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| Sunday, 28 December 2003 |
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If issues are resolved : favourable economic prospects for Lanka The future economic prospects for Sri Lanka are favourable, but the country has many issues to resolve which makes the task more challenging. The economic prospects of the country depend mainly on the progress of the peace process, the speed and effectiveness of implementing structural reforms, development of infrastructure facilities, effective utilisation of foreign donor assistance and a favourable external environment, states the report 'Recent Economic Developments' released by the Central Bank. A consensus and commitment for reforms must be developed in a timely manner. Given the high public debt burden, strengthening macro-economic management has to be centred on a medium-term strategy for fiscal sustainability, consisting of a faster reduction of the budget deficit and public debt. A time bound comprehensive structural reforms programme including reforms in major sectors as identified in the 'Regaining Sri Lanka' document will facilitate the improvement in macro-economic management and enhance economic growth prospects, expanding capacity as well as improving productivity in the economy. Such measures will help to successfully complete major donor assistance programmes and thereby encourage new investment inflows. It further states that economic reforms and policy adjustments will move the country to a sustainable high growth path, enabling the resolving of major economic problems such as inflation, unemployment and poverty on a sustainable basis while strengthening the resilience of the economy. Lasting peace is essential to ensure the country's future economic prosperity as a reversal of the ongoing initiatives will have immense economic, political and social costs. Therefore, every effort needs to be made to seek a consensus among the leading political parties on this national issue. A negotiated political settlement would involve compromises by the contending parties. These compromises by nature may not please everyone, but the higher objective of national unity calls for sacrifices and concessions by all. A lack of transparency and consultation may hinder the process, the report said. The international economic environment is expected to improve next year with increasing economic growth, expanding international trade, and continuing low inflation and low interest rates. The higher growth expected in the USA indicates favourable opportunities for Sri Lankan exports, if external competitiveness is strengthened by efficiency and productivity. However, there are downside risks to the improvement in the world economy. The major risk for next year is the possibility of a delayed pick-up in investment and a more prolonged period of slow growth in the world economy particularly in the USA and Japan. There is also the risk of a deflationary spiral in Germany and disorderly adjustment of the US current account deficit. Annual economic growth is expected to improve to at least six per cent next year and the growth will be broadbased with growth in all three sectors - agriculture, industry and services. The services sector, expected to account for 64 per cent of the growth, will benefit mainly from the continuation of the growth momentum in telecommunications, tourism and trade. Construction, tourism and information technology are the major sectors which can contribute to the growth of the economy and create employment if appropriate strategies are taken. The anticipated growth and investment expansion will create more jobs, reducing the unemployment rate. However, effective implementation of the labour market and educational reforms are critical in reducing unemployment and under-employment meaningfully. The macro-economic prospects for the country for next year appear favourable with higher economic growth, lower inflation, stable exchange rates with expansion in investments and more job opportunities, lower interest rates, a surplus in the balance of payments, increasing external reserves and improving the resilience to external shocks. However, the realisation of these prospects depend on factors such as the continuation of the peace process, improvement in macro-economic management centred around fiscal sustainability, implementation of economic reforms, reducing economic policy uncertainties and effective utilisation of external assistance, the Central Bank report said. |
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