End of war takes economy from 1.2% decline to 6.4% growth

* Same ‘severe’ economic challenges in 2001 and 2012 – PB


Treasury Secretary Dr. P.B. Jayasundera presents the Annual Report - 2012 of the Ministry of Finance and Planning to President Mahinda Rajapaksa, at a simple ceremony yesterday, at the Miloda Academy of Financial Studies in Fort. Others present, from left - Deputy Finance Minister Dr. Sarath Amunugama, Senior Minister D. E. W. Gunasekara and Economic Development Minister Basil Rajapaksa. Pic by Jude Denzil Pathiraja

Treasury Secretary Dr. P. B. Jayasundera said the country had been able to face severe challenges on the economic front in 2012 to post a growth rate of 6.4 percent, whereas in 2001, under similar circumstances the country had reported a 1.2 percent economic decline.

"2012 was a year with severe challenges from January 01 to December 31," the country’s top bureaucrat told a forum, when officially releasing the Treasury’s 2012 annual report yesterday (07).

The Treasury chief said: "Inclement weather with flash floods followed by drought preyed on the country’s agriculture, hampering the Yala and Maha harvests. The EU financial crisis and US fiscal cliff impacted the country’s exports. Oil imports accounted for 50 percent of export earnings at US$ 5 billion. While global oil prices were high and restrictions of oil imports from Iran were also hampered.

"We faced similar challenges in 2001 and the economy contracted by 1.2 percent. But, in 2012 the result was different. We achieved an economic growth rate of 6. 4 percent. In 2001, we had blackouts for more than 12 hours each day, but not so in 2012; this is another difference. We also took measures to integrate the household and rural economies with the country’s economy. We cleared the once war torn areas of mines, resettled the people and invested heavily in the North and East. We continued to maintain public investment on never-before-seen infrastructure at 6 percent of GDP. We built hospitals, schools and ICT centres around the country. Even during the drought last year, we took the opportunity to invest Rs. 4 bn to rehabilitate major irrigation systems. Farmers asked us to do this instead of doling out relief.

"We were able to do all this because the decades-long conflict which plagued this country was over. This cannot be emphasised enough. We have brought the country’s investment to GDP ratio to 30 percent. We have brought down the budget deficit and debt ratios. We have simplified the tax system. We have created space for the private sector. The regions biggest port in Colombo is being developed by the private sector. Galle Face would soon undergo a major change without a cent spent by the government. There will be more private investment taking place.

"The poverty rate has come down from 15 percent to 6.5 percent. Unemployment is down to 4 percent. Our human development indicators are first world class. In fact one foreign journal said Sri Lanka was a third world country with first world human development indicators. Our life expectancy and infant mortality ratios are on par with the US and EU."

Dr. Jauasundera said this year’s focus would be on consolidating the stability gained after seeing off last year’s challenges.

After denying there was a problem for nearly nine months, authorities were forced to take action to contain a balance of payments problem in March 2012. The more flexible exchange rate regime was introduced, policy interest rates were increased, a credit ceiling was slapped on the banking sector, import taxes were increased and energy prices revised. All these measures, though belated, helped contain the balance of payments crisis although it slowed down growth, and the IMF said it would help the country realise a more sustainable growth trajectory.

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