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COUNTRY PROFILE

Sri LankaOur quarterly Country Report on Sri Lanka analyses currenttrends. This annual Country Profile provides backgroundeconomic and political information

1998-99The Economist Intelligence Unit15 Regent Street, London SW1Y 4LRUnited Kingdom

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ISSN 0269-5073

Comparative economic indicators, 1997

0 50 100 150 200 250 300 350 400

India

Indonesia

Singapore

Pakistan

Bangladesh

Vietnam

Sri Lanka

Gross domestic product$ bn

Sources: EIU estimates; national sources.

0 200 400 600 800 1,000 1,200

Singapore

Indonesia

Sri Lanka

Pakistan

India

Vietnam

Bangladesh

Gross domestic product per head$


31,00031,00031,00031,00031,00031,00031,00031,00031,00031,00031,00031,00031,000

-2 0 2 4 6 8 10

Vietnam

Singapore

Sri Lanka

Bangladesh

India

Indonesia

Pakistan

Gross domestic product% change, year on year


0 2 4 6 8 10 12

Pakistan

Sri Lanka

India

Bangladesh

Indonesia

Vietnam

Singapore

Consumer prices% change, year on year


EIU Country Profile 1998-99 © The Economist Intelligence Unit Limited 1998

September 1st 1998 Contents

3 Basic data

4 Political background4 Historical background7 Constitution and institutions9 Political forces

10 International relations and defence

10 The economy10 Economic structure11 Economic policy14 Economic performance15 Regional trends

16 Resources16 Population17 Education17 Health18 Natural resources and the environment

18 Economic infrastructure18 Transport and communications20 Energy provision21 Financial services23 Other services

23 Production23 Industry25 Mining and semiprocessing25 Agriculture27 Construction

27 The external sector27 Merchandise trade29 Invisibles and the current account30 Capital flows and foreign debt30 Foreign reserves and the exchange rate

32 Appendices32 Sources of information33 Reference tables33 Government finances33 Money supply and credit33 Interest rates34 Gross domestic product and gross national product34 Gross domestic product by expenditure35 Gross domestic product by expenditure

1

© The Economist Intelligence Unit Limited 1998 EIU Country Profile 1998-99

36 Gross domestic product by sector37 Prices and earnings37 Population37 Labour force38 Transport statistics38 National energy statistics39 Banking statistics39 Stockmarket indicators39 Tourism40 Manufacturing production40 Realised investments in Board of Investment projects40 Mining & quarrying exports41 Agricultural production41 Exports42 Imports42 Main trading partners43 Balance of payments, IMF estimates44 Balance of payments, national estimates45 External debt, World Bank estimates45 Foreign reserves45 Exchange rates

2


Sri Lanka

Basic data

Land area 65,610 sq km

Population 18.5m (mid-1997 estimate)

Main towns Population in ’000 (1990 estimates)

Colombo (capital) 615 Jaffna 129Dehiwala-Mount Lavinia 193 Kandy 104Moratuwa 170 Galle 84

Climate Tropical

Weather in Colombo Hottest month, May, 26-31°C (average daily minimum and maximum); coldestmonth, December, 22-29°C; driest month, February, 69 mm average rainfall;wettest month, May, 371 mm average rainfall

Languages Sinhala, Tamil, English

Measures The metric system is now predominant

Currency Rupee (SLRs)=100 cents. Average exchange rate in 1997: SLRs58.99:$1.Exchange rate on August 28th, 1998: SLRs66.02:$1.

Time 5 hours ahead of GMT

Fiscal year January-December

Public holidays in 1998 January 12th (Duruthu Full Moon Poya Day), January 14th (Thai-pongal Day),January 30th (Ramadan), February 4th (Sri Lanka National Day), February 10th(Navam Full Moon Day), March 12th (Medin Full Moon day), April 10th (GoodFriday), April 11th (Bak Full Moon Day ), April 13th (day before Sinhala &Tamil New Year Day), April 14th (Sinhala & Tamil New Year Day), May 1st(May Day), May 11th (Vesak Full Moon Day), May 12th (day following VesakFull Moon Day), June 9th (Poson Full Moon Day), July 7th (Holy Prophet’sBirth Day), July 9th (Esala Full Moon Day), August 7th (Nikini Full Moon Day),September 6th (Binara Full Moon Day), October 5th (Vap Full Moon Day),October 19th (Deepavali Festival), November 3rd (Il Full Moon Day), December3rd (Unduvap Full Moon Day), December 25th (Christmas Day)

Sri Lanka: Basic data 3


Political background

Historical background

History Sri Lanka was ruled by the Portuguese in the 16th century. In the 17th centurythe Dutch superseded the Portuguese, only to be ousted by the British at theend of the following century. Pressure for independence built up in the firsthalf of the 20th century. Sri Lanka (then known as Ceylon) became fullyindependent on February 4th 1948, although it remained a member of theCommonwealth.

The origins of the ethnicconflict

The ethnic problem has played a major role in Sri Lanka’s post-independencehistory. The immediate origins of the conflict lie in attempts by the majoritySinhalese to reverse what was seen as the excessive influence of Tamils beforeindependence. After the 1956 election, the Sinhalese-dominated government,seeking to overturn the previous dominance of English, made Sinhala theofficial language, which precipitated antagonism between Tamils and Sin-halese. In 1958 the first intercommunal riots occurred. Tension between thetwo groups grew during the 1960s and 1970s; the Tamils sought to obtain afederal system of government and became alienated when this was refused bysuccessive governments.

Sinhalese extremistsemerge in the 1960s

In addition, economic policy, strongly influenced by socialist ideals and plan-ning, failed to provide adequate employment, particularly among educatedyouth. This led to the formation in the late 1960s of the People’s LiberationFront (Janatha Vimukthi Peramuna, JVP), which combined left-wing Marxistradicalism and Sinhalese extremism. In 1971 the first youth uprising occurred;although it was swiftly quelled, sporadic outbreaks of violence involving ex-treme Tamils and the JVP erupted throughout the 1970s.

