IMF cuts Sri Lanka’s 2019 growth target to 2.7%
Posted on September 25th, 2019
Economy
COLOMBO, Sept 25 (Reuters) – The International Monetary Fund (IMF) said on Wednesday it has cut its forecast for Sri Lanka’s 2019 economic growth to 2.7% from 3.5% as a political crisis in the last year and Easter attacks weigh on the tourism industry and broader business activity.
The IMF forecast is lower than the central bank’s estimate of 3.1%, and would potentially be the slowest growth in nearly two decades. (Reporting by Shihar Aneez; Editing by Kim Coghill)
September 25th, 2019 at 6:18 pm
Just 2.7% – lowerest after 2001.
However, the stated reasons contribute to only a 0.8% reduction. 3.5% is still low before thoese events.
The real reason is the debt crisis which affects the GDP in two ways.
1. Total actual debt is larger than the GDP with an average interest rate of over 5% USD. Debt repayment is about 5% of the GDP. This means every year the GDP growth is reduced by 11%. That is a massive hit.
2. To counter this, the government borrows again. If $5 billion is borrowed annually, it boosts the economy temporarily and artificially by about 6%.
So the net reduction is only 5% (11% – 6%).
However, both these ruin the future as debt and interest payments pile up and local investments decrease.
Let’s all blame the IMF instead of our foolish American economic policy. This is eaxctly what USA does and it is no surprise Sri Lanka copied this disastrous policy.
If any politician promises things that require borrowing, he/she is trying to further ruin the nation already neck deep in debt. A visionary leader will not promise anything that requires debt but will lay out a plan to pay off the debt.
2020 will be the start of a totally a disastrous year in terms of the economy. Most likely the real GDP growth rate will be near zero.
Defaulting on debt is a very good option. It will save the entire tax collection. But it will chase away foreign investors and further borrowing will be impossible. Sri Lankans will be unable to trade internationally unless without upfront payment. Imports will have to be rationed. This is good for the nation. It is better to live within the means than borrow and waste it.