Sri Lanka on threshold of economic boom - Central Bank Governor

By Shirajiv Sirimane

For nearly half a century an average Sri Lankan was earning around Rs. 1,500 and in the past few years this figure more than doubled to be around Rs. 3,280 per month. This was due to economic benefits of ongoing rapid development, trickling down to the masses.

The popular political slogan kolombata Kiri Apita Kekiri which means all benefits and luxuries of the country were centered on the Western Province is now changing fast with other provinces too catching up, and the regional disparity narrowing, the slogan would soon disappear.

When the Mahinda Chintana first announced that it would take 'Sri Lanka to be the 'Wonder of Asia' a few considered this to be a joke and ridiculed it. However the world saw this becoming a reality and institutions such as International Monetary Fund, Asian Development Bank's officials have said that the country is slowly but surely heading towards this target.

The reason for them to comment so boldly was the economic indicators that point towards this target. The Sri Lankan economy has achieved substantial progress in almost all macro-fundamentals over the past eight years.

The Real GDP Growth which was at five percent in 2000 is expected to end at 7.8 percent by the end of this year. The GDP which was at US $ 16.6 billion is predicted to be 77 percent by 2014 which would be a remarkable 176 percent increase in eight years.

Inflation

The annual inflation for the past five years has been maintained at a single digit at around five percent.

Foreign Direct investments too is expected to be close upon US $ two billion this year. Public Debt as a % of GDP is moving steadily towards greater sustainability from 96.9 percent in 2000 to 74.3 percent by the end of the year.

Governor Central Bank Ajith Nivaard Cabral speaking at the Sri Lanka Economic Summit in Colombo last week said that the event theme put together by the Ceylon Chamber of Commerce surpassing a per capita income of US $ 7,000 in 2020 was a reality. He said that Sri Lanka's per capita income would surpass US$ 4,000 by 2015 while the GDP would reach US$ 100 billion in 2016.

He said that by 2020 Sri Lanka would have a GDP around US$ 150 billion, a US$ 7,000+ per capita income, and sound macroeconomic fundamentals.

Outer Circular Road

The new Colombo airport, an architectural vision

Colombo city beyond the Beira lake

These would include a debt of GDP level of around 50 percent and Unemployment limited to standard unemployment levels.

He said that Sri Lanka would be a complete changed nation by 2020 with the Economy being more balanced, with foreign exchange earnings greater than expenditure. "The "5 Hubs ++" concept spelled out to take Sri Lanka to be the Wonder of Asia would have progressed quite well, and each hub as well as existing drivers of the economy would be operating at enhanced levels."

Tourism sector would be catering to about 4.5 million tourists while Sri Lankan business conglomerates would be enjoying serious business relationships with key Asian, European and US counterparts.

Remittances

By 2020 Worker remittances would be mainly from a skilled and semi-skilled labour force, treated with greater care, dignity and respect while the financial sector would be stable and would be having a presence in the region, providing services in Asia.

By 2020 Sri Lanka sector composition too would undergo a gentle change with a more modern and high yielding agriculture sector of US$ 10 billion (6.7 percent). In 2013 this was at US$ 7.2 billion.

In more than five years now a more innovative and advanced Industry sector of US$ 50 billion (33.3 percent. In 2013 this was at US$ 21.8 billion) and a more broad-based and dynamic Services sector of US$ 90 billion (In 2013 this figure was at US$ 38.1 billion) too would emerge.

During 2020 the country would have greater bias towards export of services.

For 2020, Sri Lanka should be among the first 20 countries in the Doing Business Ranking and would have an investment grade sovereign rating with a positive outlook.

Governor Cabral said that these targets cannot be achieved by just idling and many stiff hurdles would need to be surmounted.

"The Economic Diversification Program would need to continue, based on the '5 Hubs ++' concept and new growth sectors would need to be based around newly developed transport, port, aviation and commercial hubs."

"Country-wide infrastructure development would need to provide the necessary impetus for investments."

He said that the ongoing consolidation process would result in Sri Lankan financial institutions transforming towards being stable, large scale, globally competitive financial institutions.

The labour force would need to be developed with a special focus on productivity, and the inculcating of a strong work ethic.

Steps should be taken for the restructuring the payment cycle, including the payroll system, in line with those followed by advanced economies, to increase and smoothen consumption levels of the work force.

The Governor said that the private sector would need to be continuously facilitated to become even more vibrant and enthusiastic.

Environment

He said the ending of the war and political stability that was evident in the past decades had resulted in private sector maintaining high balance sheets. The positive political environment since 2006 helped everybody to effectively steer the economy out of global crises and turbulent times in the recent past.

A continued flow of capital investment along with a substantial improvement in productivity would be required over the next several years.

A steady improvement in investment to GDP ratio reaching 36.5% by 2020 is also required and to meet this target Investments need to be attracted from both local and foreign sources during the next few years

"The Investment transmission channels would need to be maintained at optimum levels for the smooth flow of funds," he said.

The capital flow system would need to be well managed as proper capital management would provide for sustained flow of funds.

"Capital flows must be in both directions, so that Sri Lankan entrepreneurs too could reap the benefit from global investment opportunities."

He also reminded once again that the notorious "middle-income trap" would also need to be avoided.

The year 2020 will take the country to a new level with Colombo and major city skylines undergoing incredible changes that would see even happier and proud Sri Lankans.