Sustainable economic growth in 2007
Sri Lanka has maintained a real economic growth rate of 5 percent per
year from 2002-2005. Per capita income has risen from USD 500 in 1990 to
USD 1,324 in 2006. The latest achievement in the economic activity is
nearly 8 percent in GDP growth in 2006.
Sri Lanka achieved this growth rate despite the domestic setbacks,
terrorist hostilities, uncontrollable oil prices and substantial
The new government under the new President has given high priority to
establishing peace and promoting economic development. The Government's
most comprehensive policy package "Mahinda Chintana" (Mahinda's
Thoughts), a development strategy of the country, now guides the
government's economic policy. This package was well received by the
public and duly approved by the community at the presidential election
in 2005. Mahinda Chintana policies focus on poverty alleviation and
steering investment to rural areas; developing the small and medium
enterprise sector (SME); promotion of agriculture; and expanding the
enormous civil service.
Within first year the government laid the foundation for sustainable
and high economic growth. Government has launched large-scale
development projects of second Airport, Highways, Road developments and
important initiatives to over come power crises. The Government
programmed and targeted an 8-10 percent economic growth rate in 2006 but
achieved a medium growth of near 8 percent, keeping an enhanced
macroeconomic stability in the future. This was enabling the economy to
reduce the unemployment and poverty to some extent.
Growth in 2006
The economic growth in 2006 was broad-based, services being the main
growth area in 2006 (64 percent of GDP represent service sector).
Service sector orientation in GDP is the world trend because weak
international demand, relatively high prices can be seen regarding our
agricultural products and that moves away the economy to service sector.
The beneficial effect of the ceasefire has ended and governments had
to face almost a war situation in the North and East in the country.
Thus tourism sector was the mostly affected service sector from the
war. Within the service sector improvements trade, port services,
telecommunications and banking grew strongly.
Inflation, which has been a matter of concern to the authorities for
many years, never declined to a single digit in 2006, remained at 13.2
percent average in 2006, while marking its highest in December 2006 that
is 19.3 percent. The oil price hike during the year was the main
underlying reason to this high inflation.
Any prudent monetary policy found it difficult to control this type
of external influences. The high inflation during the year badly
affected the exchange rate and it adversely affected the economic growth
in the country. The high inflationary expectations are increasing day by
day. The goal of the government is therefore to bring down inflation to
one digit .
The important aspect of the growth was achieved despite the violence
of the LTTE. Despite all these drawbacks Sri Lanka achieved nearly 8 per
cent GDP growth. It was remarkable because even with the ceasefire in
place during 2002-2005, the average rate of growth was 5.4 percent.
One can argue that this growth has been surged by post-tsunami
reconstruction and large remittances from citizens working in the
overseas. But interestingly the economy continued its 8 percent growth
even during the second half of 2006.