The World Bank says Sri Lanka’s economic growth will decline to 6.9% in 2015, as the government reassesses the investment-led growth model of the previous regime.

The organisation’s South Asia Economic Focus report said the trend was “partially set off by consumption growth thanks to increased public sector wages and higher disposable income”.

The report further stated the country needed to attract increased foreign direct investment to maintain its high growth rate, saying that it attracts less than expected.
"With limited public and private national savings compared to national investment, Sri Lanka needs to attract FDI—in order to maintain its high growth rate," the report said.

"However, Sri Lanka attracts less FDI than expected despite its geographic, education and infrastructure advantages. With the country on course to join upper middle income countries, concessional borrowing sources are drying up and are being replaced by borrowings on commercial terms, which could affect affordability."

See full report here.

The report also adds that Sri Lanka’s inflation is expected to remain around 3%, as global commodity prices remain subdued and the taxes on key commodities are lowered.

However the fiscal deficit is expected to narrow to 5% of GDP in 2015, due to proposed one-time revenue measures.

“Going forward, measures are needed to increase revenues to avoid widening of the deficit in the wake of some populist proposals increasing costs on a permanent basis for 2015 and beyond,” the report said.

“A slowdown in GDP growth might reverse the decline in the public debt-to-GDP ratio, which was largely dependent on fast GDP growth.”

See more on LBO here.

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