1 Council of Asian Liberals and Council of Asian Liberals and Democrats – Alliance of Liberals Democrats – Alliance of Liberals and Democrats for Europe and Democrats for Europe Bi-Annual Conference Bi-Annual Conference The Global Economy : Successes and The Global Economy : Successes and Lessons from Asia and Europe Lessons from Asia and Europe “Sri Lanka – Experiences and Lessons “Sri Lanka – Experiences and Lessons Learnt” Learnt” Prof Rajiva Wijesinha Prof Rajiva Wijesinha 14 November 2010 at Kuala Lumpur, Malaysia 14 November 2010 at Kuala Lumpur, Malaysia
Transcript
1
Council of Asian Liberals and Council of Asian Liberals and Democrats – Alliance of Liberals and Democrats – Alliance of Liberals and
Democrats for EuropeDemocrats for EuropeBi-Annual Conference Bi-Annual Conference
The Global Economy : The Global Economy : Successes and Lessons from Successes and Lessons from
Asia and EuropeAsia and Europe
“Sri Lanka – Experiences and Lessons “Sri Lanka – Experiences and Lessons Learnt”Learnt”
Prof Rajiva WijesinhaProf Rajiva Wijesinha
14 November 2010 at Kuala Lumpur, Malaysia14 November 2010 at Kuala Lumpur, Malaysia
2
The world faced many challenges during 2007/2008
International (FAO) Food Price Index (1998 – 2000 = 100)
International (FAO) Food Price Index (1998 – 2000 = 100)
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.100
120
140
160
180
200
220
240
J F M A M J J A S O N D
2006 2007
2008 2005
Source: Food and Agriculture Organization (FAO)
Equity Markets (March 2000 = 100, National Currency)
Equity Markets (March 2000 = 100, National Currency)
9/ 11 Subprime crisis
Source: IMF
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)Colombo Consumers’ Price Index (% change)
Overall Budget Deficit (As a % of GDP) Overall Budget Deficit (As a % of GDP)
Source: Department of Census and Statistics
Source: Central Bank of Sri Lanka
0
5
10
15
20
25
30
Dec
-05
Mar
-06
Jun
-06
Sep
-06
Dec
-06
Mar
-07
Jun
-07
Sep
-07
Dec
-07
Mar
-08
Jun
-08
Sep
-08
Dec
-08
Year-on-year Annual Average
-7.0 -7.0 -6.9 -7.0
-9.9
-12.0
-10.0
-8.0
-6.0
-4.0
-2.0
0.0
2005 2006 2007 2008 2009 (P)
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
Official reserves (without ACU) and months of imports
Real GDP growth (% change)Real GDP growth (% change)
Gross Official Reserves (Left Axis) Months of Imports (Right Axis)
0.0
1.0
2.0
3.0
4.0
5.0
6.0
7.0
0.0
1.0
2.0
3.0
4.0
5.0
6.0
Jan
-08
Fe
b-0
8
Mar
-08
Ap
r-0
8
May
-08
Ju
n-0
8
Ju
l-0
8
Au
g-0
8
Se
p-0
8
Oct
-08
No
v-0
8
De
c-0
8
Jan
-09
Fe
b-0
9
Mar
-09
Ap
r-0
9
May
-09
Ju
n-0
9
Ju
l-0
9
Au
g-0
9
Se
p-0
9
Oct
-09
No
v-0
9
De
c-0
9
Jan
-10
Fe
b-1
0
Mar
-10
Ap
r-1
0
May
-10
Ju
n-1
0
Ju
l-1
0
Months of ImportsUS$ bn
Gross Official Reserves (Left Axis) Months of Imports (Right Axis)
0.0
1.0
2.0
3.0
4.0
