‘Wonder of Asia’

Business Desk

Despite the global economic recession and war situation in the country Sri Lanka maintained an impressive economic growth rate under the leadership of President Mahinda Rajapaksa.

Major economies in the world went through difficult times with the global economic down turn, but Sri Lanka was successful in facing the global recession and embarking on many development projects while eradicating terrorism in the county with the clear vision of President Mahinda Rajapaksa. Sri Lanka experienced huge transformation in the county’s development drive.

Economic development

According to the Census and Statistics Department of Sri Lanka was able to gain 7 percent economic growth during the first quarter and it was over 8 percent in the second quarter which shows country’s accelerated economic development.

The three major sectors of the economy-agriculture, industry and services registered significant growth rates 5.1 percent, 9.2 percent and 8.8 percent, in the Q2 of 2010 over the same quarter of previous year. Sri Lanka’s unemployment rate fell to 5.4 percent in the second quarter 2010. Now the country expects an eight percent economic growth during this year

New era of development

Colombo Stock Exchange: One of the best-performing Share Markets in the world

According to Central Bank’s latest data, earnings from exports increased by 7 percent to US dollars 760 million in August, recording the highest monthly value thus far in 2010. Cumulative earnings from exports during the first eight months of 2010 increased by 11 per cent to US dollars 5,040 million compared to the corresponding period of 2009.

Meanwhile the gross official reserves of the country surpassed the US dollars 7 billion level on October 4, 2010. This level of reserves is equivalent to over 6.8 months of imports and is the highest ever reserves level of Sri Lanka.

Interest rates

The Government was able to bring down the inflation rate to a single digit and reduced interest rates to facilitate economic activities creating a more business friendly culture.

Reduction of lending rates will help in accelerating investments in all aspects of the economy in the country. The cost of finance will also come down drastically when it comes to the export market in the country with the reduction of rates on lending.

Reducing interest rates on housing loans will benefit every individual in the country as the housing sector is an important part of the economy.

Sri Lanka was also upgraded as a middle income status country reducing the poverty in the country and the number of recipients of poverty alleviation relief has decreased due to the improvement in income levels. During the past five years, the country gained a per capita income of US $ 2,053, while becoming a middle-income State.

The United Nations says Sri Lanka has achieved substantial progress in poverty reduction, an item in the Millennium Development Goals. Sri Lanka’s poverty level has been reduced to 15.2 percent.

The rapid growth of Sri Lanka’s economy since the war, has given many people an unprecedented sense of optimism about the future.

There is a thriving economic progress in the country reaping the peace dividends. Government’s target to achieve the USD 4000 per capita income will be a feasible target with the encouraging economic environment.

Investor confidence

There is a remarkable improvement in doing businesses in Sri Lanka with the restoration of peace. The country has shown commendable growths quarterly where the growth prospects were revaluated to a higher Gross Domestic Production (GDP) by the end of this year.

There is much scope for bilateral trade in the country. Today the business Chambers in the country have at least one foreign delegation per week for bilateral trade discussions.

This shows sound economic environment and investor confidence. The momentum will improve further as the country is picking up gradually.

Global Investors’ demand exceeds over USD 6 billion in 14 hours for Sri Lankan Sovereign Bond Issue of USD 1 billion recently.

The offering attracted an order book that exceeded USD 6.3 billion within 14 hours of opening on 27 September 2010, thereby being over-subscribed by more than 6 times, clearly underscoring the high global investor confidence based on the recent progress and the future prospects in Sri Lankan economy since the end of the conflict in the country.

IMF

The Executive Board of the International Monetary Fund (IMF) approved a 20-month Stand-By Arrangement for Sri Lanka in an amount equivalent to SDR 1.65 billion (about US$2.6 billion) to support the country’s economic reform program last year.

IMF recently said it is encouraging to see investment flowing into the country with peace and development taking place.

Therefore, the IMF is confident that the Government will achieve the target of five percent budget deficit this year. The IMF also has noted the improvement of tourism prospects and the positive balance of payment and the increase in remittance inflows.

Capital market performance

The Colombo Stock Exchange (CSE) became the best performing capital market in the world recording a growth of 111.14 percent, while the All Share Price Index (ASPI) of the CSE crossed 7,000 milestone creating history recently.

The credit should go to President Mahinda Rajapaksa as he opened the door for foreign investors to invest in the country and the political stability of the country provided immense confidence to all investors.

With the country performing well in all aspects and especially the stock market, the top leading listed companies have recorded over Rs 50 billion profits for last year.

These local entrepreneurs have re-invested these funds in various other projects, which is wisely and timely when the country’s economy is thriving well.

Sovereign credit rating

Sri Lanka’s sovereign credit rating has been upgraded by the international rating agencies, Standard & Poor’s (S&P) and Fitch Ratings, who have recently assigned improved credit ratings to the country.

A third rating agency, Moody’s Investors Service, has also assigned a comparable credit rating to Sri Lanka. Standard & Poor’s (S&P) upgraded Sri Lanka’s long-term foreign currency sovereign credit rating to B+ and the long term local currency rating to BB- with a stable outlook.

Fitch Ratings affirmed Sri Lanka’s long term foreign and local currency Issuer Default Ratings (IDR) at B+ while upgrading the outlook to ‘Positive’.

Moody’s Investors Service assigned a B1 foreign currency issuer rating with a stable outlook. Given the many positive developments in the country during the post-conflict period, these rating upgrades have been expected.

The improved macroeconomic fundamentals, prudent monetary policy, fiscal consolidation, planned structural improvements of the economy, and high economic growth prospects will further support the enhancement of Sri Lanka’s sovereign credit rating in the near to medium term.

The World Economic Forum has upgraded Sri Lanka’s global competitiveness ranking from 79th to 62nd place among 139 nations for the year 2010-2011. Sri Lanka showed a remarkable improvement of 17 places in this ranking.

Financial sector stability

In any country its financial industry play pivotal role in the economic development.

The track record of this Government and the Central Bank over the past five years in protecting banks and Registered Financial Companies (RFCs) is by far the best seen in the history.

During the economic recession most of the financial institutes in the developed economies collapsed but Sri Lankan Government did not let a single bank or a registered finance company to crash even during the world’s worst financial crisis.

For the first time in our history, a deposit insurance scheme where deposits upto Rs 200,000 are to be guaranteed, has been introduced.

Way forward

Sri Lanka is well poised to be the wonder of Asia under the guidance of President Mahinda Rajapaksa. We were all lucky to witness the end of three decade of war which impact heavily on our lives and we are also lucky to witness Sri Lanka winning the economic war in near future.