In the 1980s the LTTEturns to terrorism—

The failure of Tamil political parties to attain their aims by peaceful means ledto demands for an independent Tamil state, to be known as Eelam, and to theformation of terrorist groups dedicated to achieving this goal. Repressive actionby government troops only increased tension, culminating in a violent out-burst of intercommunal rioting in 1983. By 1987 the Liberation Tigers of TamilEelam (LTTE, or Tamil Tigers), led by Velupillai Prabhakaran, emerged as theleading Tamil militant group, effectively controlling the northern peninsulaand the city of Jaffna.

—brings Indianintervention in 1987—

In 1987 India, which had aided Tamil rebels, intervened in Sri Lanka’s ethnicconflict. The Indian Peace Keeping Force (IPKF) was deployed to oversee a peaceaccord which provided for the formation of provincial governments to whichlimited powers would be devolved. Sri Lanka’s Northern and Eastern provinces,corresponding to the Tamils’ desired Eelam, were provisionally merged pendinga referendum (which has yet to be held) to decide whether the union should bepermanent. The Tigers, however, rejected the accord and resumed their offen-sive. The IPKF was then deployed against the Tigers and took their stronghold ofJaffna, temporarily relegating the LTTE to a guerrilla role.

4 Sri Lanka: Historical background


—but withdrew in 1990 The United National Party (UNP) headed by the former prime minister,Ranasinghe Premadasa, was re-elected in 1989. The new president, openly criti-cal of the peace accord, ordered the IPKF to withdraw and embarked on directnegotiations with the Tigers. As the IPKF withdrew in stages, finally leaving inMarch 1990, the Tigers reclaimed effective power in the Jaffna peninsula.

The second JVP uprisingparalysed the country

In 1989 the country was gripped by another more serious wave of violence,inspired this time by the Sinhalese extremist party, the JVP. Aided by unofficialvigilante groups, the security forces reacted ruthlessly, imposing their ownbrand of terror. Amnesty International estimated that around 60,000 peoplelost their lives in extra-judicial killings, committed either by the JVP or by thesecurity forces. The campaign was finally brought to an end in November 1989by the capture and execution of most of the JVP leaders.

The Tigers resumed theiroffensive in 1990

Uneasy negotiations with the Tigers continued throughout the first half of1990, but fighting broke out again in June. In the Eastern province the armywas able to gain control of the towns relatively quickly. In the north the Tigers’resistance was more resolute, although the army had some success in contain-ing their activities.

In 1994 the People’sAlliance is voted into

power

In May 1993 Mr Premadasa was killed by a Tiger suicide bomber. After theassassination the prime minister, Mr Wijetunga, served as president for theremainder of Mr Premadasa’s term of office. After suffering political reverses,the UNP lost the August 1994 general election to the People’s Alliance (PA).The PA is a multiparty coalition with the Sri Lanka Freedom Party (SLFP)holding the largest number of seats; the PA lacks an overall majority in parlia-ment and depends on two ethnic minority parties to remain in power.Theassassination in October of the UNP presidential candidate GaminiDissanayake, enabled Chandrika Kumaratunga, the deputy leader of the largestparty in the ruling PA coalition, to score a landslide victory at the November9th presidential election.

General election, Aug 16th 1994

Party Seats won % of seats

People’s Alliance 105 46.7

United National Party 94 41.8

Eelam People’s Democratic Party 9 4.0

Sri Lanka Muslim Congress 7 3.1

Tamil United Liberation Front 5 2.2

Democratic People’s Liberation Front 3 1.3

Sri Lanka Progressive Front 1 0.4

Nuwara Eliya independent group 1 0.4

Total 225 100.0Source: Press reports.

—and Mrs Kumaratungaopens peace talks

Shortly after coming to power Mrs Kumaratunga’s government opened peacenegotiations with the Tigers. The talks led to a cessation of hostilities inJanuary 1995. The government’s genuine efforts to resolve the ethnic conflictwon the country international sympathy, while the Tigers, who unilaterally

Sri Lanka: Historical background 5


called off the truce in April 1995, lost much goodwill, even in the Indian stateof Tamil Nadu.

Jaffna falls to securityforces in 1995—

The military conflict has since intensified. In December 1995 the security forcestook the former Tiger stronghold of Jaffna, dealing a major psychological blowto the militants. In 1997 two major military offensives were launched. The largerof the two, Operation Jaya Sikuru, was intended to complete the forces’ domina-tion of the northern province by reopening a 65-km road between Vavuniyaand the Jaffna peninsula, which would establish an overland supply route to theforces, which currently rely on costly air and sea logistics. Restrictions on de-fence spending, inadequate manpower and, more importantly, fierce resistancefrom the Tigers has hampered progress. The campaign, now over a year old, hasonly achieved two-thirds of its original objective.

—but the LTTE threatensthe civil administration—

Attempts by the government to restore civilian rule to the peninsula have beenfiercely resisted by the LTTE. In May 1998, barely four months after localgovernment elections were held, the mayor of Jaffna was assassinated. Sporadichit-and-run attacks by the Tigers (the latest being the killing of an army generalin May) have undermined the credibility of the government’s claim that theprovince is under its control.

—and steps up terroristattacks outside the

war zone

The Tigers have retaliated against the increased military pressure—which hasweakened their ability to fight conventional battles—by stepping up terroristattacks in the rest of the island. The attack on the Central Bank in January 1996was followed by another devastating attack in the financial district of Colombo

Important recent events

1989: Janatha Vimukthi Peramuna (JVP) uprising in the south.

1990: Withdrawal of the Indian Peace Keeping Force begins. The Liberation Tigersof Tamil Eelam (LTTE, or Tamil Tigers) break off peace negotiations in June.

1993: Mr Premadasa is assassinated by a Tamil suicide bomber in May.

1994: The People’s Alliance (PA) is voted into power in parliamentary elections. InNovember Mrs Kumaratunga achieves a landslide victory in the presidential election.

1995: Cessation of hostilities in January but Tamil Tigers unilaterally resume fightingin April. Fighting intensifies and Jaffna falls to the security forces in December.

