Sri Lanka’s economic growth will rebound to 4 percent this year from a 16-year low in 2017, the International Monetary Fund (IMF) said late on Friday, but urged more reforms of state-owned enterprises (SOEs) to temper fiscal risks and bolster the nation’s defenses to external shocks.
After a brief review of macroeconomic policies linked to a $1.5 billion IMF loan, the Washington-based global lender said all the end-December quantitative performance criteria under the loan program had been met.
Manuela Goretti, the IMF mission chief for Sri Lanka, said Sri Lankan authorities have successfully advanced fiscal consolidation and strengthened international reserves.
Goretti said a recovery is underway as agriculture has started to rebound and food prices decelerated, adding that “real GDP growth is expected to reach 4 percent” in 2018.
However, the IMF’s growth estimate is below the Sri Lankan central bank’s forecast of around 5 percent.
Goretti said the global lender is expected to consider Sri Lanka’s request for completion of the fourth loan review in June 2018 after a cabinet approval of an automatic fuel pricing mechanism to meet one of the IMF’s loan conditions.
The IMF also said the $81 billion economy remains vulnerable to adverse shocks given the still sizable public debt, large refinancing needs, and low external buffers.
“Further efforts remain needed to strengthen governance and mitigate fiscal risks from state-owned enterprises (SOEs),” Goretti said in a statement.
“….sustaining the reform momentum is critical to strengthen the resilience of the economy to shocks and promoting inclusive and strong growth.”
Sri Lanka’s economic growth cooled sharply to 3.1 percent last year, from 4.5 percent in 2016, the lowest since 2001 as agriculture took a major blow from repeated floods and droughts while tight monetary and fiscal policies also crimped demand.