Economic Development during past four years - in brief

Challenges

The past four years (2006 - 2009) were the challenging four years in the history of Sri Lanka. During this period the Worlds main financial Institutions faced bankruptcy. Therefore, worlds strongest economies were affected by massive tribulations and in the United States alone over 100 banks faced difficulties.

Coupled with the Global Economic Problem 2008 - 2009 became difficult years for Sri Lanka too. Sri Lanka faced with difficulties in the Banking Sector, a downward trend in the trade, an increase in balance of payment deficit, and a decrease in foreign exchange reserves. Fuel prices increased two fold.

Conquering the Challenges

Due to timely action taken by the Government the Banking Sector was saved. The Industries were provided with concessionary packages. During this period action was taken to provide material and arms required for the war while arranging funds for large scale development projects.

Several Flyovers have been built during the past 4 years, as well as ports development

Due to Government’s far sighted intervention and remarkable economic management, foreign exchange reserves recorded an increase. The stock exchange made a tremendous expansion while the inflation recorded a significant decrease. Interest rates declined and it should also be mentioned that that the country was able to receive 2.6 billion U.S. dollars from the International Monetary Fund.

Economic Growth

During the past 3 years Sri Lanka has been progressing soundly with over 6 percent annual economic growth.

Per Capita Income

Sri Lanka has become a Middle Level per capita income nation progressing from the status of U.S.$ 881 per capita income nation in 2000 to the level of U.S.$ 1617 per capita income nation in 2007. In the year 2008 the per capita income rose to U.S.$ 2014.

Unemployment

In the year 2007 Sri Lanka’s unemployment ratio stood at 6 percent. In the year 2008 it decreased to 5.1 percent. However, in the year it became 6.2 percent.

Inflation

For the past 30 years Sri Lanka’s inflation remained static around 11.7 percent. However, in the month of June 2008, due to increase in crude oil prices the inflation rose to 28.2 percent. But in 2009 it showed a record decrease up to 1:4. It would remain as single digit inflation in the future.

Balance of Trade Deficit

Late Minister Jeyaraj Fernandopulle inspecting the Flyover at Kelaniya

Cities upgraded to those of developed countries

The Balance of Trade Deficit in the first 9 months of 2008 was U.S.$ 4614 million. In 2009 it recorded a 60 percent decrease amounting to U.S.$ 1848.

Foreign Employment Contributions

In the year 2008 total foreign exchange receipts from Foreign Employment amounted to U.S.$ 2918 million. This appreciated to U.S.$ 2482 in 2009 and this is an increase of 10.9 percent.

Foreign Exchange Reserves

The Foreign Exchange Reserves which was U.S.$ 355 million in July 2008 recorded a noteworthy increase of up to U.S.$ 4825 in October 2009. This is sufficient to cover imports for a period of 6 months.

Agricultural Sector

Paddy production increased by 24 percent in 2008 while tea recorded a 4.4 percent increase of production having produced 129 million kgs of tea.

This is a 10 percent increase. We received a record price of Rs 70 per kg of raw tea leaf and Rs 311 per kg of rubber. Rice fetched a price of over and above the guaranteed price of Rs 35 per kg.

Fisheries Industry

Under the environment of liberating the North and the East the Fisheries Industry shows a growth of 8.7 percent. Fish production which was 319 million kgs in 2008 increased to 345.6 million kgs in the first 9 months of 2009.

Industrial Sector

In the face of Global Economic recession the industrial sector recorded a sluggish growth of 2.1 percent in the year 2009.

Service Sector

In the first six months of 2009 the service sector registered a 19 percent increase compared to the same period last year.

GSP+

Under this scheme, the European Union provided tax relief and special concessions for a period of 3 years for 2700 items of imports for 27 countries including Sri Lanka, with effect from 1st July 2005. Sri Lanka received tax concessions amounting to 78 million Euros in 2008 under this scheme. This is only 1.4 percent of Sri Lankas export earnings.

Therefore, even if this concession was removed it would not make a grave impact on Sri Lanka. But such a situation has not arrived yet. There is a possibility that this concession will be received up to end of 2011.

Loans and Assistance

The Government Sector has received U.S.$ 1348 million as Loans and Assistance in the year 2008. In addition to this, Sri Lanka has also received U.S.$ 509 as Treasury Bills and foreign investment bonds. With the end of the war, Treasury Bills and Foreign Investment Bonds increased up to U.S.$ 1646 million. With this pecuniary development the balance of payment deficit showed a surplus of U.S.$ 2.2 billion by September 2009 and the official foreign exchange reserves exceeded U.S.$ 4.2 billion.

Import/Export and Trade Deficit

Income from exports which amounted to U.S.$ 6150 billion in the first 9 months of 2008 decreased to U.S.$ 5119 billion in the comparative period in 2009 recording a decrease of 16.8 percent. The main reason was a decrease in the supply demand due to the Global Economic Crisis. All demands for imports too decreased. From January, September 2009 the expenditure for imports was U.S.$ 6967 million and this is a decrease by 35.3 percent.

During this period expenditure for import of consumer goods decreased by 28.8 percent and expenditure for import of inter-products decreased by 40 percent Decrease in the expenses for Crude Oil was a main reason. The total Trade Deficit which was U.S.$ 3657 million in 2007 expanded to U.S.$ 5871 million in 2008.

This is a 60.6 expansion. It was possible to cover 50 percent of this amount through private contributions. Due to fall in imports over the increasing exports, changing this scenario, the trade deficit which was U.S.$ 4614 billion in the first nine months of 2008 decreased to U.S.$ 1848 billion in the comparative period in 2009, which amounts to a 60 percent decrease.

Courtesy: Development.lk
 

EPF to turn into banking model - Central Bank

The Central Bank of Sri Lanka (CBSL) plans to transform the existing framework of the Employees Provident Fund (EPF) into a banking model. Under the proposed banking model, the bank said it would introduce a sound risk-return profile to generate a positive real rate of return over the long term.

This also includes absorbing the ‘informal sector’ labour force and self employed persons amounting to 500,000 by 2012 and 2,000,000 by 2015.

The other services include providing facilities for voluntary and convenient contributions by employers and employees.

According to the bank, as per 2009 figures, there are over two million active accounts under the EPF contributed via 66,960 employers. Last year the fund grew by 16% to Rs.750 billion. CBSL also said that despite difficulties, the fund managed to keep its returns earned while ensuring 100% safety of the fund at the same time. EPF declared a long-term real rate of return of 1.6% for its members over the past 25 year period.