The United Nations Economic and Social Commission for Asia and the Pacific (UNESCAP) is forecasting Sri Lanka’s economy to grow by 4.8% this year, marginally up from 4.4% in 2016.
However the UNESCAP estimate is slightly lower than the Central Bank’s forecast of 5% for 2017.
The UNESCAP Economic and Social Survey of Asia and the Pacific 2017 released on Tuesday in Colombo stated that Sri Lanka’s medium-term economic development is contingent upon the success of reforms designed to reduce stubbornly large fiscal and trade deficits.
The report said that the growth outlook is expected to rebound modestly to 4.8% in 2017 and 4.9% in 2018 and pointed out that a major headwind to stronger prospects, however, is fiscal tightening which would constrain consumer spending and public investment, especially in an environment of higher domestic interest rates.
While highlighting that public debt stands at close to 80% of GDP, with a large share being foreign currency denominated, the report shows that the Government has strengthened its fiscal consolidation program by increasing the value-added tax rate from 11% to 15% by imposing various taxes including Capital Gains Tax and a Carbon Tax for motor vehicles. There are also efforts to tax e-commerce transactions, reform State-owned enterprises and improve tax administration.