Business

World Bank warns over rising public debt, economic instability

  • Employment on the rise
  • Tourism growth minimal
  • Increase investments with limited fiscal deficit would rectify issue

World Bank has expressed concern over economic growth of the country, warning that fiscal deficit could reach close to 20 percent of GDP by 2018, public debt would rise fast and could exceed 120 percent of GDP by 2020.

The World Bank publication "South Asia Economic Focus 2016" published last month said that even though income increased year on year, the spending had outpaced those earnings. The report highlighted that salaries, subsidies and other such recurrent expenditure was maintained at a stable level, but the large scale public sector investment projects had increased the national public debt, thereby resulting in fiscal imbalances.

The report forecast that deficit could reach close to 20 percent of GDP by 2018 and could exceed 120 percent of GDP by 2020. Such a situation, the report said, would breach the policy-dependent thresholds defined under the Low-Income Country Debt Sustainability Framework (LIC-DSF).

The report further said the current policies laid out will have minimal impact on the deficit and urged to revise the policies. The report also called on the Government to spend on project with limited fiscal deficit to rectify the situation.

World Bank added that any economic development hinged on the boom of the construction sector caused by the mega projects initiated by the Government.

The report highlighted that political unrest contributed directly to the tourism arrivals. The report added that if the tourist arrivals from major markets such as China and Europe did not pick up, the effect will be deeply felt in the economy.

The World Bank also noted that limited reserves, a high level of public debt and the short maturity of domestic debt added to the vulnerability.

"There are limited investment opportunities in the private sector outside tourism... [therefore] lack of local economic opportunities [was] reported as the main cause for unemployment," the report said.

The report further said inflation is projected to remain subdued as long as global commodity prices remain low.

The report added that: "[the] Household Income and Expenditure Survey (HIES 2016) is expected to be completed by the end of the year. The availability of new household survey data will allow the production of new estimates and an updated poverty assessment in 2017."