ADB hails relaxed monetary policy:
Eight percent growth spurt
Poverty declines, unemployment down:
Sri Lanka will be able to sustain an eight percent economic growth
for the next two years.
The ADB is optimistic that Sri Lanka’s economy will record a rapid
growth. The relaxed monetary policy will spur the growth further. But
inflation may be higher than what it was. However, overall there is
optimism inline with what Asia is experiencing, ADB Lead Economist
Narhari Rao said.
The Sri Lankan economy bounced back strongly in 2010 reflecting post
conflict optimism and global recovery. The economy is expected to show
continued high growth of 8 percent in 2011, with services and industry
leading growth, the Asian Development Bank said.
Sri Lanka’s foremost development challenges are to sustain
macroeconomic stability, create an environment for greater private
sector participation and urgently undertake financial sector reforms.
Investor sentiment was strengthened by the approval of the tranches of
the International Monetary Fund (IMF) standby arrangement. FDI
strengthened sharply to an estimated $ 500 million, but at 1 percent of
GDP, it needs to increase, the ADB says.
The 2010 budget deficit improved significantly from 9.9 percent in
2009 to 8 percent in 2010 supported by a lower expenditure ratio. The
steps taken to expand the revenue base, simplify tax system, remove
import duty, revise import taxes on motor vehicles and cess rates are
noteworthy. The budget deficit is expected to come down further.
“The country needs to have price flexibility and exchange rate
flexibility. Fiscal consolidation and macro economic stability with
strong measures to reduce current expenditure is necessary. Sri Lanka
has achieved good progress in the equity market and the bond market
should be developed,” Rao said.
“The Government has embarked on major development plan and the single
digit inflation stable prices, good macro economic and monetary
management will support its efforts. However, in the long run
implementation of the food subsidy is not wise and the Government needs
to relook at the subsidy schemes,” he said.
Poverty has declined to 7.6 percent in 2010 while rural poverty too
has declined. The access to electricity in rural areas has increased
from 75.5 percent in 2006 to 83.2 percent in 2009. Access to safe
drinking water has increased from 84 percent to 87 percent countrywide.
Almost 100 percent children attend school. The unemployment rate had
dropped from 7.2 percent in 2005 to 5.4 percent in 2009.
“Rising inflation is a concern. The expanding of South to South
regional link present a supplementary growth source, but structural
weakness needs to be addressed to maximize potential,” Asian Development
Bank Country Director Dr Richard Vokes said.
Tightening of monetary policy and interest rates with proper macro
economic management will be needed to re-balance growth. Asia needs to
be less resilient on industrialized economies, he said at the launch of
Asian Development Outlook 2011 held in Colombo yesterday.
Developing Asia’s recovery is firming due to robust demand.
The region recorded 9 percent growth in 2010 and expects 7.8 percent
in 2011 and 7.7 percent in 2012.