The economic performance in the first quarter of the year has not been as fruitful as expected. The poor export performance, the slow growth of the global economy, increasing burdens placed on the economy by the poor performance of the public sector and inadequate investments are among the constraints to growth. It is unlikely that [...]


Prospects of higher economic growth in 2013


The economic performance in the first quarter of the year has not been as fruitful as expected. The poor export performance, the slow growth of the global economy, increasing burdens placed on the economy by the poor performance of the public sector and inadequate investments are among the constraints to growth. It is unlikely that these unfavourable features would change during the rest of the year to produce an economic growth of much above 6 per cent.

Despite a lacklustre first quarter growth, the Central Bank is hopeful that the economy would grow by 7.5 per cent this year. International agencies place the expected growth to be 6 to 6.5 per cent for the year. A much better economic performance in the second half of the year is needed to achieve a growth of above 6 per cent this year. Will there be a spurt in growth in the second half of the year?

There are a few favourable developments that could contribute to growth, but the slow growth and even a decline in output of key economic activities, indicate a modest economic performance this year. Expected sources of growth are from tourism, public and private construction, agriculture and from public services. Manufacturing is likely to be virtually stagnant, while several services are likely to grow slowly. It would therefore be an achievement if the Central Bank’s expectation of a 7.5 per cent growth could be realised.

Performance and prospects

Nearly all sectors and subsectors of the economy fared poorer than in the last year to register a 6 per cent growth in the first quarter of this year. In comparison with growth in the first quarter of last year, industries were stagnant, agricultural output declined sharply and the services sector that has been the main contributor to growth recorded a decline, according to the Department of Census and Statistics assessment of the first quarter’s GDP.

The industrial sector grew by 10.7 per cent, virtually unchanged from a 10.8 per cent growth for the first quarter of last year. This growth has been achieved mainly due to the expansion of both government and private construction. Most disconcerting is the performance in the manufacturing sector whose growth decreased to 6.4 per cent from 6.7 per cent a year ago. The growth rate in the apparel sector fell to 6.8 per cent from 7.4 per cent. Even cottage industries recorded a lower 5.2 per cent growth rate, down from 5.9 per cent a year ago.

The decline of nearly all manufactured exports is the main factor for this diminished performance in industry. In the first four months, exports of manufactures declined further by nearly 8.4 per cent. There appears to be little prospects of industrial exports picking up during the rest of the year.

Agricultural output

The agriculture sector grew by only 2 per cent during the first quarter of this year, down sharply from a 12 per cent growth last year. However paddy production that declined by 3.1 per cent owing to drought last year increased sharply by 36.1 per cent during the first quarter of this year. Tea production increased by only 0.9 per cent during the first quarter of 2013 compared to a growth of 12.6 per cent a year earlier.

The better weather conditions are expected to contribute to an improvement in agricultural performance. However there is a crisis in paddy farming due to shortages of fertiliser. The plight of paddy farmers has reached a stage when they are pleading for fertiliser even without the subsidy and organising protests to get the administrative machinery moving to make available fertiliser. Tea production has increased this year but fertiliser availability could reduce tea output as well. Hopefully agricultural performance would be better this year.


The services sector grew by 4.3 per cent, down from 5.8 per cent a year ago as key services have performed at a lesser pace. The banking, insurance and real estate sector slumped to 6.1 per cent during the first quarter of 2013, from a 7.2 per cent growth a year earlier. Cargo handling, ports and civil aviation growth declined by 0.5 per cent from a 3.1 per cent growth rate a year earlier. Lower imports and exports have resulted in lower levels of activity in trade dependent services.

Exports and Imports

The declining trend in exports has been a serious concern in the last two and a half years. Export earnings during the first four months of 2013 fell a further 7.8 per cent. There has been a continuing decline in both industrial and agricultural exports. Manufactured exports declined by 8.4 per cent while agricultural export earnings decreased in the first four months of the year. Manufacturing output will continue to be hampered by decline in exports.

Balance of Payments

The Central Bank expects a surplus in the balance of payments with a dip in the trade deficit, increased tourist earnings, capital inflows and higher worker remittances to transform a lower trade deficit than that of last year into a surplus. This would strengthen the external finances of the country though debt servicing payments during the rest of the year are high and would erode reserves.
From a balance of payments perspective, the continuing decline in imports by 11.3 per cent is favourable. However it has curtailed services growth.

In contrast, declining exports has an impact far beyond the balance of payments as industrial development, employment and incomes are adversely affected.

Policies and prospects

It is hoped that the monetary policy measures taken recently would improve the supply, availability and cost of credit to the private sector and that there would be an expansion of economic activity. The reduction of policy interest rates and the reduction of the statutory reserve requirement are expected to ease credit availability and reduce interest rates. This is correct in theory, but other factors could mitigate the positive effects.

The other factors that constrain credit availability, such as the crowding out of the private sector by huge borrowings by the public sector enterprises could negate these policy measures. Furthermore economic growth is constrained by inhospitable markets for the country’s industrial and agricultural exports and the continued slow growth of the global economy. If the country’s economic slide is to be effectively reversed, then the declining trend in exports has to be arrested. A more realistic approach to trade and foreign policy are urgently needed to expand exports and export markets.

An improvement in weather conditions could increase agricultural output and reduce the costs of electricity generation. The boom in the tourist industry could increase output in several other sectors such as construction and services catering to tourists. Manufacturing will continue to be dampened by lack of demand in the global economy, but construction that is part of the industrial sector is likely to continue its growth momentum.

The economy has been moving rather tardily. A sudden spurt in economic growth is somewhat optimistic especially due to our export dependent economy facing an inhospitable global economic environment. More important than immediate achievements is to put in place economic reforms that would reverse the slide in economic growth witnessed in the last year and continues into this year.

Economic growth does not come from the pronouncements of economists and officials. It is the sum total of efforts of the entire population in a multitude of economic activities. It is as much a result of short term inputs, as the fruits of longer run policies, investments and incentives to enhance production and productivity.

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