The Hindu : Sri Lanka's economy back on track

Online edition of India's National Newspaper
Tuesday, Jul 01, 2003

International

International

Sri Lanka's economy back on track

By V.S. Sambandan

COLOMBO JUNE 30. Sri Lanka's 14-month truce may not have ushered in permanent peace yet, but it has played a major role in the Gross Domestic Product growing by 5.5 per cent in the first quarter of 2003, the Finance Ministry and the Central Bank said today.

The per capita public debt burden, for which exact latest figures were not available, has shown signs of rising, but officials were confident that the debt-GDP ratio would be brought under check as expected by 2005.

At two separate press conferences, the Finance Ministry and the Central Bank cited the ceasefire as the main factor in putting the economy back on track. The GDP performance in the first quarter, however, is to be seen against the low base of 0.5 per cent during the corresponding period last year.

Tourism and tea, traditionally the economy's strong points, gave mixed performances. While the former saw a sharp recovery after 9/11 and the Iraq war, to register a nearly 30 per cent increase during the last four months; a 10 per cent decline in tea exports reflected the negative impact of the Iraq war.

"The GDP performance is both satisfactory and pleasing," the Finance Minister, K.N. Choksy, told presspersons.

The sectoral contribution to the GDP, released this afternoon by the Central Bank, made it evident that it was a largely service-sector propelled growth.

While all three sectors recorded positive trends, services grew by 7.6 per cent and contributed 71 per cent to the overall economic growth. Agriculture, which grew by 0.7 per cent, and industry (5.4 per cent) contributed 3 per cent and 26 per cent respectively to the overall growth rate.

Debt and defence expenditure, the two main worrisome features of the economy, also threw mixed signals. The Finance Ministry's mid-year Fiscal Position Report said defence spending was less than projected during the last four months at 16. 1 per cent, compared to the estimated 18.1 per cent. While the war had stopped, Ministry officials pointed out, the expenditure on training had to continue.

A pointer to the continued trend in defence spending came in the figure that the four months had utilised 30.7 per cent of the annual allocation for recurring expenditure.

In debt-management, Sri Lanka could still have to have some hard times ahead, with the possibility of per capita debt rising in the intermediate period.

Officials currently placed per capita debt at between Rs. 85,000 and Rs. 90,000, an increase from the 2001 figure of Rs. 77,500. However, officials felt that more important was the debt-GDP ratio, which will be reduced to 90 per cent by 2005.

According to the Central Bank, the growth rates registered is expected to continue but would be determined by factors such as the continuation of the ceasefire, global recovery and the question of political stability.

The growth in the services sector was fuelled by banking, insurance and real estate (14.9 per cent), but bank officials do not see this as a possible concern. "This has been the trend during the last three quarters," officials said.

Transport, trade and communication, construction and other activities also picked up during the last year.

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