Sri Lankan economy grew by 8 per cent in 2010, the highest annual growth rate in three decades, and inflation continued to remain low at around mid-single digit levels the Central Bank of Sri Lanka said in its 61st annual report of the Monetary Board.
The overall deficit was reduced to 7.9 per cent of gross domestic product (GDP) in 2010 from 9.9 per cent in 2009. The government will further reduce the budget deficit to 6.8 per cent in 2011 and to below 5 per cent in the medium term. The external sector, which made a remarkable turnaround since the second quarter of 2009, continued to improve in 2010.
Earnings from exports increased by 17.3 per cent, mainly because of industrial and agricultural sectors. Expenditure on imports grew by 32.8 per cent, led by intermediate goods imports. As a result, the trade deficit expanded to $5,205 million in 2010. The balance of payments (BoP) recorded a surplus of $921 million, following a significantly higher surplus of $2,725 million in 2009. In 2010, the first full year of operation subsequent to the ending of the three-decade-long conflict, the economy of Sri Lanka has displayed its true potential, the Bank said.
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“The challenge for policymakers today is to sustain these achievements with macroeconomic stability in the face of more frequent internal and external shocks…The impact of disturbances arising from adverse external developments including price movements of commodities such as crude oil, could also be lessened through the implementation of necessary reforms to the institutional framework of key public enterprises to operate them more efficiently and in a commercially sustainable way to reflect market conditions. These changes will support the ongoing fiscal consolidation process, which would in turn strengthen demand management policies,” it added.