Sri Lankan Economy to Grow by 7-9% Says Central Bank Monetary and Financial Sector Policies for 2010

04th January 2010, www.sundaytimes.lk

Sri Lanka’s economy is expected to grow by 3.5% in 2009 while the gradual recovery of the global economy and the end to the conflict is expected to provide a strong impetus to the domestic economy in 2010 and beyond, the Central Bank (CB) said today (Monday).

The CB unveiled its monetary and financial sector policies for 2010 and beyond earlier when CB Governor Ajith Nivard Cabraal stated that the economy is posed to record a higher growth of around 7 to 9% in the medium-term.

Some of the highlights of the presentation were plans to set up an Export/Import (EXIM) Bank to provide financial assistance to exporters and importers and promote the country’s international trade in goods, services and investment. Mr. Cabraal said the capital currently contemplated is US$200 million.

Mr. Cabraal also spoke on initiating the transformation of the existing framework of the Employees’ Provident Fund (EPF) to a banking model. This would establish a sound risk return profile to generate a positive real rate of return over the long term. The CB will also initiate enrolling of the ‘informal sector’ labour force and self-employed persons amounting to 500,000 by 2012 and two million by 2015.

On the external front, exports and imports are projected to increase in the medium term, thereby generating higher economic activities in the economy. Despite the expected increase in workers’ remittances and higher inflows to the services account, the current account is expected to record a deficit less than 3% in the medium term.

On the fiscal front, the overall budget deficit is expected to reduce over the medium term. The improvement in the financial position of both the government and public corporations is expected to release resources to the private sector.

The balance of payments (BOP) is projected to record a surplus of US$700 million in 2010. The private sector is expected to make a substantial recovery in 2010.

An improvement in the financial operations of major public corporations including the Ceylon Petroleum Corporation (CPC) and the Ceylon Electricity Board (CEB) is expected. The performance of public corporations would depend to some extent on the price of crude oil and fertilizer in the international markets.

Inflation is expected to be contained within single digits in 2010. On an annual average basis, inflation is projected to be about 5 to 10% by end 2010.

The public sector will need to function in line with stipulated norms. Any substantial increase in credit to the public sector could put the vulnerable recovery in the private sector at risk by exerting upward pressure on market interest rates. Also, an undue increase in the overall money supply caused by accommodating increases in credit to all sectors could endanger the projected low inflation environment in the ensuing period.

The CB stated that the move of the Department of Census and Statistics (DCS) to update the existing Colombo Consumer Price Index (CCPI) in 2010, based on the findings of the Household Income and Expenditure Survey – 2006/2007, is a welcome move. The entire publication can be found on the CB website at www.cbsl.gov.lk (NG).