Country's growth potential much higher - ESCAP

By Lalin FERNANDOPULLE

Sri Lanka has potential to enhance revenue to 20 percent of the GDP given the recovery of the global financial crisis and the end of the conflict in the country, said Executive Director, Institute of Policy Studies (IPS), Dr. Saman Kelegama.

He was addressing the launch of the Economic and Social Survey of Asia and the Pacific 2010 in Colombo on Thursday.

"Containing budget deficit and tax reforms should be urgently addressed to fast track sustainable development. Expenditure should be curtailed in a way that would not affect economic growth ", Dr. Kelegama said.

The budget deficit target of 7 percent of GDP in 2009 was overshot to 9.8 percent placing a major hurdle for the endorsement of the third tranche of the IMF loan.

Fielding questions on doubts about the disbursement of the third tranche he said that there is no signs of the loan falling apart as the IMF would consider the government's expenditure on resettlement of IDPs and the two elections.

"I will not subscribe to the view that there is no need for further assistance from the IMF as the country has adequate foreign reserves now surpassing US$ 5 billion", Dr. Kelegama said.

He said foreign exchange increased last year due to the sharp drop in imports. The IMF assistance would be of great comfort to Sri Lanka as the world economy revive this year.

Foreign exchange hit rock bottom in the first half of 2008 adequate only to service three weeks of imports.The IMF Stand by Agreement was sought to boost the foreign currency base and promote a stable exchange rate.

Sri Lanka has the potential to achieve around 9-10 percent economic growth rate as India and China. The growth rate has been hovering around 5 percent for the past three decades due to the war and political instability.

"Expanding the tax net, broadening the tax base and creating a business and people friendly tax culture would help achieve targets envisaged in the development program of the government", Dr. Kelegama said.

Loss making institutions should be made to break-even and then be profitable. The Ceylon Electricity Board (CEB) and Ceylon Petroleum Corporation CPC incurred huge losses last year.

CEB incurred a loss of Rs. 7.4 billion last year while the CPC loss was Rs. 12.3 billion. The SLTB loss was Rs. 5.1 billion, Sri Lanka Postal Services Rs.2.5 billion, SLR Rs. 4.8 billion, SriLankan Airlines Rs. 12.2 billion, Mihinair Rs. 0.9 billion.

Economic Affairs Officer, ESCAP, Bangkok, Dr. Muhammad Hussain said the world economy would grow by around 4 percent this year but the rebound remains fragile and uneven with a number of downside risks.

He said while 2009 was a year of crisis management 2010 will be a year when economic policy making will be more complex.

"Asia and the Pacific is unlikely to return to business but will increasingly have to drive its own development and create new sources of economic growth from within the region", he said.

Inflation will be a critical issue for most countries in South Asia. Souring world food and fuel prices made it tough for the region in 2008. Sri Lanka's inflation will rise this year following the sharp deceleration in 2009. In the altered global economic scenario the Asia Pacific region is emerging as a central participant in international economic affairs. The region was resilient to the global crisis and many of its developing economies achieved an annual growth rate of 4 percent supported mainly by India and China.

Asia and Pacific developing economies are forecast to achieve a growth rate of around 7 percent this year led by China at 9.5 percent and India at 8.3 percent.