1996: The Central Bank is bombed in January and the Tigers overrun an army camp,killing 1,200 soldiers.

1997: The government launches two major military offensives. The Tigers retaliateby exploding a bomb in the central business district of Colombo on October 15th.The PA scores a victory at local government elections.

1998: Local government elections are held in Jaffna. The rebels launch three bombattacks. The government bans the LTTE.

6 Sri Lanka: Historical background


in October 1996, and then by three more bomb blasts over a 40-day period inearly 1998. The attack on a sacred Buddhist shrine in Kandy, on the eve of thecountry’s 50th anniversary celebrations, prompted the government to ban theLTTE, effectively ruling out future dialogue.

The political package isencountering stiff

opposition

In tandem with its military offensive, the government has intensified efforts tofind a political resolution to the ethnic conflict through greater devolution ofpower to the troubled provinces. In September 1997 it published its proposalsfor constitutional reform. The package has been opposed by the UNP, whosealternative proposal envisages more power at the centre. Opposition to thepackage from hardline Sinhala groups and also from sections of the Buddhistclergy has grown. A proposal by the government directly to seek a mandatefrom the electorate for the devolution package, by way of a non-binding refer-endum, has been temporarily shelved.

Constitution and institutions

Democracy has lastedsince independence

Despite its problems, Sri Lanka has managed to maintain an unbroken recordof democracy since independence. Elections have been held regularly and,although abuses have occurred, have been in general freely and fairly con-tested. The country passes the critical test of democracy in that elections haveon several occasions resulted in a peaceful change of government.

In 1978 the countryswitched to a presidential

system—

Sri Lanka’s Westminster-style constitution, in place since independence, wasreplaced by a presidential system of government in 1978. The powers of theprime minister and the cabinet were drastically reduced. The previous first-past-the-post system of voting was replaced by a system of modified propor-tional representation. Junius Jayewardene became the first president under the

Back to square one

The search for a solution to the grievances of the Tamil minority through devolutionof power to the provinces remains bogged down in details. The United NationalParty (UNP) set up provincial councils in 1988 under the 13th amendment to theconstitution but the devolution of power soon proved cosmetic and the militaryconflict continued. Mrs Kumaratunga gained power in 1994 largely on her promiseof a new constitution that would devolve power meaningfully. Her governmentconvened a multiparty parliamentary select committee to reach a consensus on thedegree of devolution, but after more than a year of deliberations, the governmentwas forced late in 1997 to publish its proposals without the UNP’s support.Throughout this time, the UNP refrained from tabling its own proposals, insistingthat the government should do so first. When finally it did, the UNP opposed theextent of autonomy proposed by the government, especially in the area of land useand police powers. In February 1998 the UNP began to release details of its ownproposals, advocating a new approach to sharing power with minorities at thecentre, through a second chamber of parliament. Then in May 1998, the UNP, in anapparent reversal, suddenly insisted that the government should seek a solutionthrough the 13th amendment to the constitution, the policy the UNP had itselfintroduced when in power. Ten years on, the debate had come full circle.

Sri Lanka: Constitution and institutions 7


1978 constitution and held the position for two terms, until the end of 1988.In addition to the national legislature, there are two further tiers of govern-ment, local and provincial. Provincial governments were established as a resultof the Indo-Sri Lankan accord of 1987.

—which the presentgovernment has promised

to abolish

Disenchantment with the powerful executive presidency mounted during theauthoritarian rule of Mr Premadasa (1988-93) and after his assassination therewas strong pressure for a return to the non-presidential system of government.One of the key election pledges of the PA was the abolition of the executivepresidency by July 1995, and its failure to do so has undermined its credibility.The government has astutely linked the constitutional amendment required forthis with the more contentious amendments being considered for devolution,which have little chance of being approved by parliament or by the electorate.

Main political figures

Chandrika Kumaratunga: After a shaky start, the headof state is firmly in the saddle. Her efforts to push throughpolitical and economic reform continue to be stalled by afractious coalition and a belligerent and unco-operativeopposition.

Velupillai Prabhakaran: Weakened by the advance ofgovernment troops across territory that was once hisdomain, the Liberation Tigers of Tamil Eelam (LTTE, or TamilTigers) leader retains the ability to strike virtually anywhere inthe country using suicide bombers. He is also adept at theclassic guerrilla tactic of staging a strategic withdrawal whenthe odds do not favour him, and lulling the government intoa sense of complacency before he strikes again.

Ranil Wickremasinghe: Although he heads the onlypolitical party capable of forming an alternative government,the United National Party (UNP) leader and former primeminister has failed to provide the strong decisive leadershipwhich had been the forte of his successful predecessors. TheUNP has in its ranks several strong and experiencedpoliticians who require the rule of an iron hand, in theabsence of which the party has tended to becomefactionalised.

Anuruddha Ratwatte: The stock of the deputy defenceminister, once a strong contender for the premiership, hasdeclined after the attack on the sacred Buddhist temple. Hehas also been criticised for the slow progress of troops in theongoing military operation.

M H M Ashraff: The ports minister and Sri Lanka MuslimCongress (SLMC) leader, has been relatively quiet recently,but the value of the votes at his disposal should not beunderestimated. The party he leads adheres to the belief thatin politics there are no permanent friends or enemies, onlyinterests.

Savumyamoorthy Thondaman: His influence amongplantation workers is on the wane, but the Ceylon Workers’Congress (CWC) leader and livestock minister can still delivera decisive number of votes to an ally. Union and businessinterests tend to dictate his loyalties, and both the People’sAlliance (PA) and the UNP find it useful to court him.

G L Peiris: The earnest academic turnedpolitician—currently the minister for constitutional andethnic affairs—is fighting a lone battle to canvass supportfrom the opposition and general populace for the proposednew constitution. With tensions between the governmentand the UNP on the rise his chances of securing thenecessary two-thirds vote in parliament appear to bereceding.

