CCC says growth commendable
Against the backdrop of hostilities in the North and East, the GDP growth of 7.4% was indeed commendable, according to Chairman of the Ceylon Chamber of Commerce (CCC) Mahen Dayananda. In response to criticism of GDP growth and the current economic situation in the country by lead economists and the public, Dayananda said that it has had 'a positive impact on a fair cross section of people' living in Sri Lanka. "The formal corporate sector did benefit even to a greater extent than certain other sectors of our population," he said, adding that Sri Lanka must not underestimate the US$2.3 billion coming in as overseas remittances.
Vast selections of consumer goods are available in many rural establishments which is an indication that people in these areas have the capacity to buy these items. Dayananda said the government is 'seriously addressing the issue of high inflation rates' and that the CCC has been advised of an inflation rate target of 10 – 11% by the end of 2007. "From a business sector perspective, high inflation leads to an increase in the cost of production due to its pressure on interest rates and wages," he said.
Picture shows a recent business event. Business has benefited from high GDP
Therefore, reduction is important in retaining business competitiveness." He explained that there has been a sharp increase in interest rates in a bid to control inflation. "The government will not be able to reduce interest rates until inflation declines. High interest rates are a disincentive for investment and add to financial costs for existing businesses." Another important element Dayananda says will facilitate the reduction of interest rates is better fiscal discipline.
"Whilst one of the reasons for the high government expenditure is the North/East conflict, there is little doubt that a durable and sustainable political settlement would have an extremely positive effect on government expenditure and thereby on interest rates."
The government should also take all measures possible to reduce recurrent expenses wherever possible which will pave the way for interest rate reduction and inflation control.
Dayananda says that at this point in time, high interest rates are necessary in the overall attempt to control inflation which adversely impacts the cost of living. The government's policies focus mainly on two aspects, those being regional and infrastructure development.
"Given that nearly 50% of the GDP is generated from the Western Province, it is important to develop the other regions," says Dayananda.
He also stressed the need for infrastructure development with utilities supplied at competitive rates which will greatly benefit private sector development. "If these issues are properly addressed and infrastructure development in particular is expedited, I believe it has a lot of promise for the future development of the country."