Sri Lanka: THE Sri Lankan economy recorded a real growth of 8.3 per cent in 2011 economic, the highest ever annual growth rate. The previous high was 8.2 per cent, achieved in 1968 and 1978 respectively. Consequently, 2011 nominal GDP) rose to US$ 59.2 billion, while per capita GDP rose to US$ 2,836. The GDP implicit price deflator was 7.8 per cent for 2011. The economy is currently estimated to grow 7.2 percent this year and at a higher rate of 8 percent in 2013. Further, the rate of growth is expected to accelerate to 8.3 percent in 2014 and to 8.5 per cent in 2015. The International Monetary Fund, however, predicts that the island’s economy may slow to 6.75 per cent this year, slower than 7.2 percent forecasted by the Central Bank of Sri Lanka.
According to the central bank’s revised estimates, the balance-of-payment account is expected to swing to a surplus of $1.25 billion in 2012 from last year’s $1.06 billion deficit, as exports and foreign investment increase significantly. During next year and in 2014, the surplus is expected to rise to $1.70 billion and $2.40 billion respectively. The central bank estimates inflows from exports to grow to $11.7 billion this year, and continue to grow strongly in the next three years. Sri Lanka has emerged as a strong developing economy in South Asia in the first decade of the 21st century. Sri Lankan stock market was among the world’s best performing markets with 100 per cent gain in 2009.
However, high budget deficits and debt interest payments pose major challenges in the growth of the economy.
The $59 billion economy expanded by 7.9 per cent year-on-year in the March quarter, slowing from 8percent in the same quarter last year and an 8.3 per cent in the fourth quarter of 2011. The farm sector jumped a record 11.4 per cent growth year-on-year in the first quarter, from a contraction of 4.3 per cent last year, which officials attributed to favourable weather conditions. The industrial sector expanded at 10.8 per cent from 11.1 per cent a year ago, while the service sector gained 5.8 per cent, its lowest since the last quarter of 2009 and down from a 9.5 per cent. Sri Lanka has a very good potential to be a top tourist destination in the region and is unique in its natural beauty, against any competitor in the region.
Annual inflation moderated in the first quarter of 2012, averaging four per cent, compared with 4.9 per cent in the previous quarter.
However, in April consumer prices were up by 6.1 per cent, the fastest rate of increase since September 2011. Inflation is expected to average 5.9 per cent in 2012, following which it will average 5.4 per cent in 2013-16. Private consumption will be the main driver of economic expansion, fuelled by rising incomes and remittances from Sri Lankans abroad. Investment will be supported by four pillars: reconstruction efforts in the north and east; public spending on infrastructure. Real investment growth will average 9.8 per cent annually in 2012-16 but could be exceeded if the housing market booms or if foreign investment surpasses our modest expectations.
Sri Lanka’s budget deficit has doubled in the first four months of 2012, with current spending growing at twice the rate of tax revenues and leading to unprecedented reliance on bank financing. Total revenues grew 7.2 per cent to 305.5 billion rupees up to April 2012 from a year earlier, while current spending raced ahead at 23.4 per cent to 445.3 billion rupees with fertilizer subsidies doubling. The revenue deficit rose 86 per cent to 139.8 billion rupees equal to 1.8 per cent of projected gross domestic product, when an ambitious budget had projected a balancing of the current budget. The budget for 2012 hoped to extract a trillion rupees in taxes from the people, up 23.6 per cent from a year earlier. The fiscal operations in the year as a whole are expected to remain consistent with the targeted deficit of 6.2percent of GDP.
Fragile economy of Bangladesh is now riding on the edge. Proposed budget just placed to the parliament could not usher in any hope. Not only the current or the next fiscal year crisis looms large for economy over midterm. In 2012-2013, the Government will face major challenge to arrange huge resources that will be required to attain very ambitious GDP. Pressure of significant liquidity, absence of required policing, weak banking sector, and limited risk management may make banking sector unstable. Increase of investment in Private–public partnership, investment in infrastructure of government sector and social sector will greatly increase import bill. All these will create new crisis in new financial year.
GDP growth has moderated from 6.7percent in FY11 to 6.3 per cent in FY12 due to unfavorable external economics and internal supply constraints. Bangladesh has maintained the average growth of the last three years through 9.8 per cent manufacturing growth and 10.4 per cent growth in remittances. However, private investment has declined from19.5 per cent of GDP in FY11 to 19.1 per cent in FY12 and the national savings rate from 26 per cent of GDP to 25.2 per cent. This does not bode well for near-term growth. Bangladesh anticipates 7.2 per cent economic growth in the coming fiscal year from increased export earnings and more remittances from Bangladeshis abroad.
Inflationary pressures, particularly from an increase in non-food prices, have worsened. Inflation continues to be volatile, touching double digits. Food price increases have declined from 13.8 per cent in September 2011 to 8.1 per cent in April 2012, good news for the poor.
However, non-food price increases rose to an unprecedented 14 per cent in March 2012 before declining slightly to 13.8 per cent in April.
Expansionary monetary and fiscal policies have driven the increases by expanding aggregate demand, which has also led to large nominal depreciation of the taka.