Mangala Samaraweera: Emerging as one of the politicalheavyweights of the PA, the ambitious media andtelecommunications minister is often called upon whenaggression and plain speaking are required. His recent clashwith striking postal workers has left both sides bruised butcould signal a hardening of the PA’s attitude towards unionaction.

8 Sri Lanka: Constitution and institutions


Political forces

There are two main political parties, the UNP and the Sri Lanka Freedom Party(SLFP), the biggest party in the PA. Alliances between these parties and anumber of smaller parties are common for electoral purposes.

The UNP faces internaldivisions—

The UNP held power from independence to 1956, from 1965 to 1970 and from1977 to 1994, when it became the first party to embrace free-market eco-nomics. Banished to the opposition benches after 17 consecutive years in officeand debilitated by internal divisions, the UNP under the weak leadership ofRanil Wickremasinghe has failed to mount an effective challenge to the PA.

—while the SLFP leads theruling coalition

The SLFP was founded in 1951 by Solomon Bandaranaike and won the 1956general election. It has its roots in Sinhalese nationalism. Mr Bandaranaike wasassassinated in 1959, and was succeeded in 1960 by his widow, Sirimavo, whobecame the world’s first female prime minister. After being defeated in 1965,the SLFP returned to power from 1970 to 1977, still with Mrs Bandaranaike atits head. Its left-wing economic policies included a far-reaching programme ofnationalisation, which sapped much of the economy’s dynamism.

Mrs Bandaranaike’s daughter, Mrs Kumaratunga, has succeeded her both asleader of the SLFP and the PA. In its current term in office the SLFP, as the coreof the PA, has pursued policies of economic reform, including privatisation andfinancial reforms.

Smaller parties largelyrepresent ethnic groupings

There are a number of Tamil parties and groups, which remain within themainstream political system, although none has sufficient support yet to speakfor the Sri Lankan Tamil people as a whole. The largest is the Eelam People’sDemocratic Party (EPDP), which has nine seats in parliament, while the trad-itionally moderate Tamil United Liberation Front (TULF) has five and theDemocratic People’s Liberation Front (DPLF), a former guerrilla group, has three.

The Ceylon Workers’ Congress (CWC) is effectively the party of the IndianTamils. Its leader, Savumyamoorthy Thondaman, has normally worked withthe parties in power and usually holds a cabinet post.

The Sri Lanka Muslim Congress (SLMC) was formed in 1980, and has operatedas a political party since 1986, to promote the interests of Sri Lankan Muslims.In August 1994 it won seven seats in parliament, enabling it to hold thebalance of power along with other small parties.

The Democratic United National Lalith Front (DUNLF) was formed in 1991,following the failure of a campaign to impeach Premadasa and the subsequentexpulsion from the UNP of eight of the campaign’s leaders. Now a member ofthe ruling coalition, the DUNLF is openly critical of the PA’s failure to abolishthe presidency.

While the LTTE is an extremist Tamil movement, Sinhalese extremists havefound a home in the JVP. After the killing of its leaders in 1989, the JVP lostmuch of its force. Elements of the radical movement still exist and there isconcern that serious discontent could again see the JVP grow in influence.

Sri Lanka: Political forces 9


International relations and defence

Relations with Westerngovernments have

warmed—

Sri Lanka’s relations with the West suffered a setback between 1988 and 1993,primarily due to the deterioration in the country’s record on human rightsduring the period. Aid was often linked to this issue. However, sentiment hasshifted. Since 1994 Mrs Kumaratunga’s genuine efforts to resolve the ethnicconflict have won favour with Western governments and restored inter-national sympathy for the country’s fight against the Tamil Tigers. In 1997 theUS included the LTTE in its list of proscribed terrorist organisations.

—and India is animportant ally

Relations with the dominant regional power, India, have always been of criticalimportance. Indo-Sri Lankan relations were excellent for over three decades,before the eruption of racial conflict in Sri Lanka in the early 1980s and theemergence of what was perceived as Sri Lanka’s pro-Western foreign policy,which was viewed with suspicion by India. Relations between the two coun-tries remained uneasy after the signing of the Indo-Sri Lankan peace accord in1987, deteriorating to an all-time low during the presidency of Mr Premadasa.India’s disastrous military involvement in the civil war, and the assassinationof its prime minister, Rajiv Gandhi, by the LTTE, united both countries againstthe LTTE. Economic and cultural ties have strengthened under the presentgovernment.

Desertions have depletedthe fighting force

Despite the civil war and high defence expenditure, the total size of the armedforces is modest, at 112,000-117,000. This includes a navy of 12,000, and an airforce of 10,000 (according to the Institute of Strategic Studies). Service is volun-tary. The two operations mounted against the Tigers in 1997 caused heavy lossesof both men and equipment. The high number of desertions (estimated ataround 15,000) has depleted the fighting force and become a serious concern.

The economy

Economic structure

Agriculture’s share ofGDP declined—

The share of the agricultural sector has fallen from 20.9 % of GDP in 1993 to17.8 % in 1997. The declining share of agriculture has become a major concern,since the sector employs over one-third of the labour force and generates overone-fifth of export earnings.

—but that ofmanufacturing

has grown—

The manufacturing sector has emerged as the engine of growth—its share ofGDP expanded rapidly from 19% in 1993 to 21.5% in 1997. Although thecountry’s manufacturing base is still dominated by the garment industry, inrecent years the share of other industrial exports, notably jewellery, machinery,leather and rubber products, has also expanded. Progressive privatisation ofstate enterprises has enabled the private sector to dominate manufacturing;small and medium-sized enterprises dominate.

10 Sri Lanka: International relations and defence


Main economic indicators, 1997

Real GDP growth (%) 6.4

Consumer price inflation (%) 9.6

Current-account balance ($ m) 387.0

Average exchange rate (SLRs:$) 58.99

Population (m) 18.5Sources: Central Bank of Sri Lanka, Annual Report, 1997; EIU; IMF, International Financial Statistics.

