Central Bank unveils growth projections:

Higher FDI inflows

Charumini DE SILVA

Recording a high growth momentum in 2010, Sri Lanka is targeting a broad-based economic growth this year.

Ajith Nivard Cabraal

With the investor-friendly economic environment, investments will reach above 30 percent of Gross Domestic Production (GDP) in the medium term,” Central Bank Governor Ajith Nivard Cabraal said.

The Governor announced the Central Bank’s Road Map on Monetary and Financial Sector Policies for 2011 yesterday.

He said higher FDI inflows will reach around two percent of GDP due to the conducive environment in the country. The Balance of Payment (BoP) surplus is likely to be around 1.5 percent of the GDP. The internal reserves will be at a comfortable level of around five to six months of imports in the medium term.

The gross official reserves are projected to increase to around US$ 10 billion by 2013. The exchange rate will remain stabilized with a trend to gently appreciate.

Certain developments are expected in long-term inflows to the Government projected to be around US$ 1.7 billion during this year while the FDIs and inflows to the private sector is expected to reach US$ 1.5 billion. With the sound economic atmosphere portfolio investments will also show an upward trend.

Domestic savings will improve and to be at least 22 percent of GDP. More foreign resources are likely to be available through inward remittances, foreign direct investments (FDI) and foreign financing inflows to both Government and the private sectors.

The Central Bank’s Road Map on Monetary and Financial Sector Policies for 2011 was unveiled at the John Exter Auditorium yesterday. Central Bank Governor Ajith Nivard Cabraal addressing top public officials and private sector executives. Picture by Sumanachandra Ariyawansa

There has been encouraging developments in the external sector. Remittances are expected to increase further from the current level of eight percent of GDP in the coming years.

As per the Central Bank’s projections the monetary program for 2011 envisages GDP deflator of six percent and the BOP surplus of around US$ 350 million. The net credit to the Government will be over Rs 40 billion and credit to the private sector will be expanded by 16 percent this year. Board money and reserve money is likely to grow by around 14.5 percent.

The lending interest rates in the banking sector is around 4.5 percent at present it will be possible to lower the interest spread to around 3.5 to four percent by the end of this year, the Governor said.

Foreign exchange relaxation measures will be implemented in 2011 to help long term external sector stability.

Under this permission will grant for local companies, institution and individuals to invest in equity of companies incorporated abroad and sovereign bonds issued by foreign governments. Introduction of Corporate Credit cards / travel cards and introducing special foreign currency accounts for travel agents, airlines and local companies who undertake foreign contracts are some of the other measures that will implement in this year.