Economic recovery to be faster this year - Central Bank

by Gamini WARUSHAMANA

The economic performance in 2009, the most challenging year in the recent past is moderate and better than expected, the Central Bank (CB) said.

The annual report 2009 of CB released last week said that the country’s economy grew at 3.5%, higher than the earlier forecast 2.5% in the backdrop of the global financial and economic crisis, intensified war and other domestic issues. The chief economist of the CB, K.D. Ranasinghe explained the state of the economy at the beginning of the year. External reserves of the country declined to US$ 1.1 billion the worst level, rupee was depreciating and international trade declined.

With the intensified war the Government expenditure increased and as a result financial stability was challenged and the protection of the banking sector was the priority of the Government and the CB. The economic growth was slow in the first and second quarters of the year and recovery started from the third quarter. In the fourth quarter a high growth rate of 6.2% was reported.

Growth was distributed in all three sectors and there were over 3% growth rate in all sectors. The agricultural sector recorded a low growth of 3.2% compared to 7.5% growth in 2008. There was no satisfactory performance in the tea and paddy sectors. The industrial sector recorded low 4.2% growth and service sector 3.3% growth.

Inflation dropped to its lowest level in 25 years as a result of tight monetory policy of the CB and lower commodity prices. CB expects to maintain inflation at single digit this year.

During the year exports dropped by 12.1% while imports declined by 28%. This is due to a drop in imports by volume as well as a drop in import prices. Foreign remittance also declined and there is a gradual increase since May 2009, after the end of the conflict.

As the situation improved by the end of last year, the external reserves reached US$5 billion mark, the highest in recent history, as a result of the IMF Standby Agreement Facility and improved investor confidence after the end of the conflict. The CB intervened to maintain stability of the exchange rate.

On the fiscal front the government revenue dwindled to 14.6% of GDP by slowdowned economic activities and external trade while government expenditure increased to 24.9% of GDP with increased defence expenditure, rehabilitation and resettlement cost and high government investment.

The Governor of the CB, Ajith Nivard Cabraal said that the long-term target of the Government is to increase per capita GDP to US$ 3,000 in 2013 and US$ 4,000 by 2016.