- The national economy is expected to grow by 3.3% in 2021
- Govt. focusing on targeted measures to further prevent COVID-19 could hamper economic recovery
- Targeted policies to reverse long-term inequality trends must be a priority, suggests World Bank
- Inflationary pressures are expected to remain strong
Medium-term outlook for Sri Lanka is “clouded” by pre-existing macroeconomic weaknesses and scars left by the Covid-19 pandemic, the World Bank (WB) said, although the economy is expected to grow by 3.3 % in 2021.
According to the latest South Asia Economic Focus titled ‘Shifting Gears: Digitization and Services-led Development’, while the country has been successful in immunizing more than 50 percent of the total population so far, the government is focusing on measures targeted to prevent further COVIDs. -19 waves could slow down the economic recovery.
“The pandemic has caused unprecedented disruption in education and learning losses will hamper the country’s human capital gains. Targeted policies to reverse long-term inequality trends and reduce equity gaps are priorities for realizing growth prospects, ”said Faris Hadad-Zervos, World Bank Country Director for Maldives, Nepal and Sri Lanka, in a statement highlighting developments in Sri Lanka. chapter.
The WB expects growth and poverty reduction to be negatively affected in the medium term as the country continues to face persistent macroeconomic challenges, in particular the high debt burden, significant refinancing needs. and the weakness of the exterior cushions.
Despite the increase in key rates and price controls imposed by the government, inflationary pressure in Sri Lanka is expected to remain strong amid partial monetization of the budget deficit, currency depreciation and rising world commodity prices. raw.
Food insecurity could also worsen and poverty reduction could slow if food prices remain high and shortages persist.
In the medium to long term, the WB said digital technologies could become an important engine for job growth in Sri Lanka. Once again, despite the widespread possession of cellphones in the country, the digital revolution will not live up to expectations without the expansion of high-speed networks and accessible data throughout the island.
“Sri Lanka could offer new opportunities for economic mobility through policies that expand or universalize access to digital infrastructure, and investments in digital literacy are a prerequisite for the widely shared benefits of these new opportunities,” the World Bank said.
From a regional perspective, the report highlighted that South Asia, with the emergence of new digital technologies, has the opportunity to shift from a traditional growth model driven by manufacturing and capitalize on the potential of its service sector, offering countries the opportunity to “rethink” their long-term development models.
The regional WB update released every two years noted that most countries in South Asia are far from pre-pandemic trend levels, and a gradual recovery is likely to lead to corresponding improvements in market conditions. work.
Meanwhile, South Asia is expected to grow by 7.1% in 2021 and 2022. The WB said year-over-year (YoY) growth remains strong in the region, although as of ‘From a very weak base in 2020, the recovery has been uneven across countries and sectors.
South Asia’s average annual growth is expected to be 3.4% over 2020-23, 3 percentage points lower than in the four years leading up to the pandemic.
Just as the pandemic has marked the economy of Sri Lanka, the economies of the region have not been spared by the Covid-19 epidemic either, as many countries have experienced a decline in investment flows, disruptions in supply chains and setbacks in human capital accumulation, as well as substantial increases in debt levels. The World Bank estimates that the pandemic caused 48 to 59 million people to become or remain poor in 2021 in South Asia. Nonetheless, the World Bank’s chief economist for the South Asia region, Hans Timmer, said South Asian countries have a significant comparative advantage in exporting services, especially business processes. trade and tourism, as they have struggled to break into manufacturing export markets. To realize the potential, Timmer said it was imperative for the region to rethink regulations and establish new institutions to support innovation and competitiveness.