By Madhusha Thavapalakumar
GDP growth forecasted by the Sri Lankan Government for the year 2021 in its recent budget seems overly optimistic, as it is significantly higher than the projections made by international financial organisations and rating agencies.
Prime Minister Mahinda Rajapaksa
During the Budget 2021 speech last week, Prime Minister Mahinda Rajapaksa, in his capacity as the Minister of Finance, stated that the Government expects an economic growth rate of 5.5% next year, while the GDP growth of the first quarter this year, which contributed about a week-and-half to the seven-week-long lockdown, was a negative 1.6%.
Even before the detection of the Minuwangoda Covid-19 cluster, which is referred to as the second wave of the pandemic in Sri Lanka, a number of international agencies released their forecast of the country’s GDP growth in 2021, not taking the economic impact from the second wave into consideration.
Issuing a news release on 3 April amidst the local islandwide lockdown, Asian Development Bank (ADB) projected Sri Lanka’s economic growth to recover moderately to 3.5% in 2021 from 2.2% in 2020. The projection was backed by the global public health crisis that halted economic activities across many economies in the region and beyond. ADB’s projection came just after two weeks into the lockdown, which means ADB arrived at this forecast even before capturing the entire economic impact of the prolonged lockdown.
In its Asian Development Outlook in June this year, ADB forecasted Sri Lanka’s economy to grow 4.1% next year from an expected contraction of 6.1% this year. The 2021 forecast improved from the earlier forecast of 3.5% due to stringent domestic lockdown measures. The outlook for 2021 remained unchanged in their Asian Development Outlook in September.
In January this year, when Covid-19 was limited only to China, the World Bank forecasted a 3.7% GDP growth for Sri Lanka in 2021 and 2022, and this is 1.8% lower than what the Sri Lankan Government is expecting now for next year.
In June, a month after the lifting of the initial lockdown, the World Bank forecasted Sri Lanka’s GDP growth to remain flat at 0% next year, indicating the unlikely achievement of a V-shaped recovery from a recession caused by the pandemic. This was long before the second wave erupted.
In October, a week after the detection of the Minuwangoda Covid-19 cluster, the International Monetary Fund (IMF) forecasted Sri Lanka’s GDP growth for next year to be at 5.3%, the highest since 2012. Nevertheless, this forecast too failed to cover the full economic impact of the second wave of the virus in the country.
Fitch Ratings in June forecasted the GDP growth of the country to rebound to 4% next year, while Moody’s too expected a 4% growth next year in April, forecasting a gradual recovery of tourism, which is yet to happen as the airports remain closed for international tourists for the ninth consecutive month.
None of these forecasts are close to the Sri Lankan Government’s growth forecast, except for the IMF prediction in early October, which did not factor in the second wave that is still raging with a minimum of three Covid-19-related deaths being reported every day for the last few days. The Government’s forecast is even a little higher than that of the Central Bank of Sri Lanka (CBSL), as the banking regulator predicted it to be at 5% in a release on 31 October this year.