Sri Lanka

Date: 5 May 2011

The event will be held in Colombo, Sri Lanka, with the participation of distinguished participants from academia, government, civil society, international organizations, and the press. The list of well known participants making opening remarks, presentations and commenting on the publication includes:

Dushni Weerakoon
Deputy Director
Institute of Policy Studies of Sri Lanka
Sri Lanka

W. A. Wijewardena
Former Deputy Governor
Central Bank of Sri Lanka

M. Hussain Malik
Economic Affairs Officer
Macroeconomic Policy and Development Division
United Nations Economic and Social Commission for Asia and the Pacific

Douglas Keh
Director, a.i
United Nations Information Centre
Sri Lanka

Country briefing note      <download pdf file>

Growth accelerates in 2010 and expected to remain equally high in 2011

In Sri Lanka , the economic recovery that began in the second half of 2009 gained momentum and GDP growth is estimated to have accelerated sharply to 8.0% in 2010 from 3.5% in 2009. With the end of the civil war in Sri Lanka , reconstruction activities in the war-torn areas and enhanced tourist arrivals are expected to provide a further boost to economic growth, which should reach 8% in 2011 despite damages caused by severe floods in the country in the first quarter of 2011.

Modest inflationary pressures in 2010

In Sri Lanka , improved domestic supply conditions and supportive fiscal policies helped to limit inflation to 5.9% in 2010. Domestic supply conditions improved due to improved performance by the agricultural sector and an increased supply of food commodities, mainly from the north and east of the country, due to the improved security situation in those areas. The continued stability of the domestic currency cushioned the price increases of imported commodities, while measures taken by the Government, particularly downward adjustments to tariffs applicable to imported commodities, helped to reduce price pressures further. The unchanged domestic prices for petrol and diesel during the year helped to contain inflation.

Fiscal situation improves in 2010

In Sri Lanka , the budget deficit is estimated at 8% of GDP for 2010 as compared to the 2009 deficit of 9.9%. The improvement in the fiscal situation was helped by the considerable recovery in government revenue due to the expansion of economic activities and through savings in government expenditure in certain areas, which was achieved while maintaining public investment at the targeted level.

Exports revive but imports grow more rapidly

Foreign trade witnessed a sharp boost in Sri Lanka . While exports grew at a double-digit rate in 2010, import growth was even faster due to increased economic activity and infrastructure investment. With recovery in tourism and continued strong worker remittances, the current account deficit was estimated at around 4% of GDP in 2010. Foreign exchange reserves reached $6.6 billion by end of the year.

Some major policy challenges

High inflation rates in South Asia can compromise the achievement of sustained high growth rates. Containing inflationary pressures should therefore be a priority in the policy agendas of governments. Both demand- and supply-side factors have contributed to inflationary pressures in the subregion. High budget deficits in most countries have been instrumental in increasing liquidity and have generated price pressures in the face of supply constraints. There is an urgent need to bring budget deficits down to a more sustainable level.

Some countries have been tightening monetary policy to alleviate pressures on inflation from the demand side but a combination of monetary, fiscal and other measures is needed to reduce price pressures. Repeated supply shocks pose a constant challenge to sustaining a low inflation regime. A more medium-term approach is needed in order to augment the supply of items of mass consumption by addressing structural supply constraints.

Strong and sustained growth momentum is needed in South Asia to tackle the long-term problem of widespread poverty. Over the past few years, most countries have made progress in reducing poverty. Even today, however, at least one in every three persons in South Asia is classified as poor. The fight against poverty therefore must continue. Countries need to continue pursuing economic reforms to improve productivity, strengthen public institutions, improve economic governance, and build social safety nets to protect the more vulnerable segments of the population. To promote more inclusive growth, the provision of basic services such as health and education and the generation of ample employment opportunities should remain the principal priority in the policy agendas of all governments. Growth cannot be sustained in the long run if it is not inclusive.

On the physical infrastructure side, o ne of the biggest challenges being faced by several countries is improving the electricity supply. Both short-term and long-term measures are needed to tackle the electricity problem. To boost electricity supply in the short term, In South Asia, transmission and distribution losses vary from 20% to 40% in different countries and theft of electricity is a major problem. There is therefore a need for greater efficiency on both the generation and distribution sides. The promotion of regional cooperation in the energy sector can benefit the participating countries enormously.

Concerning electricity pricing, s ome countries have been providing substantial subsidies, but they are being withdrawn. This process has been raising the cost of living, though, and there is a need to provide some form of protection to the poor. Tariff rates somehow need to be kept affordable for small consumers. It is also worth considering a more targeted approach to providing subsidies following the pattern of food stamps, where electricity stamps or coupons can be given to the poor to pay their electricity bills.