High growth expected

Stable macroeconomic environment :

Inflation must remain at single digit level:

Sanjeevi JAYASURIYA

Sri Lanka’s actual potential growth rate is above eight percent and can reach even nine to 10 percent by 2015 like India and China, a senior economist said.

Economic growth in 2010 will be closer to six percent and to make this growth sustainable and move to a higher growth of seven percent in 2011 and to an even higher level beyond 2011.

Sri Lanka should bring down the budget deficit and create a stable macroeconomic environment, Institute of Policy Studies Executive Director Dr Saman Kelegama said.

“Sri Lanka has been growing at average five percent during the first two and a half decade under the open economy and averaged around six percent during 2005-2008 period,” he said at the launching of Economic and Social Survey of Asia and the Pacific report yesterday.

The two key impediments to achieve high growth - war and lack of political stability is now out of the way.

Action should be taken to implement the required institutional and regulatory measures to gear the economy to be more competitive to face the challenges of the modern world.

“It is necessary to strengthen social protection, promote agriculture and rural development, support new engine of growth, enhance financial inclusion and evolve regional framework for cooperation for inclusive and sustainable growth. “It is important to ensure low inflation and keep it at a single digit level in 2010. This will be a challenge specially with international oil and food price escalations and the large budget deficit financing in 2009,” Dr Kelegama said.

Keeping inflation low and stable is key to better management of interest rates and the exchange rate which is vital to promote investment and growth.

Currently foreign exchange reserves are adequate, but the situation can change with the large inflow of imports with higher growth in the economy and debt repayments. The IMF package in place is a great comfort and will also create positive investor confidence. The package facilitated to build foreign reserves by $ 5 billion and assisted in maintaining the exchange rate stability.

The Government policy direction is to strengthen the domestic economy by building the production base for export promotion and import substitution, create five hubs - knowledge, ports, aviation, energy, commerce and finance, to create more employment and reduce poverty and moving development to the provinces and to set targets.

These targets include exports to be increase to $ 20 billion by 2015, FDI to be increased to $ 5 billion, remittances to be increased to $ 5 billion and tourism earnings to increase to $ 1 billion.

It will be a challenge to bring about some stability in the macroeconomic environment, initiate the stalled economic reform agenda, remove barriers to “doing business” and to create the proper regulatory framework for private investment.

The Economic Development Ministry will be a prime mover in achieving these targets. It will play a similar role to what Trade and Industry Ministry played in Japan during its development drive.

The one-stop-shop concept will be promoted to expedite matters related to security, environment and tax incentives for investment for rapid progress, Dr Kelegama said.