The government improved its fiscal position in 2010 with overall deficit reduced by 7.9% of GDP while the budget deficit is seen coming down to 6.8% this year. But escalating oil prices are set to be a ‘burden’ on an economy recovering from floods.
Expanding growth to 8%, the highest in the last three decades, the Central Bank’s Annual Report released this week said other achievements included containing inflation at around mid-single digit levels while exports and imports recovered strongly and Sri Lanka graduated to middle-income economy status. Engulfed by challenges from floods to high food prices and the escalating oil prices the country’s economy will continue to face some of these key issues this year as well.
It was pointed out by Central Bank Governor Ajith Nivard Cabraal that while “oil can put pressure on the economy”, at present targets for this year will not be changed. However, the Central Bank continues to watch the impact this could have on the economy. About 40-45% of the country’s energy is driven by oil and “any fluctuation is a burden on the economy,” he said at the release of the report at a ceremony in Colombo in which President Mahinda Rajapaksa was the chief guest.
The Governor pointed out that it is noteworthy that Sri Lanka is moving towards alternative fuel through the fuel power plant and the generation of fuel from hydro power plant. Previously, the government pulled back all taxes imposed on fuel imports but in the future the necessary price adjustments would be made in accordance with world market fluctuations, Mr Cabraal pointed out. He noted that this was necessary to ensure that the Ceylon Petroleum Corporation (CPC) remains viable. It was noted in the Annual Report that the impact of disturbances from increases in crude oil could be lessened through the implementation of necessary reforms to the institutional framework of key public enterprises to operate them more efficiently and in a commercially sustainable way to reflect market conditions.
During his presentation he pointed out that today Sri Lanka has entered the 7th phase when previously the governments were unable to move beyond the second phase of any International Monetary Fund (IMF) programme. The government intends to achieve a US$400 per capita income from the current US$2400 that could result in a change in the overall composition as well with greater labour mobility observed and in very quick time. President Rajapaksa observed that the Annual Report reflects how much the country has changed for the better.
He noted that today there is the equal distribution of resources to all parts of the country and sectors. The country was able to secure a 8% growth at a time when all other countries were embroiled in crises, he said. It is believed that the gap between the city and the village will be reduced and the differences between the two will be wiped out. Treasury Secretary Dr. P.B. Jayasundera hailed the Mahinda Chintana policy as the key reason for achieving the necessary targets and with the country capable of achieving the US$4000 as promised.
Proper administration and use of resources in the public sector has allowed them to become competitive, he said adding that this was possible by adopting the necessary changes when required. In the future, Sri Lanka will become a high income generation country with the stabilizing of the rupee and the families capable of feeling a change, he said.