Hard work ahead for Sri Lanka’s economy
Poverty to be reduced to 4%
Growth estimated at a higher 8%, from earlier forecast of 7.6%
December 6, 2010, 12:00 pm
Sri Lanka is aiming to bring down poverty to 4 percent during the next few years and Central Bank statisticians have estimated that the economy would grow by 8 percent this year, and around 10 percent during the next few years.
Central Bank Governor Ajith Nivard Cabraal yesterday said poverty would be brought down to 4 percent within the next few years.
"There is no use of having high per capita incomes and GDP growth if it does not trickle down and every citizen feels it," he said.
Speaking to bank directors at a forum in Colombo, Cabraal said poverty had come down to 7.6 percent of the total population this year from 15.7 percent in 2006. The poverty rate in Sri Lanka in 2002 was 22.7 percent and 28.8 percent in 1995/6.
Despite the conflict, Cabraal said, the government had ensured that basic infrastructure was improved so that the benefits would trickle down to low income households. He said more homes had electricity, access to better roads while major infrastructure activities such as ports and airports are expected to bring tangible results as quickly as possible.
"We can bring down poverty, it is not impossible if we all focus our attention to this," Cabraal told the senior bankers.
In 2006, the all island poverty rate was 15.2 percent with poverty in the estate sector at 32 percent and 15.7 percent in the rural sector. This year all island poverty is estimated at 7.6 percent while estate sector poverty is 9.2 percent and rural poverty is 7.6 percent.
Cabraal also said Central Bank statisticians had estimated the economy would now grow at 8 percent this year, bettering an earlier forecast which was published in November where growth was estimated at 7.6 percent with 8 percent growth for 2011.
"This is very high growth compared to most other economies and western economies would give and arm and a leg to have this kind of growth," Cabraal said.
The economy recorded a 8.5 percent economic growth during the second quarter of this year.
Unemployment , which is at 5.2 percent, is expected to be brought down to less than 5 percent.
"We need to keep unemployment consistently down and we are aiming at about 3 percent and this would lead to higher productivity and higher growth," Cabraal said.
IT literacy, which is at 35 percent, is also expected to increase to 75 percent by 2016.
Higher per capita income...
The government envisages per capita income would increase to US$ 4,000 by 2016. In 2009 per capita income doubled to US$ 2,000 from US$ 1,000 in 2004, which took more than 50 years after independence to reach the four figure mark.
"This is no mean achievement and it was done at a time Sri Lanka had to undergo tremendous pressures," Cabraal said.
Post independence Sri Lanka’s inflation had averaged around 12 percent during the past 30 years and was particularly high in 2008, peaking at 28.2 percent in June, as external factors exacerbated domestic pressures. Leading up to 2009, high interest rates were bad for business and both corporate and consumer borrowers increasingly defaulted on their loans. The country also faced a balance of payments crisis with reserves falling to near US$ 1 billion early 2009; All this while waging a war against separatist rebels.
But since the end of the conflict, inflation and benchmark interest rates have come down to single digit levels, while gross official reserves reached US$ 6.1 billion as at end September 2010.
"Now we have to take on the challenge to double per capita income (by 2016) but it won’t be easy and it is going to be a tough journey but we must prepare ourselves to meet the challenges," Cabraal said.
Maintaining high growth would require investments to increase to 32 to 35 percent of GDP from current levels in the mid twenties. Private sector investments, from foreign and domestic sources, would have to increase to 26 to 28 percent from current levels of 19 to 21 percent. Public investment would more or less remain the same at around 6 to 7 percent of GDP, which makes it crucial to attract private sector investment.
Cabraal said the government was making a conscious effort to improve Sri Lanka’s ranking on the World Bank’s Doing Business index.
"We are looking at every aspect of the index where we are ranked a low 105th place and we are focused, together with the Ministry of Economic Development, to reach the 40th position within the next two to three years.
"Some may think it is impossible but we need to pitch high, we need to aim high if are going to make a change that is visible to all Sri Lankans," Cabraal said.
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