Development

More robust growth anticipated this year:

Lanka’s economy delivers promised results

By Shanika SRIYANANDA

Sri Lanka, a country recovering from 30 years of strife, surprised the world in many ways by maintaining an average eight percent economic growth since the ending of terrorism, low inflation around 7.5 percent from 28 percent a few years ago and also accounted for a recorded one billion US dollars in foreign direct investments to the country. The country marred by negative travel advisories earlier, also saw over 855,000 tourists visiting the country, which was an all time record. The increase was 30.8 percent.

The Governor Central Bank, Ajith Nivard Cabraal said, “It must be recalled that 2011 was a challenging year, but amidst tense global developments, Sri Lanka’s economy delivered the promised results.”

The Governor said for the first time in history, Sri Lanka recorded over eight percent growth in two consecutive years while the GDP was estimated to exceed US $ 59 billion (when the 2011 results are released.) GDP per capita in 2011 was around US $ 2,830. “Inflation steadied at mid-single digit level while there was also a significant reduction in poverty.”

Central Bank Governor Ajith Nivard Cabraal

External trade in 2011 remained strong where both exports and imports expanded, recording 51.6 percent of GDP, up from 44.4 percent in 2010.

Workers’ remittances was estimated to be around US $ 5.2 billion in 2011, which is a 27 percent increase from the previous year.

As a percentage of GDP this was 8.8 percent and as a percentage of total external receipts it was 18 percent.

One of the key reasons for this growth is the attention to skilled labour migration and improved arrangements to channel remittances through banking sources.

“Positive sentiments on the domestic environment and diversification in terms of employment destinations were some other key factors,” Cabraal said.

Foreign capital inflows continued to be significant and picked up momentum with the fourth international sovereign bond in July 2011 being oversubscribed by 7.5 times.

International reserves

During 2011, international reserves accumulated to historically high levels, and allowed to decline towards the end of the year.

Foreign reserves stood at US$ 6.6 billion on December 30, 2010 and increased to a record high of US$ 8.2 billion by mid-August 2011, due to large-scale absorption of foreign exchange by the Central Bank.

Thereafter, there was a draw-down of reserves, mainly due to a significant supply of foreign exchange to the market by the Central Bank.

Tourist arrivals hit record figures last year

Agriculture sector is expected to expand

“Yet, the current level of reserves is well above the level needed to maintain confidence in the policies for monetary and exchange rate management including the capacity to intervene.

“The current reserve level is also higher than the reserves level contemplated for 3.5 months' imports equivalent, which was envisaged at the time of entering into the Stand-by Arrangement with the IMF”, he said.

During the year, the Employees’ Provident Fund reached the one trillion rupee milestone.

The global ranking of Sri Lanka in many areas improved in 2011 with the Global Competitiveness Index increasing from 52nd to 62nd and the Doing Business Index going up to 89th from 98th. The Civic Engagement Index placed Sri Lanka at the seventh position.

Tourist arrivals recorded 855,000 for 2011, an increase of 38 percent over the previous year. Earnings from tourism increased by 47 percent and average spending per tourist per night increased to US$ 97 from US$ 88 in 2010. Also, for the first time, December saw 97,000 arrivals.

Stock Exchange

The Colombo Stock Exchange (CSE) experienced mixed results in 2011 with growth in the early months of 2011, and a decline in the second half.

Funds rose through Initial Public Offerings (IPOs) and Rights Issues increased in 2011.

The number of companies listed on the CSE increased by 26 to 267 while the net foreign outflow was Rs.19 billion in 2011, which was 0.9 percent of the market capitalisation of Rs.2,214 billion. Net foreign outflows through the stock market were offset by foreign inflows to Government securities during 2011, which increased by Rs.25 billion. In addition, the total value of foreign holdings as at end 2011 was Rs. 437 billion (about 20 percent of the total market capitalisation)

Development projects

With the economic fundamentals getting into place, emphasis was on development with several projects getting off the ground including the building of three highways; the Southern Expressway Project, the Colombo - Katunayake Expressway and the Colombo Outer Circular Road Project.

One of the key areas under focus was the power sector which was driving investors away due to high tariffs. A solution to this was brought forward, commissioning several projects that were in the pipeline for almost three decades.

Garments exports, vital for economy

Solar power generation was a key area

The Upper Kotmale Hydro Power Plant which will be commissioned next month, Phase one of the Norochcholai Coal Power Plant, Uma Oya Hydro Power Project, Moragahakanda and Kaluganga Reservoir Projects and the Sampur Coal Power Project are some of these projects that would reduce the dependency on thermal power. The Lighting Sri Lanka project targets 100 percent electricity coverage by 2013.

Another area that came in to focus during the last five years was port development; for the first time five international harbours are being built. They are the Colombo South Harbour Project (Phase 1 Completion by 2013), the Hambantota Port Development Project (Phase 1 : Completed) Oluvil Port Development Project (completion by 2012), Galle Port (in progress) and Kankesanthurai Port (in progress).

Ongoing rural infrastructure development projects such as Gama Neguma, Maga Neguma, small irrigation projects, Kirigammana projects took development to grass roots levels.

Better year ahead

“In an international environment where political and economic chaos have been the order of the day, Sri Lanka has stayed calm, safe and confident,” Cabraal said.

In 2012 inflows are expected to further increase with exports expected to reach US$ 12.5 billion and FDI expected to hit the two billion US dollar figure.

“The wide range of goals that have been set for 2012 are not easy to achieve and if Sri Lanka is to succeed, the country will need total focus and diligent implementation of our policies and plans.

"We will also need to motivate and energise our fellow countrymen to realise the ambitious goals that have been endorsed by our people through their mandate for the Mahinda Chinthana – Vision for the Future”, he said.

In 2012, major contributions towards growth are expected from:

*Agriculture sector: expected to expand at 7.3 percent, compared to two percent in 2011

- 14.2 percent growth in paddy cultivation due to favourable weather conditions and expected expansion in new cultivation in the North and the East.

- 9.8 percent growth in fisheries due to favourable weather conditions and improvement in marketing and infrastructure facilities

- 1.4 percent growth in tea, mainly due to productivity improvements among tea smallholders (74 percent) and favourable impact of the fertiliser subsidy

- 5.5 percent growth in coconut production owing to Government efforts

*Industry sector: expected to expand at nine percent, compared to 10.1 percent in 2011

Maga Neguma in progress	Tea production grew mainly due to productivity improvements

- 12.2 percent growth in construction due to expansion in infrastructure development by the Government sector and expansion of the tourism industry

- 11.8 percent growth in mining and quarrying due to the growth momentum in construction activities

- 8.0 percent growth in cottage industries due to completion of resettlement in the Northern and Eastern Provinces

- 7.9 percent growth in electricity generation owing to the growth in low cost thermal power generation using coal power

*Services sector: expected to expand at 7.7 percent, compared to 8.6 percent in 2011

- 22.1 percent growth in the hotels and restaurant sector due to the improvement in tourist arrivals

- 8.2 percent growth in domestic trade due to growth in agriculture and domestic industries

- 10.2 percent growth in post and telecommunications due to the growth of data transferring and broadband connections with the availability of low cost 3G mobile phones

- 8.2 percent growth in financial services owing to expansion in economic activity.