November 20, Colombo (LNW):Sri Lanka’s new government aims to achieve a ‘B’ credit rating by 2027-28 to enable affordable market borrowings and meet its debt obligations, including those to the IMF, as emphasized by Gregory Smith, Lead Economist for the World Bank in Sri Lanka.
Speaking at a webinar hosted by the Overseas Development Institute (ODI), Smith stressed that attaining this credit rating would ease market borrowings for debt repayment, potentially reducing the need for future IMF support.
He highlighted that continuing reforms is crucial for breaking the cycle of reliance on IMF assistance and achieving economic stability.
Currently, Sri Lanka is classified as a ‘partial reformer,’ having launched various legislative changes but still needing progress to raise its revenue-to-GDP ratio.
The target is to increase this ratio from the current 8% to between 15% and 20%, similar to the levels of the 1990s. This improvement is essential for fostering socio-economic growth and decreasing public debt, which now stands at 100% of GDP, to more sustainable levels.
During recent discussions with the new government, the World Bank outlined key economic priorities, including tourism, agro-business exports, and the digital economy.
Smith emphasized the potential of the digital economy, not only for creating IT jobs but also for enhancing government efficiency through e-governance and streamlined tax collection processes.
Smith projected an economic rebound of 4-4.5%, though he warned that structural challenges could limit growth to around 3% next year.
He noted that the government faces a delicate balance between promoting economic growth and achieving primary budget surpluses through taxation.
A failure to generate sufficient economic growth could result in an unsustainable debt burden in the future, while growth would make debt management more feasible.
Addressing foreign and local investors at the CT CLSA South Asia Forum, Smith reiterated the need for Sri Lanka to continue with its reforms. Around 40 new key legislative measures have already been passed, and 60 more are pending.
These efforts lay the groundwork for boosting the country’s economic health. He emphasized that increasing revenue through taxation is essential for long-term stability, even though it presents significant challenges.
The World Bank’s discussions with the Sri Lankan government also emphasized the importance of specific economic sectors.
Tourism remains a priority due to its potential for immediate economic impact. The agro-business sector is seen as a crucial area for export-driven growth, while the digital economy is anticipated to be a game-changer, particularly for job creation and enhancing administrative efficiency.
The path to recovery for Sri Lanka involves not only achieving economic growth but also carefully balancing it with fiscal responsibility.
Without growth, the country risks facing an overwhelming debt burden in the coming years. However, with sustained growth, the debt could become more manageable, allowing the nation to achieve a degree of financial independence and stability without the need for recurring IMF interventions.
