The World Bank in its latest report says that Sri Lanka’s growth will be rebound in 2018 and continue to be around 4.5 percent in the medium term, driven by private consumption and investment.
Inflation will stabilize at the mid-single digit level as the impact of natural disasters wears off, although the upward trend in oil prices may exert some upward pressure.
The outlook remains favourable, provided the government is committed to the reform agenda of improving competitiveness, governance and public financial management, the report added.
Together with the IMF programme, these reforms will add to confidence and support fiscal consolidation efforts.
The external sector will continue to benefit from the GSP+ preferential access to the European Union and tourism receipts, despite the deceleration of remittances.
A further slowdown in reform implementation, in a challenging political environment, remains the key risk to the baseline.
The impending election cycle elevates this risk, the World Bank noted.
External risks include disappointing growth in key countries that generate foreign exchange inflows to Sri Lanka: exports, tourism, remittances, FDI, and other financing flows.
Sri Lanka faces several challenges that increasingly put its future economic growth and stability at risk, which must be addressed through macro and structural reforms, the World Bank said.