Macro Analysis /
Sri Lanka

Sri Lanka: Parliamentary elections in April; Covid-19 a looming threat

  • IMF staff level visit concludes with fiscal discipline taking center stage

  • Prolonged Covid-19 outbreak impact on Sri Lanka is a concern

  • We revise our yield forecast on a higher probability of tight monetary policy

Asia Securities
28 February 2020
Published byAsia Securities

The IMF concluded its staff level visit in February highlighting the need for fiscal prudence amidst debt refinancing requirements. 

Amidst this backdrop, Sri Lanka’s parliamentary election is set to take place on the 25th of April. Leader of the Opposition, Sajith Premadasa announced his intention to contest from the Samagi Jana Balawegaya alliance, while the SLFP will contest with the SLPP, similar to the Presidential elections last year. 

Meanwhile, the global impact of Covid-19 was apparent during the month, while locally the impact has been minimal, so far. With high import dependence on China, we expect a prolonged outbreak of the virus to have a significant negative impact in the medium-term. 

The average LKR/USD exchange rate depreciated 0.1% MoM in February, ending the month at 181.50. We forecast the LKR/USD at 189.00 in 2020 (4.4% depreciation) and LKR/USD 195.00 in 2021 (3.2% depreciation). 

We forecast GDP growth to reach 4.0% YoY in 2020 and improve to 4.4% YoY in 2021.