Apr 11, Colombo: Sri Lanka showed its true potential with an impressive economic growth of eight percent in 2010, the highest in three decades, and the challenge for policymakers is to sustain the past year’s economic achievements with macroeconomic stability in the face of more frequent internal and external shocks, the Central Bank said Monday.
In its Annual Report 2010 released today, the Central Bank called for implementing necessary reforms to the institutional framework of key public enterprises to operate them more efficiently and in a commercially sustainable way to lessen the impact of external impediments to the economic growth such as rising crude oil prices.
The country’s economic growth of 8% last year reflected a fast recovery from the setback suffered in 2009 and moved the economy to a high and sustainable growth path, the Bank noted.
The Annual Report cited the peaceful domestic environment, improved investor confidence, favourable macroeconomic conditions, and gradual recovery of the global economy as the reasons for the impressive performance in 2010.
Inflation remained low in single digits throughout the year allowing the Bank to ease its monetary policy stance and lower interest rates further in 2010 to support the economic growth.
A notable achievement in the year was the reduction of the overall deficit to a 7.9 percent of GDP in 2010 from 9.9 per cent in 2009.
All sectors recorded improved performance in 2010 contributing to the overall growth, the Bank reported adding that favorable weather conditions helped the Agriculture sector to grow by 7.0 percent, compared to 3.2 percent in 2009.
The Industry sector grew by 8.4 percent supported by increased domestic and external demand with enhanced investor and consumer confidence while the Services sector grew by 8.0 percent in 2010.
External trade rebounded strongly in 2010, reversing the sharp contraction observed during the global recession of 2009, the report highlighted.
Higher earnings from the industrial and agricultural sectors led to a 17.3 percent increase in the earnings from exports while expenditure on imports grew by 32.8 per cent, led by intermediate goods imports. As a result, the trade deficit has expanded to US dollars 5.205 billion in 2010.
In its outlook for this year, the Central Bank called for effective addressing of supply-side impediments and appropriate demand management policies to maintain low and stable inflation.
“The diversification of exports, in terms of products and markets, is needed to increase the resilience of the economy to external disturbances, and to this end, the effective utilization of existing bilateral and multilateral treaties and actively pursuing the establishment of further trade relations with emerging regional markets as well as promoting private sector investment and strengthening the Doing Business environment are necessary,” the Bank stressed.