Lanka’s economic growth well poised - ADB

Shirajiv SIRIMANE

Sri Lanka’s economic growth picked up in the last few years Country Director Asian Development Bank, Richard Vokes said.

Speaking in Colombo yesterday after releasing the Asian Development Outlook 2008 update in Hong Kong last morning he said this has resulted in many benefits.

Sri Lanka has removed subsidies on fuel and electricity and this positive step is now being followed by others.

“Despite the conflict Sri Lanka has been growing at 6.7% last year and this is commendable,” he said.

The private sector which he called very ‘vibrant’ has had a major role to play.

Commenting on the inflation he said it would remain high around 18% per cent in the next two years and is expected to slow down. He predicted the economic growth to remain around 6 per cent in the future.

He said that widening the tax net is very important to increase revenue and also for more ‘people’ to pay taxes. “Food prices in Sri Lanka is an issue, while the oil prices too is a matter of concern,” he said.

The country depends 60% of their energy needs on fuels and with the coal projects being operative from 2010 the exposure on fuels would reduce.

Developing Asian economies will revert to a more moderate growth outlook of 7.5% this year and 7.2% next year after posting its fastest growth of 9% in nearly two decades in 2007, the Asian Development Bank (ADB) says in a new report.

The Asian Development Outlook 2008 Update (ADO Update) also warns that inflationary pressures in the region are mounting and could boil over if left unaddressed.

The report projects an inflation rate of 7.8% in 2008 in Asia and the Pacific, up from an earlier estimate of 5.1%. In 2009, inflation could reach 6.0%. In the South Asian region inflation is expected to be around 12% and expected to reduce to 9% later.

Clouding the outlook for the region, the report notes, are the continued elevated level of international oil and food prices, the persistence of high inflation, and a prolonged showdown in industrial countries.

The report highlights that a supply shortage will remain a dominant issue in global commodity markets.

“While oil prices are likely to soften somewhat in the short run, they will remain high and volatile in the long run. High oil prices are here to stay. And as food prices are heavily influenced by oil prices, high food prices are here to stay as well,: says Ifzal Ali, Chief Economist of the Manila-based multilateral development bank.

“The impact of high food and oil prices on inflation has been muted in most of Asia,” says Ali. “This central finding has vast implications for monetary policies in the region. In particular, it means that monetary tightening will continue to be a principal instrument for fighting inflation in Asia.

It’s time to tighten our belts and for governments to cut subsidies, on fuel for example, that have shielded consumers from the brunt of the increases. These subsidies are not sustainable. When the subsidies are removed, renewed upward pressure will commence and will raise inflation.”

Ali says that China economy will grow at 10 per cent at 7.4 this year. This would slow down to 9.5 and 7.4 percent respectively next year. He also notes that Asia is the fastest growing economy in the world.

“Our study shows that the region still depends on industrial countries to fuel its growth. If the global showdown extends beyond 2009, the repercussions for the region could be severe.” He said that 55 per cent of the Asian growth world come from both India and China.

Overall, the report concludes, the key to fulfilling the region’s enormous potential is the speed and success by which macroeconomic stability is restored and requisite structural reforms are adopted.

Sri Lanka has received $4.21 billion for 141 public and private sector loans and $ 94.50 million for 224 technical assistance (TA) projects since joining the ADB in 1966.

As of December 2007, there were 46 on-going public sector loans for a total loan amount of $ 1.5 billion, including $ 155 million in three program loans and a $ 150 million grant from the Asian Tsunami Fund. Of these 46 loans, 12 were financed from ordinary capital resources (OCR) and 33 from the Asian Development Fund (ADF). As of 31 December 2007, 69% of the total approved amount had been disbursed.