South Asia to the fore

By Sunil KARUNANAYAKE

At the annual spring meeting of the IMF and World Bank held recently, the global economy was discussed. One of the key outcomes of the discussion was the reckoning of South Asia among the fastest growing economies of the world. The fact that South Asia is also the home to many living in abject poverty is another issue to be reckoned with. India achieving double digit growth was also not far away.

Meanwhile, South Asia's Chief Economist, Kalpana Kochhar who was in Sri Lanka recently discussed the challenges and opportunities of the region's future. Sri Lanka made a remarkable recovery in the North and the East to record an 8 percent growth.

This was facilitated with the revival of agriculture in the fertile northern and eastern provinces. The eastern province is well-known for its rich paddy harvest and was known as the 'Bread Basket' of Sri Lanka. These ventures resulted in a steep decrease in the prices of vegetables and rice.

Unfortunately, growth for 2012 fell below the expected 8 percent range. South Asia will be hard- pressed to meet the vast challenges to meet development goals. It has been reported that only a few companies in the region have sustained high growth rates for sustainable periods.

In the backdrop of escalating costs of imported milk powder, the Government is promoting the dairy industry.

It has also called upon Banks to provide adequate credit facilities to milk producers with less emphasis on financing the import of milk powder.

It was quite recently that some milk producers threw away their milk collection that was not purchased by multinational companies who own milk powder processing plants.

These episodes no doubt reflect the reality and potential of Sri Lanka as an emerging economy, despite recent setbacks in macroeconomic fundamentals.

In the region, Sri Lanka yet seems an attractive, peaceful destination for tourism and investment with a well-developed road network, skilled workforce, and landscaped cities together with leisure parks.

The east coast with its beautiful beaches has been a major attraction.

Another positive factor is the political stability that has enabled many bold measures to be adopted.

According to the first quarter Central Bank release, the trade balance indicated $ 2.5b in comparison to $ 1.7b in 2011.

The Government's initiative to curtail credit and imports seem to be paying off with gross official reserves of $ 6.9m equivalent to three months imports.

On the positive side, global oil production is reported to have raised due to higher output from OPEC and North American producers.

This seems good news for Sri Lanka, which spends heavily on the import of fuel that is used mostly for energy and transportat with nominal consumption on lighting with nearly 93 percent of lighting being met by the supply of electricity.

One of the major drawbacks on the local fuel supply sector is the limitation of the capacity of the oil refinery that was established in 1969. Because of the unprecedented economic growth, demand for fuel supply increased dramatically.

Economists who met at the spring meeting, were unanimous that China and India are major drivers of growth and this environment should be ideal for countries such as Sri Lanka who live in this powerful neighbourhood.