Sri Lanka on the cusp of steady economic surge

The steep global economic slump is behind us. A snapshot of the economy from across a broad spectrum of activity seen by the US Federal Reserve (Central Bank) showed that the precipitous slide towards recession, job losses and bank failures had been arrested during the second quarter of this year. By a similar analysis, the Asian economies were showing rosier growth forecasts. Sri Lanka seemed surge-bound, is a consensus emerging now.

Most economists believe that Sri Lankan economy has weathered the global meltdown in an amazingly resilient manner, given the consequences of the Northern war, on top of many other external and internal factors which inhibited the growth and development of the country. Gross Domestic Product did not succumb to the global meltdown in a calamitous manner.

That ability to arrest a precipitous downward spiral indicated a basic soundness of the economy brought about by several key factors. The diversion of military expenditure to the North-Eastern restoration, the influx of liquidity into the foreign reserves with the $ 2.6 billion IMF loan and agricultural, transport and banking sectors faring far better than expected despite an ominous recession were crucial to that buoyancy. It spelled an impending growth forecast of over 5.5 percent in GDP this year.

We are seeing a slow recovery in many parts of the West yet as falling demand for goods and services and job creation, though less harsh, is still below the normal. The analysis made by the US was part of the Federal Reserve's "beige book," a regular assessment of economic conditions from 12 Fed districts nationwide in America. Since the spring, various Fed districts have reported that things are still bad, but not hurtling downward at an accelerating pace as the recession that started year ago showed. There are favourable trends that emerged during the second quarter of 2009.

Foreign remittances higher

The icing on the cake came with the projected increase of Sri Lanka's foreign remittances from expatriates during the first half of 2009 to $ 1.6 billion compared $ 1.5 billion in the first six months of 2008. Those remittances were mainly from Sri Lankans working in Middle Eastern countries which accounted for 60 percent of the total remittances, while 20 percent was remitted by Sri Lankan expatriates in Europe. The remaining remittances were from North America, South East Asia and the Far East. Remittances from elsewhere were a small percentage of the total. Over 117,011 workers had left for employment abroad during the first six months of 2009, mostly in Middle East.

Thus the impressive gains sustained by Sri Lanka amidst challenging external and domestic circumstances augured well and were also indicative of stronger productivity in agriculture, communication and the banking sectors. As mentioned recently by Executive Director IMF, for Sri Lanka, India, Bangladesh and Bhutan Adarsh Kishore the grim economic climate had turned the corner.

Adverse global conditions caused the growth rate of Sri Lanka for the first quarter of 2009 to drop to a moderate 1.5 percent as contraction in external trade took its toll. Things reversed gradually as predicted growth rate went up. Both IMF and World Bank have not been hesitant in playing a positive role in keeping the economic revival going. The IMF agreeing to grant Sri Lanka a Stand by Arrangement for USD 2.6 billion or an amount to equivalent to 400 percent of Sri Lanka's quota was unprecedented. That was an open acknowledgement of the resiliency of the Sri Lankan economy. According to Kishore easy credit standards in US, risky asset creation and lack of supervision had precipitated the crisis in the West and the recovery is shaping up slowly. Asian economies fared much better. Sri Lanka was no exception.

World Bank gives Rs. 2.7 billion

The International Development Association (IDA) of the World Bank has also come in with a concessionary additional credit of Rs. 2,760 million (US$ 24 million) for Health Sector Development Project (HSDP) with particular emphasis on the special health needs in the Northern and Eastern Provinces.

Rs. 1,380 million has been allocated for the Northern and Eastern Provinces and Rs. 1,265 million has been allocated for other provinces. The balance Rs. 115 million has been allocated to strengthen the stewardship function of the Healthcare and Nutrition Ministry. The IDA provided a grant of Rs. 5,760 million to implement the HSDP project in 2004 to improve efficiency, equity and quality of healthcare by strengthening planning, management of monitoring capacity at the District, Provincial and Central levels with a focus on supporting preventive care services at the District and Divisional levels.

Timely measures by Government

Timely measures taken by the Government to improve the liquidity of the financial sector, introduction of the stimulus package and steps to strengthen domestic demand spurred the economy appreciably. The Economic and Social Survey of Asia and the Pacific 2009, the annual flagship publication of the United Nations Economic and Social Committee on Asia and the Pacific (ESCAP) indicated a trends towards gradual growth levels-a decidedly Asian phenomenon in marked contrast to things happening in the West.

An estimated 2008 GDP growth of six percent may even be achieved in Sri Lanka, a near miracle, given the global recession, high and volatile oil prices, sharp increases in food prices, and a tight anti-inflationary monetary policy. Inflation is now being kept within reasonable levels due to concerted action by the Central Bank. Attempts to keep import expenditure within manageable limits and hold inflation to a stead downward slide as well as achieving a lower rate of interest in the banking sector were the salient features that prompted the economy to hold its own. Domestic agriculture also played a crucial role.

Sri Lanka and indeed all Asian nations may be on the verge of fostering intra-regional trade and economic cooperation in the face of the global economic pressures. Asia is now integrated more closely with other regions than within itself. This situation will change in the coming decade. South Asia must reinvigorate its economic and trade links, so that the SAARC bloc could be a strong contender in the world economic stakes.