Macroeconomic Challenges 2006‐2016
Abstract
With GDP growth relying on construction and related activities, private consumption was the main driver of growth while tradeable goods production stagnated. As the country’s debt service ratio climbed steadily, Sri Lanka is faced with a growing external debt problem in the face of prolonged dip in export earnings growth and non‐debt creating FDI inflows. If the economy is to escape the vicious cycle of fiscal dominance in macroeconomic policy setting – leading often times to high inflation, interest rates and an
unfavourable exchange rate dynamic – then steps towards fiscal consolidation is a must. Adjustments on the macroeocnomic policy front need to be accompanied by deregulatory reforms to address export competitiveness and generate a more conducive investor environment to further support debt sustainability.
Description
Keywords
Macroeconomic policy; export competitiveness; deregulatory reforms; debt sustainability