—and services’ share isgreater still

Healthy growth in communications and financial services have, in recent years,driven the growth in the services sector, the share in GDP of which expanded to51.4 % in 1997. Wholesale and retail trade account for over one-third of servicesoutput and one-fifth of GDP. The ongoing civil war is reflected in the relativelyhigh share of public administration and defence (4.3% of GDP).

Comparative economic indicators, 1997

Sri Lanka India Pakistan

GDP ($ bn) 15.1 378.6 64.2

GDP per head ($) 820 400 450

Consumer price inflation (average; %) 9.6 7.2 11.4

Current-account balance ($ bn) –0.4 –6.1 –2.9

Exports of goods & services fob ($ bn) 5.5 42.6 9.7

Imports of goods & services fob ($ bn) 6.6 57.1 13.6Sources: National sources; EIU; IMF, International Financial Statistics.

Economic policy

Economic reform has beenerratic

In the past three decades structural adjustment and economic reform haveformed the cornerstone of economic policy but implementation has been in-consistent, as successive governments have temporarily sacrificed economicinitiatives for short-term political gains.

The first wave ofliberalisation proves

unsustainable

Sri Lanka became the first country in South Asia to embrace free-market poli-cies in 1977, when the government of Junius Jayawardene, reversing the socialpolicies of its predecessor, dismantled trade barriers and eased controls onprivate-sector activity. The increase in GDP growth which followed could notbe sustained since the reforms failed to address the fundamental problem of alarge and inefficient public sector. The situation was further compounded bygrowing ethnic and civil unrest in 1983-88. By 1989 the country was on theverge of a balance-of-payments crisis precipitated by high fiscal and current-account deficits.

Further reform in 1989-93pay dividends—

In 1989 a second and more rigorous liberalisation programme was embarkedupon, under the auspices of an IMF enhanced structural adjustment facility(ESAF). Stabilisation measures included a devaluation of the rupee and theabolition of major subsidies. These were complemented by an ambitiousprivatisation drive. Tax, tariff and trade reforms were also begun, and thecurrent account was freed of exchange controls. GDP growth rose from 2.3% in1989 to 6.9% in 1993.

Sri Lanka: Economic policy 11


—but loses momentumunder the PA government

The economic reform programme lost steam between 1994 and 1996 as theincoming People’s Alliance (PA) government focused on political imperativesto the detriment of the economy. The privatisation programme ground to avirtual halt; subsidies were reintroduced which, together with soaring defenceexpenditure, imposed a severe strain on the budget. Escalating terrorist vio-lence and widespread labour unrest compounded by high inflation and interestrates damaged business confidence, causing a slowdown in investment. Finallya severe drought and power crisis reduced the country’s growth rate to a mere3.8% in 1996.

Reforms are accelerated in1997—

In 1996 the government reinvigorated its policy reforms, launching what canbe termed the third wave of liberalisation. This included acceleration of theprivatisation programme, phasing out of subsidies and the introduction of avalue-added tax system. Efforts to improve the country’s infrastructure are alsobeing stepped up.

—facilitating a decline inthe fiscal deficit

The reduction of the fiscal deficit remains the biggest challenge facing policy-makers. Unsustainably high fiscal deficits have historically fuelled inflation,raised interest rates and crowded out private investment. Isolated reductions inthe size of the deficit have, in the past, been merely cosmetic since they wereachieved primarily by sacrificing capital spending. In 1993-96 the fiscal deficit,excluding grants, averaged 9.5% of GDP—the result of escalating defence ex-penditure, increased subsidy costs and mounting interest and wage bills. In1997 greater fiscal rectitude, rationalisation of expenditure on subsidies andhigher privatisation receipts (SLRs22bn-$373m), facilitated a sharp reductionin the budget deficit to 7.5% of GDP. (Reference table 1 gives a breakdown ofgovernment revenue and expenditure.)

Incentives and constraints

Sri Lanka will need to raise investment beyond its current level of 24% of GDP by atleast five percentage points, if it is to sustain growth rates of 7-8%. Cutbacks inpublic investment and slowdowns in project implementation have not beenmatched by a rise in private investment growth, which has remained sluggish. Since1997 a combination of fiscal and monetary measures are being used to stimulatedomestic investment. Interest rates have been lowered and export companies arenow permitted to borrow in foreign currency. The 1997 budget announced severalwide-ranging concessions aimed at reducing the up-front costs of investment. The1998 budget went one step further by targeting additional incentives at certainpriority economic sectors (agriculture, tourism and gems) and selected “thrust ”industries, mainly industrial exports.

Yet these measures, well intentioned as they are, may not succeed in achieving thedesired increase in investment unless they are accompanied by reform of the regulatoryand institutional framework. Commercial and trade laws need to be reviewed and thereis a pressing need to make labour markets more flexible and productive. Despiteprivatisation, government influence in economic activity—through its sprawling andinefficient bureaucratic network—is still excessive. Finally, despite recent advances inelectricity and communications facilities, infrastructural facilities have not improvedsufficiently to attract higher levels of foreign investment.

12 Sri Lanka: Economic policy


—which the governmenthopes to reduce further

The medium-term objective is to reduce the fiscal deficit to 4% of GDP by 2000,primarily through a reduction in expenditure, since there is little scope toincrease revenue, which stands at 19-20% of GDP. The inflexible structureof current expenditure, which is dominated by the civil service wage bill, debt-service payments and defence, has made deficit-reduction a difficult exercise.Nevertheless, a much stronger commitment to achieve this goal is clearlyevident. In 1997 SLRs10bn from privatisation revenue was used to retire debt.The shift into medium-term borrowing by the government and lower interestrates will further assist in reducing expenditure on debt servicing. Limiting thewage and pension bill will be more difficult, since it necessitates politicallysensitive civil service reform. Increases in defence spending—the primary sourceof fiscal slippages in the past—are to be financed by raising a supplementarydefence levy.

