Reform, int’l financing, fresh capital inflows key to restoring livelihoods – WB

The government’s reform program, supported by financing from international partners and fresh capital inflows, is key to restarting the labour market and restoring livelihoods, said World Bank’s Macro Poverty Outlook for Sri Lanka for April 2023.

“The necessary macroeconomic adjustments may initially adversely affect growth and poverty but will correct overall imbalances, help regain access to international financial markets, and build the foundation for sustainable growth,” the report said.

Mitigating the impacts on the poor and vulnerable remains critical during the adjustment and reducing poverty requires better targeted social assistance, an expansion of employment in industry and services, and a recovery in the real value of incomes. “Growth prospects depend on debt restructuring and growth enhancing structural reforms. At the same time, the fiscal deficit is expected to gradually fall over the medium term. Inflation is projected to come down from a high base as monetization of fiscal deficits is reined in.

After peaking at an unprecedented 69.8 % (y-o-y) in September, headline inflation closed 2022 at 57.2 %(y-oy), reflecting the impact of elevated global commodity prices, monetization of fiscal deficits, currency depreciation, and food supply constraints due to the 2021 ban on chemical fertilizers. The current account deficit is expected to decline thanks to import compression, despite decelerating exports due to weak global demand.

“Additional resources will be needed in 2023 and beyond to close the external financing gap.”