GDP to shrink by 1.7% in 2020 : CBSL

COLOMBO (News1st): The Central Bank has forecasted Sri Lanka's Gross Domestic Product to shrink by 1.7 percent in 2020 and recover to a 5 percent growth in 2021. The Central Bank's GDP growth projection is significantly higher compared to the latest forecasts of several International Financial Institutions. The World Bank last month projected Sri Lanka's economy to shrink by 6.7 percent in 2020. The ADB in September, projected Sri Lanka’s GDP growth rate to decline by 5.5 percent in 2020 while the International Monetary Fund forecasts a decline of 4.6 percent the same year. Just days before the CBSL announced its GDP forecasts, the regulator's Bank Supervision Department instructed all Licensed banks to use forecasts and projections published by the CBSL, when adjusting credit provisioning models to reflect the economic conditions and forecasts, on a consistent basis. The circular titled ''Amendments to Circular No. 04 of 2018 on Guidelines to Licensed Banks on the Adoption of Sri Lanka Accounting Standards – SLFRS 9: Financial Instruments '' further clarified that in the event CBSL forecasts are not available, ''licensed banks shall use credible alternative sources on a consistent basis and shall maintain relevant documentary evidence''. According to the CBSL, the GDP forecast for 2020, reflects the impact of the pandemic induced fallout, particularly in the second quarter of the year. GDP estimates for the second quarter have not yet been released by the Department of Census and Statistics, citing difficulties in capturing the true nature of disruptions and new activities that emerged this year with the onset of the pandemic. The regulator projects Sri Lanka's trade deficit to fall to 6.6 percent of GDP , while the current account deficit is projected to shrink to 1.5 percent in 2020. Sri Lanka’s budget deficit is projected to expand to 9.3 percent of GDP in 2020. According to the Central Bank, high-frequency data point towards a strong recovery in many areas of economic activity in more recent months prior to the resurgence of COVID-19 infections and resultant containment measures in October 2020.