## 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

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### 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).*

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_Source: https://www.imf.org/en/publications/cr/issues/2016/12/31/sri-lanka-staff-report-for-the-2014-article-iv-consultation-and-second-post-program-41927_