Sri Lankan economy bounces back strongly– ADB

By Keishara Perera

From left- Dr  Narhari Rao, Lead Economist, Dr Richard Vokes Country Director and Hasitha Wickremasinghe, Economist at the ADB Sri Lanka office. Pic by Kithsiri de Mel

The Sri Lankan economy has bounced back strongly in 2010, reflecting post civil war optimism and global recovery. The economy is expected to show continued high growth of 8% in 2011, with services and industry leading to growth, said Asian Development Bank (ADB) in a recent report.

ADB’s flagship annual economic publication, the Asian Development Outlook 2011 (ADO) released recently outlines that continued benefits from the end of the civil war such as improved business environment, revival of tourism, increased agriculture in the North and East as well as the global return to growth underpinned this strong performance. Economic growth will remain high in 2011 and 2012, it further states.

Speaking at the launch of the report, Richard Vokes, ADB Country Director said,t to consolidate its position as a middle income country, Sri Lanka needs to improve its economic infrastructure and further strengthen human resource development, particularly in education. According to the report, the strong resurgence in tourism which grew by 46% in 2010, as well as freight and port related activities brought an upturn in the services sector surplus. Agriculture too recorded a strong growth, aided by the revival in agriculture in former conflict-affected areas of Northern and Eastern provinces, the report said.

“Sri Lanka’s foremost development challenges are to sustain macro economic stability, create an environment for greater private sector participation and urgently undertake financial sector reforms,” said Narhari Rao, Lead Economist for ADB Sri Lanka, speaking on highlights and prospects of the Sri Lankan economy. “We see that the Sri Lankan poverty rate has reduced from 15% in 2006 to 7.5% in 2010. Also the access to electricity in rural areas has increased from 78.5% in 2006 to 83% in 2009,” he pointed out.

Sri Lankan economy bounces back strongly– ADB

He also said that after last year’s rebound, the economy is expected to show continued high growth of 8.0% in 2011, supported by some strengthening in external demand, and will maintain growth at that level in 2012. “Sustaining such performance will require fiscal consolidation, state enterprise and finance sector reforms, as well as flexible exchange rate management,” he emphasized.

Rao further said that steps taken to expand the revenue base, simplify tax systems, remove import duty, revise import taxes on motor vehicles and cess rates are noteworthy. “The 2010 budget deficit improved significantly from 9.9% in 2009 to 8% in 2010 supported by a lower expenditure ratio,” he said. “Import duty reductions and subsidies that maintained stable fuel prices, partly controlled the impact of rising global commodity prices on domestic inflation in 2010,” he stated. “However, inflation pressures are increasing,” Rao added. Investor sentiment was strengthened by the approval of the trenches of the International Monetary Fund (IMF) standby agreement. FDI strengthened sharply to an estimated $500 million, but at 1% of GDP, it needs to increase says the ADO.

Speaking on the development challenges Sri Lanka face, Hasitha Wickramasinghe, Sri Lanka Resident Mission, ADB, said that investment is too low to achieve national development goals, and Private investment in particular needs to be scaled up substantially. “But several areas need to improve to secure an investment climate conducive to large-scale private investments. The 10-year development plan, the Mahinda Chintana, emphasizes the need to improve the business environment more widely,” she said. “The World Bank’s Doing Business 2011 report, ranks Sri Lanka at 102 out of 183 economies, suggesting the need to eliminate red tape and increase the ease of doing business,” she stressed. Hasitha went on to say that it also includes strengthening institutions, building human resources capacity, and simplifying procedures.

 

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