Summary of government finances, 1997a

SLRs m % of GDP

Total revenue & grants 172,365 19.4 Tax revenue 144,006 16.2 Income taxes 20,847 2.3 Taxes on property 7,754 0.9 Taxes on treasury bills 1,080 0.1 General sales & turnover tax 43,257 4.9 Excise tax 26,050 2.9 Defence levy 17,274 1.9 Licence fees 1,118 0.1 Taxes on international trade 26,626 3.0 Non-tax revenue 20,860 2.3 Grants 7,500 0.8

Expenditure & lending excl repayments 212,362 23.8 Current expenditure 184,746 20.7 Wages, goods & services 83,830 9.4 Interest payments 55,246 6.2 Transfers & subsidies 45,670 5.1 Capital expenditure 44,167 5 Lending excl repayments –16,551 –1.9

Budget deficit (before grants & privatisation) –70,032 –7.9Budget deficit (after grants & privatisation) –39,997 –4.5

a Provisional.

Source: Central Bank of Sri Lanka, Annual Report, 1997.

Monetary policy has beeneased

Since 1997 monetary policy has been used as a tool to stimulate further eco-nomic expansion—a stance that has been made possible by the improvementin the fiscal deficit. In 1993-96, the emphasis on restraining excessive mone-tary expansion (mainly due to a rapid growth in public and private credit) ledto a significant tightening of monetary policy, which precipitated a severeliquidity crisis at the end of 1995. The sharp slowdown in economic activity in1996 prompted the Central Bank of Sri Lanka, in early 1997, to loosen the reinson monetary policy in order to stimulate economic recovery. Reserve ratios ofcommercial banks were cut, and two- and four-year Treasury bonds were intro-duced, marking the first step towards developing a market for longer-term debtsecurities while simultaneously establishing a benchmark for the direction of

Sri Lanka: Economic policy 13


long-term interest rates. By the end of 1997 interest rates had declined.(Reference table 2 includes monetary aggregates, and Reference table 3 showsinterest rates.)

Economic performance

Manufacturing andservices have underpinned

economic growth

Real annual GDP growth averaged 5.6% in 1993-97, achieved against a backdropof an escalating civil war and heightened political and economic uncertainty.Economic expansion has been sustained primarily by the manufacturing sector,which despite internal and external shocks has grown by a healthy rate of 8.9%per year. The clothing industry, predominant in manufacturing, performedparticularly well, although other high value-added industrial exports, notablydiamonds and jewellery, ceramics, and leather and rubber products have alsoperformed well. Financial services and communications, which have direct linksto manufacturing, have been the most dynamic services, followed by wholesaleand retail trade. Economic liberalisation has benefited the services sector, whichgrew more rapidly, by an average 5.8% per year in 1993-97 compared with 3.9%in 1992-96. The agricultural sector has remained a drag on overall economicperformance. Its growth has stagnated at around 2%. (Reference tables 4-7provide various measures of GDP.)

Gross domestic product(% real change; 1982 factor cost)

Annual average1997 1993-97

GDP 6.4 5.6

Agriculture 3.1 2.0

Mining & quarrying 3.4 6.7

Manufacturing 9.3 8.9

Construction 5.4 5.2

Services 6.8 5.8Source: Central Bank of Sri Lanka, Annual Report, 1997.

Growth has beenexport led

GDP growth has been primarily fuelled by exports of goods and services, whichgrew in real terms by an average annual rate of 8.7% in 1993-97. Most of theexpansion since 1995 appears to have been generated by greater utilisation ofcapacity since growth in fixed capital slowed to an average of 2.7% in 1995-97,although this was partly due to a decline in public investment. Imports havegenerally mirrored export growth, since most imports are incorporated intodomestic exports.

Inflation falls to singledigits in 1997—

The government’s efforts to contain inflation have met with some success;inflation averaged 9.6% in 1997, compared with 15.9% the previous year. Threefactors lay behind this fall—the curtailment of monetary expansion, better agri-cultural harvests and the removal of licensing requirements and reduction inimport duties on key agricultural supplies. The future direction of inflation willbe determined to a large extent by the size of the public-sector borrowingrequirement. An inherent weakness in the price index is the heavy weightinggiven to food (over 60%); seasonal fluctuations in agricultural supplies thereforehave an exaggerated impact on the index. Increases in administered prices (16%

14 Sri Lanka: Economic performance


weighting), notably for wheat, electricity and transport, also exerted a consider-able inflationary pressure in 1997, as they did the previous year.

—but exportcompetitiveness has been

eroded—

Sri Lanka’s high import dependence has also rendered domestic prices vulner-able to movements in international prices and to exchange rate adjustment.However, the Central Bank has resisted the depreciation of the rupee to theextent demanded by exporters.

—as the governmentresists sharp depreciation

The established practice of linking wages to inflation indicators has furtheraffected competitiveness. In recent years the government has relied on indirectmeasures, such as tax and duty concessions, to aid the export industry.

Income inequality Equality of income distribution is growing, albeit slowly. The 1996-97 socio-economic survey conducted by the Central Bank, found the share in totalincome of the poorest 20% of the population improved from 5.1% in 1986-87to 5.5% in 1996-97, while the share of the richest 20% fell from 37.4% to 34.8%in the same period. Increased employment, better targeting of welfare schemesand remittances from migrant workers helped to raise income levels of thepoor. (Reference table 8 includes data on prices and wages trends.)

Prices(% change)

Annual average1997 1993-97

Consumer prices 9.6 10.7

Wholesale prices 6.9 9.8Sources: Central Bank of Sri Lanka, Annual Report, 1997; EIU.

Regional trends

Regional development isuneven—

Development is unevenly spread between the provinces. This is primarily dueto inadequate infrastructure development in rural areas, the concentration ofindustry close to the main ports and the airport, and the poor performance ofthe agricultural sector. Over 40% of GDP is generated by the Western Province(where 85 % of industry is located), making its three districts the wealthiest ona per capita basis. The Mahaweli project has increased prosperity in the North-Central Province. Growth in the North-western and Uva provinces, predomi-nantly agricultural areas, has been badly affected by the stagnation in coconutand domestic agriculture. In terms of income per head, the Southern Provinceremains the poorest.

