World Economy back to normal by 2010 - CB Governor

Surekha GALAGODA

Central Bank is confident of achieving a growth of 4.5 per cent - 5 per cent while the pessimistic projections are 2.5 per cent - 3.5 per cent, said Governor Central Bank Ajith Nivard Cabraal. He said that this year the growth will be slower due to the spill over effects of the financial crisis.

Ajith Nivard Cabraal.

He said that the country is at a crucial juncture at the moment and by 2010 the world economy will get back to normalcy and if our country exploits the opportunities that come our way the country’s economic development will be fast.

He said that the Central Bank will introduce new regulations to ensure financial system stability while new laws as well as amendments will be brought in with more powers for supervision by the financial regulator in the near future.

Upto now the CB adopted a tight monetary policy which helped the country to mitigate the effects of the global financial crisis. Therefore now there is space to relax the monetary policy as and when required.

The Governor said that during the crisis the Central Bank used the reserves and now there are plans in place to accumulate the reserves. He said that the Government has requested for a US 41.9 billion facility from the IMF and at present negotiations are on among the two parties.

Director Economic Research division Dr. Weerasinghe said that agriculture was the largest contributor to the growth of last year while the contribution from the construction sector was relatively low. He said that the real growth last year was 6 per cent and it was the fourth consecutive year in which the economy recorded a growth. He said that the projected growth last year was 6.5 per cent - 7 per cent. In the first three quarters the economic growth was close to those numbers but in the final quarter the growth dipped due to the many challenges faced by the country internally as well as externally. Dr. Weerasinghe said that inflation was a major challenge due to the global food and energy crisis but due to the tight monetary policy CB was able to bring down the inflation to a single digit of 5.3 per cent last month.

Outlook

The Sri Lankan economy has now come to a historically important juncture with the recent domestic and external developments. The ending of the three decades long conflict resulting in a greater integration of the Northern and the Eastern Provinces with the rest of the country on a permanent basis and new opportunities that will be created with the expected recovery in the global economy would place the country on a better platform to move along a higher growth path. Increased access to the enormous amount of untapped resources in the Northern and Eastern provinces will enhance the country’s growth potential while the integration with other provinces would provide a significant boost to the economy, mainly through the expanded markets, better utilisation of natural and human resources and proper direction of talent and innovation. At the same time, the new environment would build up the confidence leading to enhanced foreign investments, other private investments and assistance from the development partners. The current recessionary conditions in the global economy will also necessitate the private sector businesses and investment ventures in the country to adjust their positions accordingly to better face the crisis situation. It will also be an important occasion to introduce changes to their business models and management practices while taking measures to improve productivity. The public sector too will have to re-think and re-orient its policies and strategies to cope with the unfolding situation.

These new developments will make the entire country ready to exploit new opportunities with the upturn of the next global business cycle.

If these emerging opportunities are utilised effectively and strategically with proper policies in place and with better management, the country has an enormous potential to take off towards greater heights.