Sri Lanka’s economic growth is expected to recover to 3.3 per cent in 2021, and 2.2 per cent in 2022 after contracting 6.7 per cent in 2020, the World Bank states in a January 2021 projection warning on external uncertainties.
“In Sri Lanka, the pandemic-induced shock further increased an already-high risk of debt distress with its sovereign spread over a thousand basis points above pre-pandemic levels,” the World Bank’s Global Economics Prospects report stated.
Sri Lanka’s Central Bank has said in January 2021 the economy may contract 3.9 per cent in 2020. An earlier projection for 2021 put growth at 5.0 per cent.
South Asia as a whole is expected to grow 3.3 per cent in 2021 and 3.8 per cent in 2022.
“In economies that rely on external sources of growth, such as manufacturing exports (Bangladesh) and tourism (Bhutan, Maldives, Nepal, Sri Lanka), the recovery is likely to be particularly modest,” the report noted.
Export growth is forecast to remain weak in Bangladesh, especially in the readymade garment sector.
Tourism revenue is likely to remain significantly below pre-pandemic levels because of depressed demand as potential tourists remain wary of social interactions and continued restrictions on international travel.
So far remittances have been unusually strong. Some expatriate workers say they are saving more because travel, entertainment and shopping had been curtailed in host countries due to anti-pandemic measures.
“The projected drag from remittances on the region’s economies (Bangladesh, Nepal, and Sri Lanka) is less certain given their recent strength,” the report stated.
Remittances may be adversely affected by the weak recovery in Gulf Cooperation Council (GCC) countries, the resurgence of outbreaks in the United States and Europe, and difficulties facing migrants trying to return to host countries.