Growth to pick up 5.6 percent in 2010 :

Sri Lanka’s economic outlook to show improving trend

Charumini de Silva

Despite the global economy’s slow recovery from the worst economic downturn since the second world war, we expect Sri Lanka’s economic outlook to show an improving trend, with growth picking up to 5.6 percent in 2010 and 6.3 percent in 2011, said RAM Holdings Berhad, Group Economist, Dr. Yeah Kim Leng.

He was speaking at a forum on the theme “Sri Lanka’s Economic Prospect and Challenges” at the Galadari Hotel yesterday.

He said Sri Lanka’s economy expanded 6 percent in 2008, marginally better than the estimated 5.8 percent.

The forecast for 2009 has been revised downwards to 3.2 percent - about half of the projection made prior to the onset of the global financial crisis in September 2008.

The major impact from the global crisis on Sri Lanka’s economy has been a sharp slowdown in industrial output. Exports to advanced countries such as the United States and European Union plunged more than 20 percent from January 2008 to August 2009, due to a collapse in external demand.

However, exports to emerging Asia increased from 9 percent - 12 percent compared to the corresponding period, he said. Dr. Leng said the circle was due to the services sector led by domestic oriented banking and insurance, transport, communications and Government services.

Conversely, export based agricultural and manufacturing sectors experienced sharp contractions with the global downturn in demand in the first half of this year.

Despite the developed western economies, the Asian economies overcame the crisis within a short time due to the strong monetary policies and the fiscal policies in Asian countries. We need to increase the deposits in banks, corporate bonds and share investments.

Sri Lanka could focus on the corporate bond market, as it is one of the feasible ways to raise funds to develop the country’s infrastructure, he said.

With the improving global conditions and the rise in intra-Asian demand, Sri Lanka’s economy is expected to expand 5.6 percent in 2010.

Growth is predicted at 6.3 percent in 2011 with the end of the war as stronger private investment flows will stimulate higher domestic spending on rebuilding the economy.

Sri Lanka’s inflation dropped sharply to 0.7 percent in September compared to the previous corresponding period, from its peak of 28 percent in June 2008, Dr. Leng said.

He said Sri Lanka is now well poised to achieve high sustainable growth since the dawn of peace provides the Government with the opportunity to create a stable macroeconomic environment where industries and business could thrive. Sri Lanka’s short and medium term growth prospects have improved significantly after the war.

Fiscal discipline remains the key to support a sustainable rise in national savings and investment rates in consonance with a reallocation of scare resources to the productive sectors, which will eventually result in less crowding out of private sector financing by Government borrowings, he said.