Sri Lanka Economic Quarterly

Abstract

The Quarterly Economic Update (QEU) provides a comprehensive and updated analysis of recent economic performance in Sri Lanka. Economic Developments: Sri Lanka continued to enjoy strong economic growth during first quarter, as its foreign trade finally began to revive. The country should achieve growth in excess of 5% for the year, with inflation below 6.5%. The Government needs to address the slippages on the fiscal side if its ambitious budget targets are to be met. Policy Issues: The Government’s enactment of the Fiscal Management (Responsibility) Act is an important step toward sustainable management of public finance. To increase the transparency and accountability of fiscal operations, twice a year the Government will formally report to Parliament on the status of budget implementation. Under the Act, theGovernment has commited itself to reduce the fiscal deficit to 5% of GDP and the public debt to 85% of GDP by 2006. Development Focus: Sri Lanka receives foreign assistance from a wide variety of sources, but most of the funds are in the form of loans rather than direct transfers. However, the concessional terms of the loans generate a real transfer of resources in net present value terms that is equivalent to a grant. A loan’s “grant element” can be increased by lowering the interest rate, extending the grace period, or postponing the maturity.