ICRA Lanka expects Sri Lanka’s economy to grow by 3.6 percent in 2021 after contracting by an estimated 4 percent last year.
In its latest economic report, ICRA Lanka estimates Sri Lanka’s GDP growth rate in 2020 to be -4%. In addition, its estimates indicate industry, services, and agricultural sectors to have contracted by 7.3%, 1.7% and 1.3% respectively.
Following are some of the highlights of the report:
• By mid-March the COVID crisis took center stage and the CBSL implemented a series of policy rate cuts further bringing the short-term rates lower to unprecedented levels. As a result, Sri Lanka has seen the lowest long-term rates in years.
• COVID crisis triggered a panic selling of SLISBs. This resulted in a massive spike in SLISB yields in March accentuated by the country’s external sector vulnerabilities.
• Following the Moody’s downgrade, the yields on the SLISBs edged up by ~170 to 540 bps which weighed down on country’s ability to raise foreign currency debt.
• 2020 was a challenging year for the financial sector. It marks a considerably weak performance for NBFIs. However, compared to NBFIs, banking sector was much resilient due to its solid capital buffers.
• With exports, remittances, and tourist receipts falling to historical lows, rupee was facing immense downward pressure during the first half of the year. In this context, the CBSL introduced import restrictions to bring the situation under control.
• As per ICRA Lanka’s estimates, the total revenue and grants of the government have plummeted by nearly 28% in 2020, while total expenditure records a marginal increase. As a result, the fiscal deficit may have widened by over 63%. In this context, ICRA Lanka expects the total public debt to have reached 97.4% in 2020.
• With the economic recovery in 3Q, the bourse turned bullish and the record performance of ASPI lifted it back to the pre-crisis level fueled by the quest for higher yield in the low interest rate environment.
• Oil prices slumped to twenty year low during March and April, due to the initial impact of the pandemic lockdowns across several major economies, but gradually started recovering as the year wore on.
• Exporters enjoyed robust prices for key export commercial crops tea, rubber and coconut during the year.
• Price of base metals which are major industrial inputs, declined to their two-year lows in April. On the contrary, onset of the COVID crisis boosted the demand for precious metals, especially gold, as an asset, boosting its prices to historically high levels.