Can the economy's improving performance be sustained?
The Central Bank has disclosed a higher rate of economic growth
last year than what was originally expected. The last quarter's
economic performance gave a boost to the tardy growth in the first
half of the year. In 2002 the economy is estimated to have grown
at four per cent, slightly higher than the three per cent predicted
earlier. The main sources of that growth were the services sector
and agriculture. Services contributed as much as 80 per cent, while
agriculture contributed 13 per cent.
port services, communications, energy and financial services made
useful contributions to the services sector growth. An increase
in paddy production, a record tea crop, a marginal increase in rubber
production and an increase in the production of other food crops
were responsible for a growth in agriculture.
on the other hand, failed to generate any significant growth. However
the final performance of manufacturing was much better than the
indications in the first half of the year. In fact the serious set
back to manufacturing exports, mainly garments, in the first half
of the year had an enduring impact on the overall growth. The improved
performance in the second half of the year was inadequate to offset
this initial bad performance in manufacturing.
Bank expects a higher rate of growth this year. The projected rate
of growth of 5.5 per cent is a fairly high expectation. The Central
Bank is however of the view that this is an attainable goal. Last
year's four per cent growth was after a 1.5 per cent decline in
national output in 2001. While this recovery was an encouraging
sign, it must be accepted that it is easier to achieve a four per
cent growth on the lower production base in 2001.
to express this is to compare the national output last year with
that of 2000. The national income of 2002 was only 2.5 per cent
higher than that of 2000. To obtain a 5.5 growth on top of the higher
output last year is a more difficult proposition. The confident
expectation is that such a growth would be attained and that the
economy would once again traverse a reasonably high growth path.
Can we once
again expect to achieve a sustained growth of over seven per cent,
even an eight per cent growth has been mentioned as possible. The
Central Bank itself postulates that to achieve such a growth several
conditions must be fulfilled. Among these are the certainty of peace,
economic reforms, lower budget deficits and an improvement in global
There is uncertainty
that all these conditions could be satisfied. Even the global recovery
is still to be seen after the uncertainty generated by the Iraq
war. Certainly the worst is over. Yet the recovery of the US economy
is not automatic. There is still a lack of confidence in the Bush
administration's economic policies. A scepticism that preceded the
war. In fact there is likelihood that there would be some negative
fall-outs from the war itself on the economy.
If the US economy
fails to grow quickly, it would certainly assert an unsatisfactory
impact on Sri Lankan exports of manufactured goods for which the
US is the main market. Besides this the recovery of the US economy
is vital for the up-turn of the European economies and that of Japan.
A durable peace in Sri Lanka immediately remains in doubt and this
could be an important determinant of foreign investment. In fact
the expected aid would also be influenced by the prospect of peace.
of the North and East that could give boost to the economy cannot
be realised till the donor community is convinced of a durable peace.
The LTTE boycott of the Tokyo conference will not help the reconstruction
aid prospects. Meanwhile the stability of the government is also
of some concern at present. Economic reforms are another area where
the government could face political difficulties.
to implement the proposed labour, trade, financial sector and public
corporation privatisation projects would not only affect the efficiency
of the economy, but also the availability of concessional aid so
vital to the economy at this critical stage. With the improved global
and local conditions there is once again hope that the economy would
enter a higher growth path whose momentum would accelerate each
year. Such a hope and expectation cannot be merely wished. It has
to be achieved by providing the prerequisites to growth. Therein
lies the rub.