Rebuilding the nation through a major development drive

by Shirajiv SIRIMANE

Sri Lanka recorded one of the lowest annual inflation levels last year since 1985 indicating economic stability and social benefits and even better prospects in the years to come.

Sri Lanka's inflation remained static for the last 30 years which was around 11.7%. However, in June 2008, due to the increase in crude oil prices inflation rose to 28.2%. But in 2009 it showed a decrease up to 1.4%. After the war, to bring down the Government expenditure, economists predicted the inflation should remain as a single digit in the future.

This significant development would encourage savings and investments which stimulate capital flows from non-productive investment to productive investment to promote economic growth and to generate employment opportunities.

The annual average inflation rate, as measured by the Colombo Consumers' Price Index by the Department of Census and Statistics, decelerated steadily to 3.4 per cent in 2009 from 22.6 per cent recorded in 2008. The point-to-point inflation reached 4.8 per cent in December, 2009 compared to 14.4 per cent recorded in December last year.

The steady deceleration in the annual average inflation rate was a result of favourable developments in both the demand and supply side factors.

The contribution to the annual average change of 3.4 per cent in the Index increased mainly from sub category of food and non-alcoholic beverages (2.8 percent).

On the demand side, the tight monetary policy pursued by the Central Bank in 2007 and 2008 effectively checked rising inflation. On the supply side, favourable domestic supply conditions, mainly from the North and the East and the decline in international commodity prices lowered the price pressure. The decline in fuel prices had a direct and an indirect complementary impact on domestic prices. The fuel price reductions which was effective from end December 2008 contributed substantially, both directly and indirectly, on the overall cost structure of the consumer.

An artistic sketch of the Hambantota Port

A artistic sketch of the Colombo South Harbour

Sri Lankan apparel workers

The economic growth of the country progressed positively during the last three years with an annual economic growth of 6%. "This was a major a plus point to the Government as the country was fighting a separatist war. Other countries in the region, when having a conflict with terrorists paid less attention to the economy. One must praise the present government for successfully negotiating both sectors," said former President of the Federation of Chamber of Commerce and Industry Nawaz Rajabdeen.

This was automatically reflected with the people of Sri Lanka for the first time turning out to become a Middle Level Per Capita Income nation with the Per Capita Income progressing from the status of US $ 881 per capita income nation in 2000 to the level of US $ 1617 in 2007. In the year 2008 the per capita income rose to US $ 2014.

Sri Lanka's number one foreign exchange earner is apparel exports and due to various political lobbying by anti Sri Lanka elements the GSP+ concession extended to exports to the European region is now on the balance.

However, the Governor of the Central Bank Ajith Nivad Cabraal reiterated that Sri Lanka is prepared to meet any risks of a possible withdrawal of GSP Plus trading facilities and the government was committed to assisting exporters.

"The government is committed to doing everything it can to mitigate the risks if GSP Plus is discontinued," Cabraal said.

"Exporters should not rely on trade concessions, such concessions are good to have, but exporters should try to diversify and strife for productivity and qualitative improvements," he said.

Chairman Board of investment Dhammika Perera too said that Sri Lanka did survive without GSP and in future too it could do so as the government is committed to look after the interests of the exporters.

Another positive sign was seen in 2008 with total foreign exchange receipts from Foreign Employment amounting to US $ 2,918 million. This appreciated to US $ 2482 in 2009 and this is an increase of 10.9%.

Foreign Exchange Reserves which was US $ 355 million in July 2008 recorded a noteworthy increase of up to US $ 4,825 in October 2009. This is sufficient to cover imports for a period of six months.

The Government Sector received US $ 1,348 million as Loans and Assistance in 2008. In addition to this, Sri Lanka also received US $ 509 million as Treasury Bills and foreign investment bonds. With the end of the war, Treasury Bills and Foreign Investment Bonds increased up to US $ 1646 million.

Loans were provided wrapped with a series of conditions. However President Mahinda Rajapaksa using his international connections was able to overcome this barrier and obtain loans under very favourable conditions.

This helped to finance the giant development projects, the Government initiated in the last four years.

