Financial Times

Proactive role for Central Bank
By Sunil Karunanayake
The Central Bank Annual Report released recently confirms that economy registered a growth of 5.4 per cent in 2004. Even though the tsunami effect virtually had no impact the economy went through a rough ride compounded by natural disasters in floods and drought and the continuing surge in international oil prices.

Given this adverse background the growth achieved once again reaffirms the potential and the resilience of the economy. On the other hand the year 2004 too was also marked by general elections, its consequent effect on the government machinery, growing political instability and the lack of priority to burning issues that have been in the fire since Independence.

The Central Bank also notes with pride that country's per capita GDP exceeded US$1000 for the first time and will gradually move on the path to progress towards becoming an upper middle income country on reaching the US$3095 mark.

However sadly the regional disparity remains with little or no development in the regions now further aggravated by the tsunami tragedy. The impact of international oil prices seems to be affecting every aspect of progress.

When the prices reached the $50 mark it was felt that it would be a temporary phase but now it is reported that prices are rising to dangerous levels virtually putting Third World economies into total disarray. The Central Bank goes on to say that subsidy expenditure could have been utilized for enhancing investment and the entire cost of the Southern Expressway could have been met.

The combined effects of high cost of fuel and electricity and the consequent losses suffered by the state sector agencies are referred to repeatedly in the Central Bank report emphasizing the significance and gravity of the situation. Rising cost-push inflation, increasing demand for credit, tight monetary management, increase of fiscal deficit to 8.2 percent from 8 percent in 2003 are visible danger signals.

It is difficult to understand why the government discontinued the market price linked mechanism for oil based products thus allowing the subsidies to heap further burdens on the entire economy as against curtailing wasteful consumption. Central Bank warns that slowing down of the world economy adversely effecting export performance further compounded by the increasing competition due to MFA phase out and anticipated further escalation of international oil prices may adversely effect the economy in 2005.

The oil prices impact the cost of thermal power generation, which now supplies significant volumes to the national grid in the absence of development of non-thermal power sources. This grave situation has persisted for over a decade and even as at date no formal plan exists for any kind of take off.

Given these negative indications it's time that the politicians and policy makers take a hard look at the future and get ready to face the realities. Wasteful expenditure in the public sector must necessarily be cut down and whatever the historic and political reasons are, the whole country would agree that the provincial council system is a total failure which needs examination if not restructuring in difficult times for a cost benefit exercise.

Central Bank has been improving the quality of their reports each year with innovative presentations and sharply focused issues. But it is sad that Central Bank's role has been limited only to a reporting process. Many economists feel that the report review should be an on going process to convert the wealth of information produced to tangible action plans.

Perhaps it may be a good idea to make a detailed presentation to the all parliamentarians to give them a good idea of the financial health of the country and their responsibility to people and also to emphasise that trade unionists are not the sole stakeholders.

For example, the Ceylon Electricity Board should deliver the goods to the satisfaction of the three million consumers and not only to the few thousands of trade unionists. The outdated political theories, slogans, wasteful tamashas and strikes can only bring more misery to Sri Lankans while the economic prosperity in the region will accelerate at a tremendous pace with the rise of China and progress of India. Let's not be mere spectators of the partying of neighbours. (The writer could be reached at - suvink@eureka.lk)

Our regular columnist on corporate and macro-economic issue argues the need for the Central Bank to do more than a reporting role in its annual report and calls for a mechanism to transform the information into action plans.

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