Sustaining growth momentum needs economic reforms - Dr. Kelegama

Ruwanthi Abeyakoon

SUSTAINING GROWTH: Sustaining the growth momentum in Sri Lanka will be possible by addressing the concerns in the macro economy, economic reforms and security situation, Executive Director, Institute of Policy Studies (IPS), Dr. Saman Kelegama said.

He made these observations at the launch of Economic and Social Survey of Asia and the Pacific 2007 in Colombo, a publication of United Nations Economic and Social Commission for Asia and Pacific (UN-ESCAP).

Dr. Kelegama said the growth forecast for 2007 is about seven per cent. “The existing open economy will contribute five percent of the forecast growth for this year. New investments will add one per cent, policy reforms will add 0.2 percent while Asian buoyancy will add 0.8 per cent,” he said.

“The BOP (balance of payment) surplus of USD 204 million, reserves adequate for three months import, Government revenue which is on the increase since 2003, measurers to increase worker remittances and increase of Foreign Direct Investments (FDI) by attracting mega projects create a positive outlook in sustaining the growth,” he said.

“Political stability of the Government consolidated and economic middle ground strengthened with recent cross-overs from the opposition will add to the positive outlook. Indo-Sri Lanka Comprehensive Economic Partnership Agreement (CEPA) to be signed this year and deeper integration with a fast growing economy like India will have spill over growth on Sri Lanka,” Kelegama explained.

He pointed out that there are concerns in macro economy, status of economic reform and the security situation when looking at sustaining the growth process. “Central Bank is taking concerted action now to bring down inflation. Monetary policy needs support by fiscal consolidation,” he said.

“Economic reforms are urgently needed in the loss making State-Owned Enterprises (SOEs) like Ceylon Petroleum Corporation and Ceylon Electricity Board. Reforms have taken place in certain areas such as automatic pricing system in Petroleum and electricity tariff increases.

But the Central Bank Annual report 2006 states that these measures have been inadequate to reduce the burden of these enterprises on the Government budget,” Kelegama said.

He also added that reforms need acceleration. “ The New Electricity Act should soon come to effect. Reforms in education, agriculture and other areas should move parallel. Communication with the public on the need for economic reforms and managing the reform process is important,” he said.

“With economic reforms in the SOEs the Government can save and redirect 3 to 4 percent GDP to investment on infrastructure and other productive investment. Government can reduce expenditure and bring down the budget deficit and inflation thereby reducing pressure on interest rates,” Kelegama said.

He also stressed that the 7.4 percent economic growth of 2006 was achieved despite adverse conditions.

“Deteriorating security situation, two major strikes in port and tea plantation, increase in international oil prices were difficult conditions.

However private sector factoring in uncertainty, increasing of FDI, increasing remittance to USD 2.3 billion and share market attracting a record USD 355 million were some of the factors that supported in achieving the growth last year,” he said.