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| Sunday, 4 May 2003 |
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ADB forecasts better outlook for Sri Lanka by INDUNIL THENUWARA Sri Lanka's economy will grow by five per cent this year and 5.5 per cent next year, according to Asian Development Outlook 2003, the annual Asian Development Bank (ADB) publication released in Tokyo last week. This is an improvement over the three per cent growth in GDP recorded in 2002. However, the forecasts are lower than the Government projections of 5.5 per cent growth in 2003 and 6.5 per cent in 2004, reflecting uncertainty in the strength of the global environment, ADB's Country Director for Sri Lanka John Cooney said at the launch of the report in Sri Lanka. The Asian Development Outlook (ADO), which forecasts economic trends in the region, warned that slower recovery in the United States and Europe, significantly higher oil prices and the SARS epidemic would have a negative impact on the island's economy, if prolonged. The conflict in the Middle East could also affect trade and tourism as well as remittances from Lankans working in the region. GDP growth during 2002, though a modest three per cent, provided a firm foundation for more rapid growth due to the Government's progress in stabilising the economy. "This was certainly an improvement over the -1.4 per cent growth, acceleration in inflation and fiscal deterioration recorded in 2001, the worst year in Sri Lanka's history after independence in terms of economic performance," Cooney said. Tourism and shipping gained most from this recovery and the ceasefire also opened up opportunities for internal trade and transport services. Services, which recorded a 4.6 per cent growth during 2002, was the leading growth sector for the year. Tourism and shipping are expected to continue expanding this year as well. The 2002 budget deficit of nine per cent of GDP was an improvement over the 10.9 per cent deficit in the previous year. The Government introduced a 'pool fund' last year to address under-utilisation of foreign aid, which had been a problem for the country. However, according to the ADO, this pool was not properly utilised during the year due to lack of awareness on the part of agencies. The pool arrangements will be refined and information disseminated broadly among agencies this year to ensure that adequate funds are available for ongoing projects. Cooney said that oil prices should stabilise at a lower level than at the early part of the year which should reduce pressure on prices. "Inflation should fall to 8.5 per cent this year if money supply growth is kept in check. The Government bringing down the fiscal deficit to a sustainable level can be commended in this regard. The target budget deficit of 7.5 per cent of GDP for 2003 is ambitious, but feasible. The Government should try to increase tax receipts if further deficit reductions are to be attained," he said. The ADO forecast seven per cent inflation for 2004. The dollar value of the country's exports is expected to grow by 6.5 per cent this year while merchandise import growth will expand by nine per cent due to increases in investment, high oil prices in the early part of the year and rising consumption. Increased services income due to growth in shipping and tourism and private remittances will offset the widening trade gap to some extent. However, the overall current account deficit will widen over time in the medium term, a reflection of the rising investment needs outstripping gains in public sector saving, the report said. External factors such as recovery in the US and European markets would have a say in whether these projections can be realised. The peace process would be a key element for sustaining development. The SARS epidemic could also have a negative impact with the services sector being mostly affected and the impact spreading to manufacturing. Cooney listed the labour market, financial sector, education system and public enterprise as areas which need to be reformed. |
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