5.0
6.0
7.0
0.0
1.0
2.0
3.0
4.0
5.0
6.0
Jan
-08
Fe
b-0
8
Mar
-08
Ap
r-0
8
May
-08
Ju
n-0
8
Ju
l-0
8
Au
g-0
8
Se
p-0
8
Oct
-08
No
v-0
8
De
c-0
8
Jan
-09
Fe
b-0
9
Mar
-09
Ap
r-0
9
May
-09
Ju
n-0
9
Ju
l-0
9
Au
g-0
9
Se
p-0
9
Oct
-09
No
v-0
9
De
c-0
9
Jan
-10
Fe
b-1
0
Mar
-10
Ap
r-1
0
May
-10
Ju
n-1
0
Ju
l-1
0
Months of ImportsUS$ bn
Gross Off icial Reserves (Left Axis) Months of Imports (Right Axis)
0.0
1.0
2.0
3.0
4.0
5.0
6.0
7.0
0.0
1.0
2.0
3.0
4.0
5.0
6.0
Jan-08
Feb-08
Mar-08
Apr-08
May-08
Jun-08
Jul-08
Aug-08
Sep-08
Oct-08
Nov-08
Dec-08
Jan-09
Feb-09
Mar-09
Apr-09
May-09
Jun-09
Jul-09
Aug-09
Sep-09
Oct-09
Nov-09
Dec-09
Jan-10
Feb-10
Mar-10
Apr-10
May-10
Jun-10
Jul-10
Months of ImportsUS$ bn
Gross Official Reserves (Left Axis) Months of Imports (Right Axis)
0.0
1.0
2.0
3.0
4.0
5.0
6.0
7.0
0.0
1.0
2.0
3.0
4.0
5.0
6.0
Jan
-08
Fe
b-0
8
Mar
-08
Ap
r-0
8
May
-08
Ju
n-0
8
Ju
l-0
8
Au
g-0
8
Se
p-0
8
Oct
-08
No
v-0
8
De
c-0
8
Jan
-09
Fe
b-0
9
Mar
-09
Ap
r-0
9
May
-09
Ju
n-0
9
Ju
l-0
9
Au
g-0
9
Se
p-0
9
Oct
-09
No
v-0
9
De
c-0
9
Jan
-10
Fe
b-1
0
Mar
-10
Ap
r-1
0
May
-10
Ju
n-1
0
Ju
l-1
0
Months of ImportsUS$ bn
Gross Off icial Reserves (Lef t Axis) Months of Imports (Right Axis)
Source: Central Bank of Sri Lanka
Source: Central Bank of Sri Lanka
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However, Sri Lanka geared its economy to weather these turbulent times
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.
The government gave new life to the economy by defeating terrorism within a period of less than 3 years.
The government gave new life to the economy by defeating terrorism within a period of less than 3 years.
Source: Media Center for National Security: http:/ /www.nationalsecurity.lk
Colombo Consumers’ Price Index (% change)Colombo Consumers’ Price Index (% change)
Source: Department of Census and Statistics
0
5
10
15
20
25
30
Dec
-05
Mar
-06
Jun-
06Se
p-06
Dec
-06
Mar
-07
Jun-
07Se
p-07
Dec
-07
Mar
-08
Jun-
08Se
p-08
Dec
-08
Mar
-09
Jun-
09Se
p-09
Dec
-09
Mar
-10
Jun-
10Se
p-10
Perc
ent
Year-on-year Annual Average
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Poverty alleviation and regional development were given constant & continuous attention...
Headcount poverty ratio(% of population)
Headcount poverty ratio(% of population)
26.1 28.822.7
15.2
1990/ 91 1995/ 96 2002 2007
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.
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Western 45%
North Western
10%Southern
10%
Sabaragamuwa 6%
Central 10%
Uva 5%
North Central
5%
Eastern 6%
Northern 3%
Northern & Eastern Provinces will contributemore to economic growth…
Gross domestic product by province (2009)Gross domestic product by province (2009)
Reclaimed area: 9% 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.
