Govt. will achieve many economic targets this year - Senior Economic Advisor

by Surekha GALAGODA

Senior Economic Advisor and Director Banking Cluster SEMA and Senior Lecturer Economics University of Colombo Dr. Ranjith Bandara said that the government has many prime economic targets to be achieved in the new year.

Among them are achieving peace and continuing the major development work already started and tackling the challenges posed by the global financial crisis, generating more employment opportunities, providing higher education opportunities, reducing the disparity of income and wealth, strengthening of poverty eradication schemes, achieving stability for the established industries, strengthening the SME Sector, sustaining economic growth and strengthening the local economy.

Dr. Bandara who is also a senior lecturer in economics at the University of Colombo said that the prime target of the government is achieving peace. It has been a issue of economic stability, economic development and social development for over 30 years. This year the dream of achieving peace will be a reality

The amount allocated for defence this year is Rs. 177 bln which is the cost of the war in financial terms but the indirect cost of the war is much more than this, said Dr Bandara.

Continuing the major development work which the government started in 2006 and 2007 as well as completing the development work in the East undertaken under the Neganahira Udanaya are among the priorities.

Job market

Tackling the challenges of the global financial crisis is also a major and serious task though so far there is no direct impact to be identified, he said." In my opinion there will be some impact in the long term particularly on the sectors of exports, tourism, FDI and various other internationally connected economic activities," he said.

To generate more employment opportunities for the rural educated youth in the country there should be an improvement in all sectors of the economy while the education system of the country should be reformed to cater to the requirements of the Job market.

Dr. Bandara said that youth seeking higher education abroad results in a huge drain on our foreign reserves.

Therefore, providing higher education opportunities with the participation of the private sector is also a priority. The current intake into state universities is not adequate which results in the number of youth seeking higher education abroad increasing and the number is estimated at between 8,000-10,000 per annum and is on the increase.

Reducing the disparity of income and wealth is also a priority. At present the people below the poverty line is 15% (as a percentage of the population) while it was 20% earlier. Still it is a significant number which needs further reduction. Further strengthening of poverty alleviation schemes such as the Samurdhi Movement is also a priority of the government.

Strengthening the rural industries that started in 2006 under the Gamata Karmantha Program with a target of 300 industries have now achieved 50% generating 26,000 employment opportunities. Improving this program of achieving stability for the industries established already is another target of the government.

The government is also aiming at strengthening and improving the SME sector in the country, a sector that was neglected for some time.

Therefore, the government established the Lanka Puthra Development Bank to support the SME sector. The Government is aiming at finding low cost capital for the SME sector to strengthen the ability to contribute to the economic development of the country.

He said that sustaining economic growth at least at the current level is another aim of the government. Though it seems not an easy target with the global financial crisis, the government is now moving towards new strategies to make it a reality.

It includes developing the tourism sector through non conventional markets, attracting FDI from non conventional investors and establishing networks locally and globally through our embassies and foreign delegations to further strengthen the local economy, improve rural road networks, communication, banking and finance to make agriculture economically viable.

Significant steps

The government has taken significant steps to handle the global financial crisis which includes the introduction of rescue packages for needy sectors, strengthening the local economy to ensure food security, taking over vulnerable institutions, encouraging the private sector to merge and downsize operations, strengthening the state activities in the economy in line with the Kenisian fundamentals, practising strict fiscal and monetary policy guidelines recommended by the treasury and the Central Bank(CB) and improving public awareness on the possible consequences of the local financial crisis.

Dr. Bandara said that the banking sector in Sri Lanka, both public and private have functioned in line with the policy guidelines of the financial authority in the country, the Central Bank.

Most of the banks in Sri Lanka have been running collateral banking. Therefore, our banks are always secure in their financial dealings and as a result have made tremendous amount of progress. For example the BoC net profit for last year could be over Rs. 5 bln.

Therefore, there is no way that the banking sector is affected by the global financial crisis, assured Dr. Bandara, but there is a possibility like in the case of Seylan and Pramuka Bank if there is mismanagement violating banking practices.

However, there is a strong signal passed by the government that it has a plan to rescue both institutions and the public in the financial markets which includes prohibiting illegal financial institutions to operate and taking over private banks such as Seylan and Pramuka Bank and handing over their management to state institutions.

Speaking of last year's economic performance he said that he doesn't have the exact figures of last year as calculations for the last quarter of 2008 are being done, but according to the second quarter of last year some sectors of the economy have done extremely well. As far as macro economic management is concerned the country has recorded a lot of positives including the reduction of unemployment to 5.4% from 6.5% budget deficit to 5.4% from 7.4% (as a percentage of GDP) while inflation has reduced from 26% -16% during the last quarter of 2008. The country attracted FDI and was able to further diversify our exports while imports of essential commodities such as flour have reduced, due to the increase in paddy production in keeping with the government's policy of strengthening the local rural agricultural sector.

Major projects

Last year the government started several major infrastructure projects relating to power, irrigation, ports and highways.

In addition, several initiatives in the services sector have been taken and the positive development due to these initiatives will be visible in a few months. "I would say we have done extremely well in 2008 and definitely it is an improvement compared to 2007.

This reflects the steady growth of GMP and GDP which on average was 6.8% in the third quarter of 2008."