Sri Lanka's current growth level not enough to create jobs: World Bank experts

World Bank Lead Economist for Maldives, Nepal and Sri Lanka, Arvind Nair and Country Economist for Sri Lanka, Ms Shruti Lakhtakia, shared their views on the status of the economy in an interview with Daily Mirror.

- By Kelum Bandara

However, the interview was taken in the pre-disaster context, and slightly modified after. Excerpts

Do you agree with the government's view that the economy has stabilised? What does that mean for growth going forward?

Shruti: We broadly agree with that assessment. Since the crisis in 2022, things have settled quite a bit. There have been improvements on both the fiscal and external fronts, which we see as a good sign. And really, for any kind of growth, that’s the first step — we need stability before we can think about achieving higher and more sustained growth, and before the private sector can invest.

We also need to make sure that stability continues. That means staying on the fiscal path and making sure the exchange rate adjustments continue.

When it comes to growth, though, it’s important to recognise the need for much higher growth. At the moment, both the International Monetary Fund (IMF) and the World Bank project growth at around 3 to 4 per cent. That’s enough to keep debt sustainable — if we define debt sustainability as reaching a debt to GDP target of 95 per cent by 2032, as outlined under the IMF programme. In fact, you can technically reach that target even with 3 per cent growth.

But that level of growth is not enough to achieve the aspirations of the Sri Lankan people. And achieving those debt targets with only 3 per cent growth means the government has to maintain a very high level of fiscal austerity. That kind of austerity, as we know, is hard to sustain for a long period. The government also needs room to respond to unanticipated shocks, like the devastating natural disaster that we just experienced with Cyclone Ditwah.

So if we want to ease the pressure on the government—and on the people—we really do need higher growth, at least 5 per cent and above.