Imperative for Sri Lanka to expedite high priority structural reforms

economic-downturnSri Lanka’s economic growth is projected to grow at 5.0 percent in 2017, up from 4.8 percent 2016 and driven by increased private consumption and postponed investment in 2015. It is imperative for Sri Lanka to expedite high priority structural reforms to increase competitiveness, improve governance and consolidate its fiscal balance in order to ensure sustained growth and development.

According to the twice-a-year, South Asia Economic Focus, the region remains a global growth hotspot and has proven resilient to external headwinds such as China’s slowdown, uncertainty around stimulus policy in advanced economies, and slowing remittances. The main challenges remain domestic, and include policy uncertainty as well as fiscal and financial vulnerabilities.

South Asia has defied a sluggish world economy and solidified its lead as the fastest growing region in the world in 2016, a new World Bank report said today. Led by solid performance in India, economic growth is expected to gradually accelerate from 7.1 percent in 2016 to 7.3 percent in 2017.

A reality check on the state of private investment in South Asia shows that the region has fallen short of expectations. Mobilizing domestic savings remains key at the aggregate level. However, remittances and foreign direct investment prove very effective on a per-dollar basis, and the region should make the most of them. India can further rely on public infrastructure to crowd-in private investment, while finance may constrain investment in Pakistan. The business cycle matters all across the region, providing a potential accelerator from GDP growth to investment growth. Ultimately, the investment climate sets the broader stage. Alas, most South Asian economies suffer from a challenging business environment and some are subject to broader uncertainty and insecurity, which is detrimental to investor confidence.

“Political economy risks are widespread across South Asia, and uncertainty will need to be managed, particularly with a view to creating an attractive environment for domestic and foreign investment alike,”World Bank South Asia Region’s Chief Economist Martin Rama said. “Delivering the necessary energy, infrastructure, and regulatory improvements remains critically important to increasing private investment, thus boosting job creation and reducing poverty.”

Many South Asian countries show potential for accelerated growth in the short to medium term. However, countries will need to sustain domestic demand as a pillar of growth while reactivating exports and the tapping the potential of private investment. (World Bank)

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