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Releasing its half yearly publication, ‘Recent Economic Developments: Highlights of 2016 and Prospects for 2017’ the Central Bank said the growth momentum is expected to be supported by major contributions from growth in the trade of merchandise goods and services; especially in the areas of tourism, transport, telecommunication, ports and financial services.
“The higher growth potential is envisaged to be achieved mainly through productivity improvements supported by the adoption of new technology across production sectors as well as through the digitalisation of the economy, which would pave the way for increased market access and efficient information flow in the economy,” the bank said.
“The medium term growth outlook would also be supported through the consolidation of investment activities with the participation of both the public and private sectors.”
The planned establishment of the Colombo International Financial City, new opportunities under the Megapolis project and the proposed establishment of Special Economic Zones, particularly in Hambantota with the participation of Chinese investors, are among the key areas that would help generate growth over the medium term.
In the medium term, inflation is projected to remain in mid-single digit levels of 4-6 per cent, which is also consistent with the inflation target bands stipulated under the IMF-EFF Programme, the Central Bank said.
Foreign investments are expected to perform an enhanced role, particularly in areas where Sri Lanka has relative advantage, such as information technology related services and logistics.
The rise in income levels from the expected developments in all sectors of the economy would help Sri Lanka to graduate to upper middle income status, and the per capita GDP is expected to rise to over US dollars 5,500 by 2020.
“Policies taken towards strengthening the proper implementation of the proposed changes in the existing tax system by rationalising tax exemptions and improving tax compliance as well as tax administration would enhance government revenue to around 16 percent of GDP in the medium term,” the bank said.
“This coupled with the rationalisation of recurrent expenditure would enable the government to allocate the required level of funds to maintain public investment at around 6 per cent of GDP in the medium term.”
The budget deficit is expected to be around 3.5 per cent of GDP by 2020 while generating a surplus in the primary balance and current account balance during the medium term.
The government debt is expected to fall below 68 percent of GDP in the medium term.