bntt@new final

A stable macro economy. Monetary policies are in the right place. No signs of overheating in the economy. That's how the International Monetary Fund would like to describe Sri Lanka that has re-elected Mahinda Rajapaksa’s as the country's President through democratic process of general election in December last. However, IMF has a note of caution as well. It hopes that the Sri Lankan government would have met the reserve and monetary policy targets."...Fiscal is the one where the government itself says there is a question. We haven't seen data yet, but one worry is what's happening on the expenditure side", the IMF Director for Sri Lanka, Koshy Mathai, told Reuters.

The resilience of the Sri Lankan economy has once again stood the test of time. The global financial turmoil triggering a reversal of capital inflows that caused a depletion of reserves and substantial imbalances in the external sector notwithstanding, prudent macroeconomic policies supported the growth momentum while headline inflation dropped further to annual average of 4 percent in November 2009. The inflation was as high as 28.2 percent in July 2008. The country is gradually back on a promising note of improved national economic activities.

The foreign trade scenario is also looking up. Current Accounts clocked surplus in the first none months of 2009. Import bills were markedly down. All these led the Islanders to believe that the country is back to the growth path with gradual global recovery from the severe melt down that severely impacted almost all economies –developed as well developing. The Central Bank of Sri Lanka's Monetary Policy Review December 2009 reveals that the higher reduction in expenditure on imports compared to the decline in earnings from exports has resulted in the trade deficit narrowing significantly during the first nine months of 2009. The overall deficits in the trade and income accounts were offset by higher inflows into the current transfers and services accounts, resulting in a surplus of US $393 million in the current account for the first nine months of 2009. It is expected that this performance will continue through the fourth quarter as well and the current account would record a surplus in 2009 for the first time since 1977.

According to the CBSL's review, inflationary pressures continue to remain subdued as reflected by the annual average inflation of around 4 per cent recorded by end November 2009, although year-on-year inflation increased to 2.8 per cent. The outlook for inflation remains benign. The development of the Northern and Eastern provinces in the period ahead would result in their increased integration with the rest of the country, leading to enhanced supply of goods and services in the country. The positive supply side developments expected to take place in the domestic economy are likely to have a favourable impact on inflation, going forward.

Prospects for domestic economic activity have improved with the more favourable investment climate that now prevails and the gradual recovery of the world economy, supported by the relaxed monetary policy stance of the Central Bank. Hence, it is expected that credit flows will gradually pick up, with the more favourable credit conditions that prevail on account of the decline in market interest rates as well as the more stable conditions in financial markets. Although broad money supply is likely to further expand, particularly in view of the expansion of foreign assets of the country and the likely pick up in credit flows to the private sector in the ensuing period, such an expansion has been accounted for in stipulating the monetary targets for this year as well as the next year.

Sri Lanka Labour and Social Trends Report 2009 reveals that the country has become a middle income country with a per-capita GDP of over US $ 2000 recording a healthy economic growth of more than 5 percent in recent years according to the, according to a news published in the national newspaper Daily News. The current competitiveness ranking places Sri Lanka at 79 out of 133 countries, breaking away from neighbouring countries such as Bangladesh and Pakistan.

The Report, compiled by the Central Bank, Department of Census and Statistics and the Ministry of Labour Relations and Manpower, says that a dialogue needs to be started as to where to invest the country's peace dividend. Defence spending is likely to fall over time.

India's Trade with Sri Lanka (In US$ million)
	2004-05	2005-06	2006-07	2007-08	2008-09 (till Dec.'08)
EXPORT	1413.18	2024.67	2253.82	2826.54	2007.39
India's Total Export	83535.95	103090.54	126262.67	162983.90	131126.62
% of SL's share	1.69	1.96	1.79	1.73	1.53
IMPORT	378.40	577.70	470.26	631.42	262.33
India's Total Import	111517.44	149165.73	185604.10	251562.26	235338.40
% of SL's share	0.34	0.39	0.25	0.25	0.11
TOTAL TRADE	1791.58	2602.37	2724.07	3457.97	2269.72
India's Total Trade	195053.38	252256.27	311866.78	414546.15	366465.02
% of SL's share	0.92	1.03	0.87	0.83
TRADE BALANCE
India's total imports since 2000-01 does not include import of petroleum products and crude oil.
Source: Federal Ministry of Commerce, Government of India