Though Sri Lanka is an island and ports play a key role towards economic growth, for over centuries virtually no development had taken place to build new harbours or to improve the existing ones.

It was way back in 1889 expansion took place in both Colombo and Galle harbours and since then the Port sector was ignored by the British as well as all the past Governments.

However, in the last four years bold initiatives were taken to build two new harbours in Hambantota and Oluvil and to redevelop all the existing harbours.

With initiatives taken by the President, a new Hambantota harbour is currently under construction and the first phase is nearing completion with over 75% work successfully completed. The port project is scheduled to be completed by 2010, one year ahead of schedule with an investment of US $ 450 million. A fully fledged Bunkering Facility and a Tank Farm Project along with an Administrative Building of 15 levels including a roof top is also being built.

The constructions of Oluvil Port Development Project was inaugurated with the initiative of President Mahinda Rajapaksa in Oluwil last year. The Project worth euro 46.1 million is scheduled to be completed within 27 months.

The much awaited and long overdue Colombo South Port development too took off the ground last year. The new expansion includes four terminals, channels and breakwaters with an investment of US $ 300.0 million

The harbour in Galle will be developed as a tourist harbour at a cost of rupees 16 billion, boosting tourism in the Southern Province. A marina too would be constructed for this purpose.

In addition Trincomalee too would be developed to meet the increased demand for cargo and tourism.

These projects were given the cold shoulder for centuries as no government was able to raise funds for it. However, President Mahinda Rajapaksa was able to raise the finances under favourable conditions and cleared red tape. Five major electricity projects are also being constructed simultaneously in order to meet the escalating demand for electricity.

The Government during the last four years invested Rs. 90,887 million in the power sector. Kerawalapitiya Power Generation Project implemented with local and foreign funds with an investment of Rs. 34,667 million to generate 270 MW will become a reality next year.

The Upper Kotmale Hydro Power Project to generate 150 MW at a cost of Rs. 38,219 million is another project that was only confined to talk and planning by past governments. This project too would be ready by next year.

The Norochcholai Coal Power Project with the capacity of 1,200 MW is being initiated with Chinese funds and the project would cost Rs. 51,550 million. The second Coal Power Project implemented in Trincomalee with an estimated cost of Rs. 60,000 million would generate 500 MW .

Initiated with an investment of Rs. 71,000 million, the Kerawalapitiya Gas turbine project for 300 MW, would also help to ease the demand in time to come. In addition Rs. 17,700 million is being spent for rural electrification scheme to ensure electricity for all in 2012.

The old Lakshapana and Ukuwela Hydro Power Projects with the capacity of 215 MW have been reconstructed. The numbers of electricity households have been increased to 4.33 million in 2009 from 3.90 million in 2005.

The percentage of number of households with power supply has increased to 84% in 2009 from 76.7 percent in 2005.

With the aim of giving electricity for all by 2012 the Government invested a total of Rs. 80,887 million in the power sector. Cabinet approval has also been given for a Japanese grant for a solar power generation plant in Hambantota.

President Mahinda Rajapaksa also obtained US$ 65 million from the World Bank's International Development Agency (IDA), last week Government's efforts in resettling and re-establishing the livelihoods of Internally Displaced People (IDPs) under the Emergency Northern Recovery Project. The credit line has been provided to the Government interest free.

The project, which is expected to reach close to 100,000 IDPs, will begin this month, with completion expected by December 2011.

The Colombo Stock Exchange (CSE) which is a mirror of a prosperous economy created history by becoming the second best performing stock market in the world.

The CSE also recorded the highest turnover for a year by generating Rs.144.2 billion surpassing the previous best of Rs. 114 billion in 2005.

The CSE on Tuesday once again rose for the second consecutive day to hit a new record high on strong turnover with the All-Share Price Index rising by 1.55 percent to 3,535.81 points by midday, surpassing its previous peak of 3,490.56.

Both 2008 and 2009 were difficult years for global trade and it affected Sri Lanka's exports and imports as well. These positive land marks were achieved despite all odds due to the current prudent economic management with President as the Finance Minister.