Written by Tharushan Fernando
26 Apr, 2016 | 11:16 pm
The 66th annual report of the Monetary Board of the Central Bank of Sri Lanka was presented to the President and Prime Minister as well as the Minister of Finance by the CBSL Governor on Tuesday April 26.
Sri Lanka has recorded a real economic growth of 4.8% for the year 2015, which is a decrease from 4.9% recorded in 2014. The slowdown of growth of demand in Sri Lanka’s traditional export markets has impacted the the growth of the export sector while a strengthening US economy has led to a short term outflow of capital
The agriculture sector recorded a growth of 5.5% while service related activities showed a growth of 5.3%. Industry related growth also showed an increase in growth 3.0% during 2015.
Subdued commodity prices gave way to Inflation (as measured by the year on year change in Colombo Consumers price index (CCPI)) to sit in a negative territory during July-September, 2015 and this was the first time that inflation turned negative since March, 1995. However, year on year headline inflation recorded a 2.8%, which was rise from 2.1% at the end 2014.
The budget deficit fell short of its target of 4.4%, and recorded a 7.4% deficit of Gross Domestic Production. This led to a growth in the debt of the Central Government to a massive 76% of the GDP by the end of 2015.
The report adds that there will be a new-found focus on on export led growth and reinforcing the collection of government revenues in order to battle the overhang of government debt are key components of the the government’s medium term economic strategy, and structural reforms. It addes that the governments stragedy is expected to be endorsed by the International Monetary Fund (IMF) as well
The report goes on to state that the real economic growth recorded int eh year 2015 came a a result of contribution of all three sectors (Services, industry and agriculture).
Service activities accounting for 56.6% ofe GDP showed a growth of 5.3%, which came as result of the strengthening growth of financial services (by 15.8%), real estate activities (9.6 per cent), transport activities (5.5 per cent) and wholesale and retail trade (4.7 per cent).
Industry activities, which account for 26.2 per cent of GDP, grew by 3.0 per cent, mainly supported by the growth in manufacturing activities (4.7 per cent),despite the minor slowdown in construction (-0.9 per cent) and mining and quarrying (-0.9 per cent) activities.
Agriculture services which account for 7.9% of the GDP, expanded by 5.5%, despite the contraction in fishing (-2.7 per cent), growing of rubber (-10.1 per cent) and growing of tea (-2.6 per cent).
Unemployment rate showed rise of 4.6% during 2015, in contrast to the 4.3% recorded in 2014. Total number of departures for foreign employment saw a sharp decline of 12.4%, which could partly be attributed to escalated geo-political tensions and the slowdown of economic activity in the Middle East.
The Balance of Payments (BOP) recorded a deficit of 1489 million US dollars. Along with the deterioration of the BOP, the country’s gross official reserves declined to 7.3 billion US dollars by end 2015 from 8.2 billion US dollars at end 2014.
Meanwhile, the rupee, which remained broadly stable during the first eight months of the year, depreciated at a faster pace from early September with the Central Bank’s decision to allow greater flexibility in the determination of the exchange rate, based on market forces. Accordingly, as of end 2015, the rupee had recorded a depreciation of 9.03 per cent against the US dollar.
The report states that there are structural vulnerabilities of the economy that had built up over time and decisive steps were deemed necessary to correct these vulnerabilities to ensure the country’s progress along a ‘high growth – low inflation’ path.
According to the report by the CBSL, this progress along a ‘high growth – low inflation’ path would entail the need for the country to to adopt a proper blend of structural reforms, including fiscal reforms on revenue and expenditure fronts as well as with regard to state-owned enterprises (SOEs), ensure policy consistency and improve the ease of doing business in order to attract non debt creating capital flows. These reforms must aim at harnessing and synergising the country’s strengths, including its human capital, with greater participation of the private sector.
The economy is expected to return to a high growth path in the medium term, given that appropriate policies will come in to play.
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