Remarkable economic transformation in past five years

By Sanjeevi Jayasuriya

Sri Lanka has undergone a remarkable economic transformation during the past five years. A conducive and consistent policy framework put in place under the Mahinda Chintana – Vision for the Future, has resulted in many economic achievements, said Central Bank Governor Ajith Nivard Cabraal at the launch of the road map, 'Monetary and Financial Sector Policies for 2015 and beyond' at the BMICH on Friday. He said that average annual economic growth has exceeded 7.5 percent and growth has been inclusive and broadbased. Unemployment has reduced to around 4 percent while poverty as measured by the Headcount ratio has declined to 6.5 percent. Inflation has remained at single digit levels for a continuous period of almost six years.

“With improved foreign exchange inflow, the balance of payments has improved, resulting in a high level of international reserves and greater exchange rate stability.

The fiscal consolidation process has continued, lowering the budget deficit to about 5 percent of GDP while reducing the public debt ratio to sustainable levels from the high levels seen in the early 2000s," he said.

"Resilience of the financial sector has been strengthened through meticulous supervision and financial sector consolidation, providing an environment for healthy growth while supporting overall economic performance,” Cabraal said.

In 2015, Sri Lanka will become an upper middle income economy with a per capita GDP of over US$ 4,000, and the economy is expected to reach US$ 100 billion in 2016.

The positive developments in the post-terrorism era have rejuvenated the traditional strengths of the economy while providing new economic opportunities. The Mahinda Chintana policy document envisages that the country’s future growth would largely depend on the progress of five key hubs, commercial, aviation, maritime, energy and knowledge.

Activities of the hubs are progressing well, but the country has also experienced the emergence of several other new economic drivers, including a rapidly growing tourism sector and related activities, a modern health sector that caters to local clients better while attracting foreigners, research and development activities at corporate and national level encouraged by targeted incentives, and an entertainment economy with tremendous potential, the Governor said.

These sectors would grow at different speeds, but the diversification needed for overall economic growth to be sustained is being put in place rapidly. The resultant diversification of economic activity would enable the country to avoid the notorious middle income trap and progress continuously towards higher levels of income.

Merchandise and service exports are expected to benefit from hub related activity and new emerging economic drivers. Focused efforts towards improving physical and social infrastructure and provincial development have made economic growth inclusive and enhanced productivity.

This would result in a sustained growth path allowing the country’s GDP to expand to over US$ 150 billion by 2020, which in per capita terms, is equivalent to over US$ 7,000. A forward-looking comprehensive macroeconomic policy framework is in place to ensure macroeconomic balance in real, external, fiscal, financial and monetary sectors, he said.

In financing rapidly growing economic activity, in addition to traditional financial institutions, corporate debt and capital markets are also expected to advance in the period ahead, resulting in increased competition and efficiency in the financial sector. The ongoing financial sector consolidation process is expected to ensure the development of stronger financial institutions which are globally competitive and effectively support rapid economic growth, Cabraal said.