New expectations of higher economic growth
economic indicators of the first half of the year confirm that the
Sri Lankan economy is on a growth path. This is particularly so
with respect to the performance in the second quarter of the year.
The main source of that growth is the revival of industrial production
and exports. Industrial exports had languished for quite sometime,
but this year's growth in exports reaffirms the expectation that
the country's exports are on the way up. The agricultural sector
however had a mixed performance.
production reached a new high, tea and coconut production declined
owing to several factors beyond their control. A disruption in export
markets followed by floods affected tea production and exports,
particularly low grown teas. With the effects of these adverse factors
out of the way, a higher output of tea in the second half of the
year is to be expected. Earnings from tourism and capital inflows
have further strengthened the external financial position of the
poor state of public finances continues to be a fundamental weakness
and an intractable problem. These developments are likely to result
in the realisation of the projected economic growth of 5.5 per cent
for this year. It may even edge to a 6 per cent growth. This does
not however imply that the economy is fundamentally sound. The public
debt continues to increase, government revenue is below budgeted
expectations and economic activities are being crippled by a wave
economic performance is also within an unstable political context
of another series of elections, political uncertainly and doubts
about the sustainability of the peace process, so vital for economic
investment and growth. Industrial production grew by 11 percent
backed by a strong growth in industrial exports of 23 per cent.
Much of this growth came in the second quarter. As to be expected,
this growth was due to the strong growth in garments exports that
grew by a similar proportion in the first half of the year.
of industrial exports grew with rubber and leather goods expanding
by 15 per cent in the first half of this year. It is of significance
that the unspecified category of "other exports" of industrial
exports had grown by nearly 44 per cent in the first half to earn
US$ 380 million. This category accounted for nearly 20 per cent
of industrial exports and accounted for about 15 per cent of total
in exports by 18 per cent and the reduced growth in imports to 7
per cent resulted in the trade deficit in June decreasing to some
extent. Yet, the trade deficit continued to grow to reach US$ 700
million at the end of the first half of the year.
Therefore, while the export performance was much improved, the fact
is that we have sustained a large deficit in the first half. The
trade deficit would have to be reduced much further in the coming
months if the deficit is to be contained within an acceptable amount.
An important contribution to the balance of payments and economic
growth has been the increased earnings from tourism.
grew by 28 per cent in the first six months to bring in US $ 140
million. It is also relevant to point out that the earnings from
tourism have now exceeded the rate of growth of tourist arrivals.
This is significant as there has always been a concern that low
cost tourists or those strictly not in the category of tourists
were increasing the numbers without a real gain in earnings.
While the external
assets position of the country has improved owing to the improved
trade performance, higher earnings from services, notably tourism
and servicing at ports, capital inflows official and private, and
remittances from Sri Lankans, the public debt has grown and revenue
shortfalls have been significant.
appears to be high judging from the rise in share market indices
in recent days. Yet all these have a vulnerability to political
conditions and the progress of the peace process. If relative political
stability is maintained the growth momentum of the second quarter
could be accelerated.
This is especially
so as the world economy is showing signs of recovery and an improved
demand for our exports could be expected. The lower interest rate
regime should boost corporate incomes and increase investment. All
these lend hope for an improved growth performance in the next few