the recent developments, he said “we excluded forecast for next year as there is so much uncertainty.”
The latest South Asia Economic Focus “Reshaping Norms: A New Way Forward” report has stated that Sri Lanka’s economic outlook is highly uncertain due to the fiscal and external imbalances. Urgent policy measures are needed to address the high levels of debt and debt service, reduce the fiscal deficit, restore external stability, and mitigate the adverse impacts on the poor and vulnerable.
In fact Sri Lanka has today become a classic example of a country that has taken its economy and its people down on the wrong path adopting all the wrong economic policies, it said.
Mr. Trimmer highlighted some of the lessons that could be learnt from Sri Lanka for countries like Bangladesh although they are doing very well right now.
In response to a query, he said there are three lessons to be learnt from Sri Lanka: Bilateral debt can be very useful in a middle income country “but you have to be careful how productive investments are financed”; caution was raised on using Central Bank’s foreign exchange reserves insisting that strong limits should be maintained and that not simply use it to support the currency and other development investments; the final lesson is to avoid too much spending by a government on the contrary to ensure an increased revenue.
Mr. Trimmer in response to a query from the Business Times noted that the support to Sri Lanka is “very strong” and that at the moment they are doing everything possible to support the country to make sure the emergency medical requirements are met. “It is an urgent issue that we are working on as the country is suffering from shortages.”
Sri Lanka was between a rock and a hard place and there is no easy solution, he pointed out adding that the country must not repeat the “mistakes of the past” and initiate a plan to adopt an inclusive system whereby those not already participating in the economy can be engaged.
The World Bank’s SA chief economist also said it is “stunning” that Sri Lanka had 17 IMF programmes in the past and only nine were fully completed and that alone put Sri Lanka on a long term growth path.
“But the ultimate solution today would be is to use this as an opportunity to move towards much strong growth in the future not just support and emergency support,” he said.
The World Bank report also highlights the uneven economic and political conditions across the countries in South Asia with Sri Lanka facing a critical balance of payments crisis; the political turmoil in Pakistan; and the recovery of the Maldives backed by tourism revival.
It also noted that the war in Ukraine and its impacts causing high fuel and commodity prices has resulted in not only lowered GDP growth but also policy challenges.
Mr. Trimmer also indicated that energy should not be subsidised as it was not a fair way to help the poor and noted that it should conversely be provided at its real cost.
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