Western 50%
North Western
10%
Southern 11%
Sabaragamuwa 7%
Central 10%
Uva 4%
North Central
4%
Eastern 5%
Northern 3%
Gross domestic product by province (2002)Gross domestic product by province (2002)
Reclaimed area: 8% share of GDP
8
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
Tap vast potential of conflict affected areasin the North and East
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.
Official reserves (without ACU) and months of imports
Official reserves (without ACU) and months of imports
Source: Central Bank of Sri Lanka
0.0
1.0
2.0
3.0
4.0
5.0
6.0
7.0
0.0
1.0
2.0
3.0
4.0
5.0
6.0
7.0
Mar
-08
Jun
-08
Sep
-08
Dec
-08
Mar
-09
Jun
-09
Sep
-09
Dec
-09
Mar
-10
Jun
-10
Sep
-10
Months of ImportsUS$ bnGross Official Reserves (Left Axis)
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 strategicallyimportant economic centre
Aviation HubNaval Hub Commercial Hub
Energy Hub
Knowledge 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
Develop own energy resources
Build new refineries
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
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
Harness the Tourism Sector…
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
14
Promote education, IT and human resources development
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
15
Fast track industrial development...
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
16
Continue the agricultural renaissance
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.
17
The fiscal sector was further strengthened
Budget deficit during first 6 months of 2010 is 3.9% of GDP compared to 5.3 in 2009
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
Total government revenue and grants increased by 18.6% during January-June 2010
Total government revenue and grants increased by 18.6% during January-June 2010
304.9
361.5
270
280
290
300
310
320
330
340
350
360
370
2009 Jan - Jun. 2010 Jan - Jun.
Rs b
n
Total expenditure and net lending increased by only 3.1% during January-June 2010
Total expenditure and net lending increased by only 3.1% during January-June 2010
254.7
215.3
190
200
210
220
230
240
250
260
2009 Jan - Jun. 2010 Jan - Jun.
Rs b
n
559.6
576.8
500
520
540
560
580
600
2009 Jan - Jun 2010 Jan - Jun
Rs b
n
18
Encourage foreign direct investment
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
Breakdown of FDI (2009)Breakdown of FDI (2009)
20.1%
18.3%
32.8%
25.6%3.2%Equity capital
Loans andadvances
Intra-companyborrowing
Foreign loans
Reinvestment ofretained earnings
Sector-wise private direct investment in 2009Sector-wise private direct investment in 2009
Telephone & telecom
infrastructure, 49.2%
Food, beverages &
tobacco, 1.7%Other ,
21 .4%
P ower generation,
11.3%
Chemical coal,
petroleum & plastic
products, 2.6%
Fabricated metal,
machinery & transport,
2.3%Housing &
construction, 3.0%
Textile, wearing apparel, leather
products, 8.5%
on-goingon-going
19
Increase remittances substantially...
Diversified remittances are an important source of growth and FX generation
Remittances: 2009 : US $3.3 bn. (7.9% of GDP) Target: about 7.4% of GDP by 2013
Focus on export of skilled services, not unskilled labour. Distribution of workers’
remittances across regions (2009)
Distribution of workers’ remittances across regions (2009)
Middle East, 59.9
South East Asia, 3.0
Australia & Newzealand,
1.7
Europe other, 4.1
EU, 18.1
North America, 3.8
Other, 3.3
Far East Asia, 6.1
Remittances by regions (US$ mm)
140
1745
114
525
129
90
175
153
1995
127
603
100
203
149
Other
Middle East
North America
European Union
Europe Other
South East Asia
Far East Asia
2009
2008
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
6.27.7
6.8 6.0
3.5
7.8 8.0 8.0
2005 2006 2007 2008 2009 2010F 2011F 2012F
Economic Growth (%)
857 900 981 1,0621,241
1,4211,634
2,014 2,053
2001 2002 2003 2004 2005 2006 2007 2008 2009
Per capita Income : US $
21
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.