—prompting increasedemphasis on industrial

location

Industrial dispersion is one policy option being pursued to facilitate morebalanced regional development. Additional incentives have been offered toindustries locating in what the government terms “difficult” areas. This isbeing complemented by the construction of industrial parks and townshipsoutside the Western Province. The development of the Southern Province, thesite of the two Marxist uprisings, remains a priority. Proposals for the construc-tion of infrastructure facilities are being sought from private investors.

Sri Lanka: Regional trends 15


Resources

Population

Rural-urban migrationis rising

Sri Lanka’s population was estimated at 18.5m in mid-1997. About 70% of thepeople live in the island’s south-western area (the so-called wet zone), whichaccounts for about three-quarters of the cultivated land and most of thecountry’s industry. The lure of jobs and better infrastructural and educationalfacilities in cities has encouraged rural-urban migration in recent years. Theproportion of the population living in urban areas is projected to rise to 30%by 2000 compared with 22% in 1997.

The low fertility rate— Sri Lanka’s demographic achievements are commendable for a low-incomecountry. Successful family planning programmes have facilitated a rapid de-cline in the fertility rate, which has reached replacement level. Population isprojected to stabilise at 21m over the next three decades. (See Reference table 9for data on population growth rates.)

—is matched by the rapidageing of the population

Falling birth rates and increased life expectancy have also meant that SriLanka’s population is ageing more rapidly. The proportion of the elderly isprojected to rise from 8% to 20% in the space of 30 years, more than doublingthe old age dependency ratio from 13% at present to 32% by 2025. This issue isof serious concern to policymakers given the implications for pension pay-ments and the provision of geriatric health facilities.

Unemployment amongeducated young people is

high

Unemployment fell to around 10% in 1997, primarily owing to the increasedoverseas migration of workers, and the growth in employment opportunities inthe informal sector. The profile of the jobless is a major concern. About two-thirds are 24 years of age or under, and are relatively well-educated. One reasonis the growing preference for white collar jobs, which are in short supply, andreduced employment opportunities in government institutions. (Referencetable 10 includes data on the labour force and unemployment.)

Ethnic cohesion is fragile Cohesion between ethnic groups has become more fragile with the escalation ofthe civil war. War casualties and widespread emigration after the 1983 racialriots have probably reduced the numbers of the minority Tamils, who constit-uted 12.7% of the population in 1981. The Muslims (7% of the population), arepredominantly traders and concentrated in the Eastern province. Fears of Tamildomination in the event of a permanent merger of the Northern and the Easternprovinces into one administrative zone have led to calls for a special adminis-trative region for the Muslims. Upcountry or “Indian” Tamils, who form 5-6%of the population and work primarily in the plantations, are also seeking astronger voice in a political system which remains dominated by the Sinhalese.

16 Sri Lanka: Population


Population by age group, 1997

’000 % of total

0-14 years 6,531 35.2

15-54 years 10,267 55.3

55 & over 1,754 9.5Source: Central Bank of Sri Lanka, Annual Report, 1997.

Education

Impressive educationindicators—

With a UN Development Programme human development index of 0.71, SriLanka is ranked 94th out of 150 countries—the result of high investment bythe state in health and education. The literacy rate of 92% is well above theworld average of 77% and primary and secondary school enrolment rates at95% and 70% are also high.

—mask a deterioration inquality of education

Despite impressive education indicators, the quality of the education has dete-riorated, as shown by the pass rates for the two main public examinations,which in 1996 stood at 33% and 28%. Several factors are responsible for thelow achievement rates among students, including inadequate and low-qualityteaching material, and inexperienced and poorly paid teachers. There is also amarked disparity in facilities between urban and rural schools. Insufficientknowledge of English has placed students from rural areas at a distinct disad-vantage in the job market.

University education isrestricted and lacks

industrial orientation

University education is the monopoly of the state. However, with only 35,000places spread over 12 universities, only about 2% of students have access totertiary education. Student unrest and inefficiencies in the system have led toa two-year waiting period to enter most courses. University graduates also findit difficult to secure jobs in the private sector, since they possess neither rele-vant practical skills nor an adequate command of the English language. Aprogramme to train the “educated unemployed” for eventual absorption intothe private sector was launched in 1997.

Health

Overstretched publichealth facilities—

Sri Lanka has an extensive system of public health services which, like educ-ation, is provided free of charge by the state. The growing numbers of casualtiesand disabled from the war, combined with a rising incidence of diseases associ-ated with old age and a changing way of life, have stretched public healthfacilities to the limit. Overcrowding in health centres and hospitals has reducedthe quality of healthcare, while the severe shortage of doctors and nurses hasfurther exacerbated the situation.

—only partly alleviated bygrowth in private

facilities

The growth in private health provision has helped to ease the pressure ongovernment health services but since it is expensive, remains inaccessible tolow-income groups. The private sector provides around 50% of primary health-care, while the bulk of hospital care is still provided by state-run facilities.Government health policy envisages the development of a broader

Sri Lanka: Education 17


private-sector health system. To this end it has offered free land and tax holidaysto encourage investment. Taxes and duties on medical services, equipment anddrugs were also reduced or eliminated to reduce the price of private healthservices. Introducing “user fees” and making state medical institutions autono-mous are options being considered to improve standards of healthcare.

Malaria and “diseases ofaffluence” are increasing

Sri Lanka has been fairly successful in controlling the spread of communicablediseases, but the lack of preventative measures in war-stricken areas and refugeecamps has led to a resurgence in mosquito-borne diseases. The rising incidenceof cancer, heart disease, and AIDS has focused attention on the need for moreeffective preventive health campaigns.

Natural resources and the environment

Natural resources arebeing depleted—

Sri Lanka’s total forest cover in 1992 was estimated at 2.1m ha, approximately32% of the total land area. Reforestation projects and stricter surveillance ofillicit timber felling have helped to arrest the rate of depletion. Sri Lanka is richin freshwater resources, but there has been a rapid rise in the demand for waterfor irrigation, power generation, and domestic and industrial use. In the coastalzone, erosion and mining of coral reefs to obtain lime for the constructionindustry has become a major environmental hazard.

