A major boost in Sri Lankan economy

Ariya RUBASINGHE

In a world facing with multitudes of economic problems, the United States facing its worst debt crisis for the several decades, European countries struggling to save their economies following the economic downfall of Greece and Spain, several hundred dying daily in Ethiopia, Somalia and several other drought hit African countries, Sri Lanka which was until a few years ago a country of ship to mouth existence has made rapid development in its economy due to the programmes being carried out based on Mahinda Chinthana policies.

Bloomberg a premier Indian site which provide updates on business news and financial information and delivers international breaking news, stock market data and personal finance, similar to the Wall Street Journal, and the Economic Times in the West predicts that Sri Lanka’s economic growth is set to outstrip India’s for the first time since 2000 as record foreign investment and government spending fuel a resurgence after almost three decades of civil war.

GDP growth

Bloomberg quoting Deputy Governor of the Central Bank of Sri Lanka Dharma Dheerasinghe says Sri Lanka’s 50 billion Gross Domestic Product will increase 8.5 percent this year, up from 8 percent in 2010 and bucking a global slowdown. The Bloomberg says that India’s $1.7 trillion economy, Asia’s third-biggest, is likely to grow 8.2 percent in 2011 according to estimates by the International Monetary Fund, the slowest pace since 2009.

Bloomberg commending about the economic achievements of Sri Lanka further states that the return to peace in Sri Lanka is luring overseas money and tourists back to the teardrop shaped Indian Ocean island. It adds a $1 billion sale of sovereign dollar bonds last month was more than seven times oversubscribed. President Mahinda Rajapaksa’s government has pledged to spend $1 billion annually for at least three years from 2010 on projects such as a coal-fired power plant, a four-lane expressway and a container shipping hub.

The Deputy Governor of the Central Bank Dharma Dheerasinghe has said that the Sri Lankan rupee has strengthened almost 1 percent against the dollar this year. Rising imports, especially “investment goods that will help achieve higher growth,” will keep the rupee stable in the face of increased fund flows.

Lower inflation has helped the Central Bank reduce its reverse-repurchase rate by 1.25 percentage points to 8.5 percent between July 2010 and January 2011. Policy-makers today left it unchanged for a seventh straight month to bolster growth, when the Reserve Bank of India has increased its benchmark rate 11 times by a total 3.25 percentage points since March 2010 as gains in wholesale prices stayed above guidance.

Foreign investments

Sri Lanka has received a record 236 million US Dollars in realized foreign investment in the first quarter of 2011, with tourism attracting the most inflows. Tourist arrivals record 46 percent increase last year.

As part of the post-war infrastructure drive, the country is targeting an investment of 3.4 billion US Dollars to expand ports and port facilities, in order to make the Sri Lanka a shipping hub capable of competing with Singapore and Dubai ports. The country’s first coal-fired power plant was finished earlier this year and next month will see the opening of a four-lane toll expressway that will slash the time it takes to travel from Colombo to the South.

The Finance Ministry informs that during the first quarter of this year the economic development has registered a growth of 7.9 percent, compared to 7.1 percent recorded in the same period last year. It points out that this growth is remarkable as it has been achieved despite drawbacks in some sub sectors due to flood damages in the beginning of the year, which resulted in a negative growth of 5.1 percent in the agricultural sector.

However, the industry sector has registered a growth of 11.1 percent during the first quarter of 2011 supported by the buoyant performance in manufacturing, mining and quarrying, power generation and construction sub sectors.

The services sector has registered a growth of 9.5 percent mainly supported by the improved performance of sub sectors such as wholesale and retail trade, hotels and restaurants, transport and communication, banking and insurance and private services during this period. The revenue of the government has increased during the period, in comparison to the same period of last year, by 19.8 percent.

The overall income of the government during the first five months of last year amounted to Rs 300,000 million. It has been increased to nearly Rs 360,000 during the first five months of this year. The Mid Year Fiscal Position Report 2011 issued by the Ministry of Finance points out that the overall development in the national economy and the development in the imports contributed to this growth.

Taxes on vehicles

The reports says relaxation of taxes for vehicles increased the import of vehicles, and the tax collected from this sector has registered a significant increase. The overall tax income in comparison to the first quarter of last year has increased b 21.6 percent. The pay as you earn scheme and economic service levies have contributed to this increase.

Income from liquor, cigarettes, petroleum products, motor vehicles and production income have increased by 60 percent in comparison to last year. Income from import tax has increased by 43 percent while the income from export tax has increased by 45.3 percent. Tea, apparel and rubber have contributed to this increase.

The overall investment expenditure of the government up to April this year has amounted to Rs. 104,000 million. These funds have been invested on national level infrastructure development activities including Gama Neguma, Maga Neguma, Uthuru Vasanthaya and for construction of roads and bridges, ports, electricity and irrigation.

By the end of April this year the government’s total foreign loan status stood at 17,000 million US Dollars, and the estimated loan repayments for this year amounted to nearly 1,040 million US Dollars. Of this amount 36 percent has already been settled by April 30. The financial report points out that the peaceful atmosphere prevailing the country after the end of the war and improvements in the foreign trade activities contributed to the economic development.

Increase in exports

Meanwhile the Export Development Board has announced that export earnings for the first half of 2011 has grown 40.9 percent to US $ 5.1 billion. It said the first half of 2011 has registered 40.9 percent exports growth compared to 2010 and the export sector has shown positive signs of regaining its growth momentum achieved in the past.

It has said that the country is well poised to capitalize on the global recovery, and that Sri Lanka needed to reduce its dependency on EU and US markets by finding new markets in the long run, thereby highlighting another challenge to long term exports upswing.

Sri Lanka for the first time has seen its monthly export earnings surpassing the US $ 1 billion mark in March this year and the total export earnings during the first half of 2011 grew to a strong US $ 5,106 million from US $ 3,642 million over the corresponding period of 2010. This encouraging performance has contributed to achieve 56 percent of the overall export target of US $ 9,098 million for 2011, within a period of six months.

During the first half of 2011 industrial product exports has increased (in comparison to 2010 first half) by a huge 49 percent followed by fisheries products by 26.25 percent and agricultural products by 21.01 percent. Nearly 87 percent of the export earnings during the first half of 2011 have derived from ten product categories. Textile and garments 42.3 percent and tea 13.7 percent alone have contributed to the total exports earnings of.

The other categories such as rubber based products, petroleum products, gems and jewellery, food and beverages, electrical, electronic and machinery, paper products, spices and fisheries products.

Divi Neguma programme

In addition to all these development the Divi Neguma economic development programme is progressing immensely well and people are enthusiastically participating in the programme in growing vegetables, engaging in cottage industries, fish farming, fruit cultivation and tourist related activities.

This programme is expected to contribute 15 percent to the Sri Lanka’s GDP.

Post emergency

Meanwhile, Sri Lanka has entered a new phase in its development with the revoking of the emergency regulations by President Mahinda Rajapaksa. The emergency regulations have acted as a deterrent for foreign investments and it was also used by the anti-Sri Lankan elements to distort the image of Sri Lanka. With the new move prudently taken by the President at the most crucial stage of the Sri Lankan economy it would certainly assist in encouraging foreign investors looking for new pastures.

The writer is the Director General, Media Centre for National Development, Mass Media and Information Ministry