Economic forecast for 2011:

GDP to grow 8-9 percent

CB Governor announces 2011 road map:

*No impact from GSP suspension

* Reserves up to US$ 6.6 billion

Rasika SOMARATHNA

Sri Lanka expects to achieve an economic growth of around 8-9 percent in 2011 after growing at an estimated eight percent in 2010, Central Bank Governor Ajith Nivard Cabraal said yesterday while announcing the CB’s road map on monetary and financial sector policies for 2011 and beyond.

He said that Sri Lanka would strive to maintain an economic growth of over eight percent during the next few years with all sectors contributing to the growth.

The Governor noted that the Sri Lankan economy showed impressive performance in all key sectors where the peace dividend was clearly observed. The year 2010 has provided the space for rebuilding and reconciliation and an excellent platform to launch the next phase of development, he added. The CB expects to maintain inflation at around mid-single digit levels in the short and medium term and the Bank is to continue to monitor monetary and economic development closely and respond appropriately.

According to Cabraal the Central Bank is to further develop and improve the financial sector with emphasis on safety and stability.

The Bank is to implement an effective and robust supervisory mechanism with risk management given top priority.

In the agriculture sector a 6.3 percent annual growth is expected. A growth of 8.7 percent in industries and 7.9 percent in services sectors are reported. Unemployment has come down to 5.2 percent and overall labour productivity has improved.

Despite the GSP plus withdrawal export earnings have shown 13.3 percent annual growth. Earnings through tourism have shown 61.4 percent increase, totalling US$ 501 million.

External outlook has improved substantially with Sri Lanka graduating to middle-income emerging market country status. Reserves during the period have increased to US $ 6.6 billion (equivalent to 6.1 months of imports by end 2010, he added.

The overall budget deficit in 2011 is expected to decline further to 6.8 percent of GDP and to around five percent of the GDP in the medium term. The Government revenue and grants are expected to increase to 15.6 percent of GDP.

Expenditure and net lending is expected to decrease to 22.4 percent of GDP. Government recurrent expenditure is estimated to decrease to 16.1 percent of GDP. Public investment is expected to be maintained at 6.5 percent of GDP.

According to the CB Governor the balance of payments is likely to show a surplus of $900 million in 2010.

The estimated remittances from Sri Lankans working overseas is to exceed $4.1 billion for 2010, up 24 percent on the previous year.

The CB Governor said that increased foreign exchange inflows exerted pressure on the rupee to appreciate.

Steps were also taken to strengthen public enterprises (eg: CEB and CPC etc). And Low inflation was maintained. The Colombo Stock Exchange(CSE) performed remarkably, financial inclusion was promoted actively to move towards balanced regional development, he added.

He attributed Sri Lanka’s impressive economic performance amidst many challenges in 2010 to prudent planning and management. He said that President Mahinda Rajapaksa had the foresight to instruct officials as way back as 2008 to be prepared for the post conflict era.

He observed that the Government would continue to invest heavily in North and East development during 2011.

He also noted that the significant investment in infrastructure was beginning to bear fruit.

He stressed that the CB was well-prepared to supplement the two major goals in the country’s development process which was to up the per capita income to US$ 4,000 by year 2016 and “Brand” Sri Lanka as the ‘Wonder of Asia’ with extraordinary achievements.

While noting that 2010 has been a significant year for the CB, the Governor noted “Our balance sheet has reached a trillion rupee value, the public debt we manage exceeds four trillion rupees, the EPF is about nine hundred billion rupees, the foreign reserves is over seven hundred billion rupees. We are happy that we have delivered value to the country in all what we have done. But will be the first to admit that there is a lot more to be done”.