Sri Lanka: Staff Report for the 2014 Article IV Consultation and Second Post-Program Monitoring Discussion
IMF Staff Country Reports, September 18, 2014
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Bibliographic details
- Published: September 18, 2014
- Series: IMF Staff Country Reports
- DOI: https://doi.org/10.5089/9781484327692.002
Context: recent macroeconomic performance
- Real GDP grew 7.3 percent for 2013, up from 6.3 percent in 2012.
- Inflation declined to below 5 percent.
- The external current account balance has improved.
- Private credit growth has been slow.
- A number of financial sector indicators have deteriorated.
Outlook and risks
- Growth is expected to remain robust at 7 percent.
- Inflation is expected to remain in the mid-single digits.
- The external current account should improve marginally, allowing for further accumulation of foreign exchange reserves.
- Near-term risks:
- Appear moderate.
- Potential for disruptions from market turbulence and climatic events ("some bumps in the road").
- Medium-term risks:
- Potential for tighter external liquidity.
- Challenge of further fiscal and debt consolidation while maintaining high levels of investment in infrastructure and human capital.
- Need to maintain a balanced monetary policy.
- Risks to competitiveness in a shifting economic landscape.
Key findings and statistics
- Real GDP: 7.3 percent (2013); 6.3 percent (2012).
- Inflation: declined to below 5 percent (level not further specified).
- Growth projection: 7 percent.
- Inflation projection: mid-single digits.
- External current account: improved and expected to improve marginally.
- Private credit growth: characterized as slow.
- Financial sector indicators: described as deteriorated.
Policy recommendations
- Fiscal policy and debt
- Fiscal consolidation and debt reduction need to continue.
- The burden of adjustment needs to shift decisively to revenue generation.
- Debt targets could potentially be recast to achieve deeper reduction over a longer period.
- Monetary policy
- Monetary policy needs to maintain a balance between supporting growth and containing inflation.
- A continued forward-looking approach is needed given long lags in monetary transmission.
- Financial sector
- Financial sector consolidation could lead to economies of scale, greater resilience, and more effective supervision.
- Corporate governance needs to continue to improve.
- Careful supervision in the post-consolidation period will be key.
- External position and competitiveness
- Maintaining competitiveness and achieving a more sustainable external position will require:
- Continued innovation.
- Sustained investment in infrastructure and human capital.
- A predictable business environment.
- Ideally a heavier emphasis on direct investment and equity portfolio flows than debt.
Sri Lanka: Staff Report for the 2014 Article IV Consultation and Second Post-Program Monitoring Discussion (September 18, 2014).