The report points out that if it were to decline in line to what neighbouring countries such as Thailand and Indonesia spent and even if half of the savings were used to reduce the Government budget deficit, the balance funds would be sufficient to boost spending on education by 40 percent or to increase health expenditure by 55 percent or to increase spending on agriculture and irrigation by 70 percent. There is a need to identify productive investments that could boost agricultural productivity and improve the situation of the rural poor, the report says.

The Exporters Association Sri Lanka maintains that with peace setting in after almost 30 years of war, while opportunities are gradually opening up with greatly improved situation, it will also be a challenging year for exporters, as, due to the past global recession, the country lost ground in overseas markets. The year 2010 should be viewed as a year to realize the real potential of Sri Lanka , so feel the exporters in the country. After almost 30 years of war, now finally with peace, Sri Lanka with focused planning and efficient implementation can expect rapid economic and social development, Exporters Association Sri Lanka Chairperson, Nirmali Samaratunga told Daily News Business .

Making Sri Lanka an economic powerhouse*

“This is the time when the benefits of unifying the nation begin to show results. Now that the war has ended, the nation is saving more than the cost of the war. International research magazines recently reported that Sri Lanka is among the 31 countries in the list of best tourist destinations. Sri Lanka is second only to China among Asia's fastest growing economies. Sri Lanka is also listed among the best countries for investment. We cordially invite investors here.

We were able to gain such achievements because infrastructure was speedily built whilst the war was being waged. I will use this mandate given by you to re- establish all that was lost for the past 30 years due to the war.

Our country which fell back in progress because of the war needs to be advanced swiftly. Peace alone is not enough. An efficient, advanced nation needs to be built to replace a country which is lazy, lethargic and lacks energy. It is meaningless to blame our nation for its inefficiency whilst referring to the efficiency and progress of other countries. We proved at the recent overwhelming victory that our people could overtake them.

In the development of the country the private sector too has a responsibility similar to that of the public sector. There is a better environment for the private sector which was at a standstill during the war. I expect a public service which can take quick decisions and which is people friendly. I will make the government service a service for the public.

You are aware that during the operation to defend the country, I protected the heroes who fought for the country. I represented them everywhere. And now in the nation building process, I will protect the honest and skilled people who work for the betterment of the country. The country cannot be developed with harassment, gross punishments or by the gun. Discipline is not revenge. The nation can only be built through commitment, discipline and elimination of corruption.

In the Mahinda Chintana, we mentioned that Sri Lanka will be made a centre of marine, aviation, commercial, energy and knowledge. You may feel that this target is very far. But we will bring the benefits of these five great economic forces closer to your feet in the near future in order to end the era of sorrow and tears. We will give more opportunities to artistes, authors, musicians so that the yield of their creativity would enhance the contentment of the society.”

* Extracts of President Mahinda Rajapaksa’s speech given at the 62nd Independence Day celebration in Kandy on February 4, 2010

The exporters need to view 2010 optimistically as there are positive signs that the global recession is easing off and world trade is improving. The IMF has predicted 3.5 percent increase in global output in 2010,he said. The export sector recorded a downturn in 2009. The first ten months of 2009 compared to previous year recorded a 16 percent decrease from US$ 6.8 billion to US $ 5.7 billion. “The country needs to reverse the trend and the exporters need to be geared to exploit the opportunities emerging from recovery of the global economy, with greater focus on trade with the region,” Samaratunga said. The export sector should be ready to face the impact of a possible suspension of GSP+ facility as EU is a major market.

Sources
Government of Sri Lanka
International Monetary Fund
Central Bank of Sri Lanka
Asian Development Bank
Federal Ministry of Commerce, Government of India