Dec 11, 2020

SL economy to contract by 4% in 2020; rebound 3% next year Featured

Global financial giant Citi’s research arm is forecasting Sri Lanka’s economy to contract by 4% this year before rebounding to a 3% growth in 2021.

This assessment is contained in Citi Research’s latest report on Sri Lanka.

“Following the recent resurgence of COVID clusters, prompting a stalling of mobility and selective curfews, we downgrade our growth forecast to -4% in 2020F, and a 3% rebound in 2021F, close to consensus,” Citi Research said.

However it is more bearish in 2021F than either CBSL or IMF at around 5% (the latter forecasting a deeper 2020 plunge). 

“CBSL has published medium term growth forecasts that we think are too optimistic (6% growth by 2023F) as the Government believes Sri Lanka can recover close to its post-civil war growth boom in 2010-14. We are sceptical given the significant debt overhang, and economic scarring from lasting impact of COVID globally on services sector, especially on tourism (accounted for almost 5% of Sri Lanka’s GDP in 2019),” Citi Research said. 

It said in the last detailed IMF report on Sri Lanka in November 2019, they had utilised a growth assumption averaging around 4.6% up to 2023 in their debt sustainability analysis. 

“We would think that post pandemic, the growth assumption should be lower than that – possibly closer to 4% in the medium-to-longer term steady State analysis, slightly above the average annual growth rate in the most recent 5 years pre-pandemic but lower than previously. Without the IMF, the Government might push for a more optimistic 5% growth assumption,” Citi Research said.