COLOMBO: Following a period of uncertainty, the Sri Lankan economy showed early signs of stabilization during 2016 in response to corrective actions adopted by the government and the Central Bank, country’s monetary authority said in its 2016 Annual Report. Although the economy grew at a slower rate of 4.4 percent in 2016 in real terms in comparison to 4.8 percent in the previous year due to unfavorable weather conditions and sluggish global economic recovery, a steady acceleration in quarterly growth has been Observed from the second quarter of the year amidst tightened fiscal and monetary policies, according to the Central Bank. Inflation, which remained low in the first four months of the year, increased thereafter to record an annual average of 4.0 percent in 2016 mainly due to the adverse impact of weather related disruptions, tax adjustments and rising international commodity prices.
Sri Lanka’s external sector performance remained subdued in 2016, with foreign exchange outflows exceeding the moderate inflows during the year. The trade deficit as a percentage of GDP expanded to 11.2 percent in 2016 compared to 10.4 percent in 2015. The increase in government revenue stemming from the broadened tax base, structural reforms in tax administration and the rationalization of government expenditure, along with the government’s commitment to strengthen the fiscal consolidation process contributed to the overall improvement of the fiscal sector during 2016. Fiscal consolidation process helped contain the overall budget deficit at the targeted level of 5.4 percent of GDP in 2016 in comparison to the deficit of 7.6 per cent in the previous year, the Annual Report said.
The conduct of monetary policy in 2016 was aimed at stabilizing the economy through the containment of the possible rise in excessive demand pressures in the economy. The financial sector continued to expand during the year whilst exhibiting resilience amidst challenging market conditions both globally and domestically, according to the Central Bank Annual report for 2016. The regulatory agencies including the Central Bank, have initiated several measures to strengthen the supervisory and regulatory framework for financial institutions with a view to further enhancing their safety and soundness, thereby promoting public confidence in the financial sector.
According to the monetary authority, the performance of the Sri Lankan economy in 2016 reconfirmed the necessity of addressing the deep rooted structural issues, in order to enable the country to progress towards a higher growth trajectory, as envisaged. “While the government recent efforts, with the support of multilateral agencies including the IMF, to formulate policy frameworks required to address these issues as well as emerging challenges are commendable, it is essential that such policies are implemented swiftly with consistency in order to improve productivity and efficiency of the economy and to attract much needed foreign direct investments (FDIs) and boost investments from the domestic private sector, while seamlessly integrating with the global production networks,” the Central Bank said in its report for last year. “Along with strengthening macroeconomic fundamentals through improved fiscal performance and the conduct of monetary policy in a forward looking framework, it is essential that these structural issues are addressed decisively without delay with broad public consensus, as the postponement of these essential reforms is no longer feasible if the country is to progress along a sustainable and equitable growth trajectory,” the report stressed.