Sri Lanka has maintained significant economic growth at an impressive pace while the economies of most countries were crumbling, stated President Mahinda Rajapaksa after receiving the Central Bank Annual Report 2012 as the Minister of Finance, at the Central Bank yesterday (09 April).
"Our achievement was due to the government's commitment towards continued fiscal discipline," he said.
He added that it is notable that inflation has been maintained at single digit level for 50 months while most countries have been caught up in the global financial uncertainty. Besides, the per capita income has shown a gradual increase annually.
The President said that this is the seventh occasion he came to receive the Central Bank's Annual Report. People live today in an environment that is more free and prosperous than in the past. They are today in an environment where economic progress moves together with ethical values and the protection of a green and sustainable Sri Lanka.
"We successfully faced all these obstacles. As a result of proper management of the battle against terror, we were able to bring to an end a war that lasted through three decades. Similarly, with limited assets we were able to properly manage the economy,” the President further said.
I believe that we must all work with great commitment to take these victories forward. Our expectation is to take the assets of this city to the village and to wipe out the gap between the village and the city. In order to provide the same benefits enjoyed in the city, the village should be our singular target, he stressed.
The CB Annual Report 2012, details the state of the economy, the condition of the Central Bank, and a review of the policies and measures adopted by the Monetary Board within four months of the end of each financial year.
The report states that the Sri Lankan economy grew at a healthy rate of 6.4 per cent in 2012 while inflation was maintained at single digits for a fourth consecutive year, despite several global and domestic challenges. Improved business and consumer confidence, which supported a robust economic growth of 8 per cent in the preceding two consecutive years, was accompanied by high credit and monetary expansion and a widening trade deficit fuelled by high import demand.
All key sectors contributed positively to economic growth in 2012. The Industry sector was the main driver of growth with the construction sub sector making the most significant contribution, reflecting the massive public investment programme and several private sector real estate projects, the report states.
The Agriculture sector grew by 5.8 per cent in 2012, recovering from a slow growth of 1.4 per cent in 2011, amidst drought conditions in the third quarter of the year and heavy monsoonal rains and floods in the latter part of the year. The Industry sector grew by 10.3 per cent, contributing substantially to the expansion of the economy in 2012. The sustained increase in construction activities, which accelerated the growth momentum of the construction sub sector spurred the growth in the Industry sector.
Domestic and national savings improved considerably as a result of the improvement in the current account deficit. The lower growth in consumption expenditure mainly on account of imports resulted in an increase in the domestic savings rate to 17 per cent of GDP in 2012 from 15.4 per cent of GDP in 2011.
The services account recorded a significant improvement in 2012 mainly due to increased earnings from transportation, information technology services, travel and tourism. Remittances by migrant workers increased by 16.3 per cent to US dollars 6 billion during the year, continuing to be the largest single source of foreign exchange inflows to Sri Lanka.
The fiscal policy strategy in 2012 focused on strengthening the fiscal consolidation process while maintaining a high level of investment to facilitate sustained economic growth.
The financial sector expanded during the year maintaining its stability in spite of vulnerabilities arising from the fragile conditions in the global financial markets and possible threats from the domestic economy. Several measures were taken early in the year to curb domestic demand and safeguard stability in the economy.
Inflation is expected to moderate in 2013 with the easing of demand driven inflationary pressures and favourable supply side developments. Maintaining price stability is important for investor and consumer confidence as well as to maintain macroeconomic stability.
The Sri Lankan economy is expected to continue on a high growth path benefitting from improved infrastructure facilities and favourable macroeconomic fundamentals. Encouraging the private sector to reap the benefits of the government’s investments in infrastructure and facilitating them to expand productive capacity would be vital to achieving the envisaged medium term growth targets, the report states.
Maintaining consistent policies and a conducive business environment will attract higher foreign direct investment (FDI) helping to bridge the gap between the current level of domestic savings and investment required to sustain the projected high growth momentum. Policies to improve productivity and encourage innovation are also needed to move to higher value added economic activities, the report further points out.
The Central Bank of Sri Lanka Annual Report 2012 is accessible at: