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The world faced many challenges during 2007/2008

Council of Asian Liberals and Democrats – Alliance of Liberals and Democrats for Europe Bi-Annual Conference The Global Economy :  Successes and Lessons from Asia and Europe “Sri Lanka – Experiences and Lessons Learnt” Prof Rajiva Wijesinha 14 November 2010 at Kuala Lumpur, Malaysia.

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The world faced many challenges during 2007/2008

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  1. Council of Asian Liberals and Democrats – Alliance of Liberals and Democrats for EuropeBi-Annual Conference The Global Economy :  Successes and Lessons from Asia and Europe“Sri Lanka – Experiences and Lessons Learnt”Prof RajivaWijesinha14 November 2010 at Kuala Lumpur, Malaysia

  2. The world faced many challenges during 2007/2008 • World food prices increased rapidly. • Global energy prices rose to unprecedented levels. • The US subprime mortgage market crisis quickly engulfed the entire world, quickly resulting in the global financial crisis. • Global market liquidity dried-up and reversal of capital and financial flows was observed. • Governments pumped billions of US dollars into their economies in a coordinated effort to stem the impact of the crisis. • Global unemployment sharply increased. Equity Markets (March 2000 = 100, National Currency) • Source: IMF International (FAO) Food Price Index (1998 – 2000 = 100)

  3. Sri Lanka too was faced with its unique set of challenges during 2007/2008 • The civil war that was raging for over 2 ½ decades intensified. • Domestic food prices increased rapidly, thus fueling high inflation. • Domestic economy activities slowed down. • Government revenue was lower than expected. • The budget deficit increased. • As external borrowing became difficult, the Government had to rely heavily on domestic borrowing, thus creating a crowding out effect. Colombo Consumers’ Price Index (% change) • Source: Department of Census and Statistics Overall Budget Deficit (As a % of GDP) • Source: Central Bank of Sri Lanka

  4. Sri Lanka too was faced with its unique set of challenges during 2007/2008 • Investors repatriated their investments. • Due to heavy foreign exchange outflows, the country’s reserves reduced alarmingly. • The economic growth slowed down to 3.5% in 2009. Official reserves (without ACU) and months of imports • Source: Central Bank of Sri Lanka Real GDP growth (% change) • Source: Central Bank of Sri Lanka

  5. However, Sri Lanka geared its economy to weather these turbulent times The government gave new life to the economy by defeating terrorism within a period of less than 3 years. • The government was firm in eradicating terrorism from Sri Lanka despite huge foreign pressure. • Prudent policies pursued even before the eruption of the financial crisis helped to minimise its impact, particularly on the domestic financial system. • The government’s emphasis on promoting domestic agriculture (“Api Wavamu – Rata Nagamu” policy) helped Sri Lanka to withstand the world food crisis. • The reduction in world commodity prices along with higher domestic production, as well as the tight monetary policy in particular, helped in curbing domestic inflation, from around 28% in June 2008 to 3.3% in May 2009. • Prudent regulations helped to limit foreign exposure of banks. Because of this reason, the global financial crisis had no serious direct impact on Sri Lanka. Colombo Consumers’ Price Index (% change) • Source: Department of Census and Statistics

  6. Poverty alleviation and regional development were given constant & continuous attention... • Great potential for poverty alleviation, ahead of many other countries. • The Millennium Development Goals are well on track • Focus on regional development is continuing. • Policies are so far successful and many drivers are in place at national, provincial and village level. • Development with equity is vital. That is a major goal in the “Mahinda Chintana”. Safety nets remained in place. • Poverty ratio in 2010 is expected to be substantially lower. Headcount poverty ratio (% of population)

  7. Northern & Eastern Provinces will contribute more to economic growth… Gross domestic product by province (2009) Gross domestic product by province (2002) Reclaimed area: 9% share of GDP Reclaimed area: 8% share of GDP • The Eastern province had been freed of terrorism in 2007. Despite financial difficulties in 2008, government pursued rapid infrastructure development along with the first democratic elections in decades. This contributed to confidence in an equitable development process, and commitment to the liberation process in the North as well. • The post conflict environment and the gradual recovery of the global economy will provide enhanced prospects to the entire country, with the Northern and Eastern provinces having the best ever opportunities to grow faster.

  8. Tap vast potential of conflict affected areas in the North and East • Eastern Province • Trincomalee port is a natural harbour which has the potential to become a major commercial and industrial hub for the South Asian region • Large stretches of beautiful beaches and ecological conservation areas can support a vibrant tourism industry • Untapped productive agricultural crop land with low population density can be developed for high intensity and productive agricultural enterprises • Value addition for sea foods • Livestock and fishery resources can be developed substantially • Northern Province • Fertile agricultural lands • Mineral ores • Forests • Palmyra based industries • Wet lands • Beautiful beaches and coral deposits • Value addition for fruits, vegetables and sea foods • Livestock and fishery resources can be developed substantially

  9. Measures Sri Lanka adopted in safeguarding its foreign reserves • Several measures were taken to strengthen foreign exchange inflows to the country. • Conducted road shows to promote investment in Treasury bonds and bills among the Sri Lankan Diaspora and expatriate community. • Remittance inflows were promoted through several stimulus schemes. • Further measures were taken to curtail the foreign exchange outflows from the country. • The government passed on the increase in oil prices to the consumers early. • For a short period of time, curtailed the importation of select non-essential items. • Policies remained practical, yet firm. Remittances Inflows (US$ bn) Remittances have more than doubled since 2003 Official reserves (without ACU) and months of imports • Source: Central Bank of Sri Lanka

  10. Cultivating appropriate macroeconomic management in Sri Lanka • Sri Lanka has had continuous dialogue with its friendly nations and investors. • This was aimed at sharing the true story of Sri Lanka, thus building investor confidence. • In 2007, amidst global uncertainties, Sri Lanka launched its debut international sovereign bond of US$ 500 mn which was more than 3 times oversubscribed. • In 2008, Sri Lanka approached the IMF and amidst many challenges secured a US$ 2.6 bn Stand-by Arrangement facility, the highest approved for the country thus far. • In 2009, during the height of the war against terrorism, Sri Lanka launched its second international sovereign bond of US$ 500 mn which was more than 13 times oversubscribed. • In October 2010, the third international sovereign bond issue of US$ 1,000 mn was 6 times over subscribed in under 14 hours. • These are some of many snapshots indicating foreign investor confidence that has developed further in anticipation of post-war economic growth and stability in Sri Lanka.

  11. Transform Sri Lanka into a strategically important economic centre Naval Hub Aviation Hub Commercial Hub • Hambantota port • Southern Colombo Port • Galle Port to a Tourism Port • Other Ports • Many fisheries harbours • Mattala international airport • Further modernisation of the Katunayake International Airport • 14 new domestic airports • Establish Sri Lanka as the foremost centre in the provision of commercial services, international banking and international investments Knowledge Hub • Reverse brain drain and obtain knowledge and services of local experts who have excelled internationally • Make changes to the education structure of universities & technical colleges • Initiate programmes in communication, naval, aero, commercial and environment • Commence training programmes that directly target foreign markets Energy Hub • Develop own energy resources • Build new refineries

  12. Despite the ongoing conflict , Sri Lanka had embarked on a number of major infrastructure projects, which gave out a clear message even in the time of crisis • Ports & Airports • Roads & Flyovers • Power Projects • Water Projects • Economic Zones • Hotels & Apartment Developments • Hospitals, Schools etc.

  13. The post conflict tourism sector is expected to expand significantly in the near term: Earnings – US $550 mn in 2010 to US $2,000 mn by 2016 Arrivals: 0.5mn now to 2.5mn tourists by 2016 Average stay to move from 6 to 10 days Tourist spending to increase from US $88 to US $150 per day Investment in the sector to treble over the next 6 years Potential areas of investment: Hotels and restaurants, particularly in the East & North /West Tourist transportation Entertainment and sporting activity Ocean related services Harness the Tourism Sector…

  14. Developing human capital potential : Education and skills development IT and BPO related services Human resource development Potential areas of investment: Branches of foreign universities for foreign & local students Professional study centres Institutes for English courses Institutions for IT and skills development BPO centres Promote education, IT and human resources development

  15. Potential areas of investment: Electric, Electronic and Assembling Industries Rubber and Rubber based industries Dockyard services Garments and apparel – Target to export US $5 bn by 2013 Gems and Jewellery Fishing and Related Industries Salterns Shipping Sugar factories Cement factories Chemical industries Fast track industrial development...

  16. Huge potential for growth exists in commercial agriculture Tea :Target US $2 bn by 2015 Rubber & Rubber products: Target US $1 bn by 2015 Fruits and Vegetables: to US $0.75 bn by 2015 Fisheries sector to target US $0.75 bn exports by 2015 Potential areas of investment: Agriculture and agro processing Fresh vegetables and fruit exports Fish canning and processing factories Cold rooms and ice plants Such developments require enhanced training in technology and entrepreneurship for rural communities to ensure they share fully in the increasing fruits of traditional livelihoods. Continue the agricultural renaissance

  17. The fiscal sector was further strengthened Total government revenue and grants increased by 18.6% during January-June 2010 Total expenditure and net lending increased by only 3.1% during January-June 2010 Budget deficit during first 6 months of 2010 is 3.9% of GDP compared to 5.3 in 2009 • Source: Central Bank of Sri Lanka

  18. Investor confidence will closely follow positive political and market events. There is now great potential to attract more FDIs to the country. Aim for FDI to be at least 5% of GDP, i.e. US $2 bn. by 2013. Domestic investment will also rise with the take off of the economy. Key features to attract FDI: Geographic position - Regional Trading Hub Strategic access to Indian markets High quality workforce Open market economy Numerous Free Trade Agreements Attractive and Transparent Laws Encourage foreign direct investment Sector-wise private direct investment in 2009 on-going on-going Breakdown of FDI (2009)

  19. Diversified remittances are an important source of growth and FX generation Remittances: 2009 : US $3.3 bn. (7.9% of GDP) Target: about 7.4% of GDP by 2013 Focus on export of skilled services, not unskilled labour. Increase remittances substantially... Remittances by regions (US$ mm) Distribution of workers’ remittances across regions (2009)

  20. The Sri Lankan response to the global economic and financial crises had been highly effective… • The economy has bounced back to normalcy • International reserves have recorded historically highest levels • The Colombo Stock Exchange is among the world’s best stock exchanges. • Inflation continues to be at- single digit-levels. • Interest rates have moderated significantly Per capita Income : US $

  21. Sri Lanka, a model for Asia • In eradicating terrorism to provide security for all people, investments and investors, we have promoted inclusivity and focused on prosperity for all. • With the focus on rapid infrastructure development, the Sri Lankan economy has a lot to offer while it gradually transforms into a strategically important economic centre. • We have continued with social safety nets, providing high-level health and education facilities for all and maintained our high position with regard to quality of life. • Now policy consistency & certainty are finally possible in our country.

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