—and pollution is onthe rise—

Even though the level of industrialisation in Sri Lanka is relatively low byinternational standards, water pollution is rising. Although air pollution inColombo has not reached the level of that in cities such as New Delhi andBangkok, the increase in vehicle numbers has already pushed it to unacceptablelevels. Solid-waste management is another growing environmental problem.

—prompting someenvironmental measures

Sri Lanka’s environmental policy is well-defined, including environmentalstandards for industry and mandatory environmental impact assessments fordevelopment projects. However, inadequate financial resources and the lack oftechnical expertise in regulatory and advisory services have prevented effectiveenforcement and monitoring of environmental regulations. Little attentionhas been paid to the development of economic incentives to encourageenvironment-friendly technologies in industry, and in practice virtually nopenalties are imposed for pollution.

Economic infrastructure

Transport and communications

Road network isrun down

The development of Sri Lanka’s road network has not kept pace with the escal-ating demand for transport, resulting in severe traffic congestion on nationalhighways. The main problem lies in the neglect of roads due to inadequatefunding. Since 1991 only 5,300 km of new roads have been added to the net-work. Efforts by the government to solicit private investment in the construc-tion of two national motorways have not been successful. The Asian

18 Sri Lanka: Natural resources and the environment


Development Bank has, however, shown interest in funding the motorwaylinking Colombo to the Southern Province, while the government has decidedto divert part of its privatisation proceeds to begin work on the second motor-way linking Colombo and the airport.

Passenger transportservices are being

reorganised—

The government is taking steps to reorganise the road transport sector. In 1997the 93 companies which provide public passenger transport services were clus-tered into 11 regional bus companies in an attempt to improve their commer-cial viability. The National Transport Commission has also ruled that privatesector bus operators, most of whom own one bus, must form themselves overthe next five years into companies with a minimum fleet of 50 buses.

—and incentives areoffered to stimulate

investment

Both public and private transport and communications services suffer fromconsiderable overcrowding and inefficiency. Although the current private busfleet numbers 20,800, around 40% of these are either obsolete or in urgent needof repair. Apart from organisational deficiencies, price regulation has inhibitedinvestment in the sector. In 1996 bus fares were raised by 20%. The removal ofimport duties in 1998 on buses and vans used for public transport and theextension of financing schemes are among the recent measures taken to stimu-late investment in the sector.

Railways haveconsistently run at a loss

Sri Lanka Railways (SLR) has been running at a loss since the country gainedindependence in 1948. Inefficient management, fare regulation and inade-quate investment in rail infrastructure have contributed to the sustained de-cline in the quality of services. Increased competition from road transport hassubstantially reduced SLR’s share in passenger and goods transport. Althoughin recent years a few foreign-financed projects have been initiated to rehabili-tate railway tracks, locomotives and workshops, there is a growing consensusthat the conversion of the SLR into a market-oriented operation is the onlyoption to restore its viability.

Rapid expansion intelecommunications—

Since 1991, when Sri Lanka Telecom (SLT) was converted into a commercialcorporation and the sector was opened to private operators, the telecomsindustry has undergone a rapid transformation. In 1996 SLT’s monopoly onland telephones ended with the entry of two private network operators, LankaBell and Suntel. In 1997 Nippon Telephone and Telegraph acquired a 35% stakein SLT and assumed full management control. These developments, togetherwith rising investment by other private-sector operators, have made telecomsone of the fastest growing sectors in the economy.

—has improved telephonedensity—

Between 1996 and 1997 the number of connections provided by SLT increasedby 24% to 315,241 telephones, while 26,381 telephone lines were supplied bythe private network operators. As a result telephone density improved from 1.1telephones per 100 persons in 1995 to 1.7 telephones per 100 persons in 1997.Investment by other private-sector operators has also grown rapidly. The sub-scriber base of the four mobile telephone operators more than doubled from51,316 subscribers in 1995 to 114,888 subscribers in 1997. The number ofcompanies providing data communication services increased from six in 1995to nine in 1997.

Sri Lanka: Transport and communications 19


—and service quality is setto improve

Deregulation, privatisation and increased competition in the industry have ledto an expansion in the range of services but not a reduction in tariffs. In 1997SLT tariffs were raised by 25% as part of a “rebalancing” between domestic andinternational call rates. The good news is that the industry is being regulatedmore strictly by the Telecommunications Authority, which has laid downspecific standards for service quality. SLT is to invest SLRs23bn ($348m) overthe next two years to clear by 2000 the current backlog of 285,000 peoplewaiting for telephone connections. The two private network operators are alsoexpected to fulfil their obligation to install 200,000 new connections in thesame period.

Ports are being expanded Sri Lanka has three ports which can accommodate deep-sea vessels: Colombo,Trincomalee and Galle. The largest of these is Colombo, which has been out-standingly successful in recent years. To relieve congestion and improve theturnaround times of ships, two Japanese-funded projects, which would improvehandling capacity by 100,000 TEUs and storage capacity by 300,000 TEUsper year, were initiated in 1997. The construction, on a build-operate-transfer(BOT) basis of a new container terminal capable of handling an additional750,000 TEUs was awarded to P&O of Australia in 1995, but union protests havedelayed the finalising of the contract. (Reference table 11 includes data on road,rail and sea transport.)

Energy provision

Expansion in thermalgeneration facilities—

Until 1996 power generation was the sole responsibility of the state-ownedCeylon Electricity Board (CEB) and predominately based on hydro-power, leav-ing it vulnerable to rainfall fluctuations. In mid-1996 a poor monsoon precipi-tated a severe power shortage, forcing the government to adopt emergencymeasures to compensate for the supply shortfall, such as subsidising the importof private generators and buying thermal power from private operators. Inorder to prevent the recurrence of a similar crisis, the government began toaugment the island’s thermal generating power capacity, which had not beenadded to since 1992. By the end of 1997, three thermal power plants with acombined capacity of 178 mw had been commissioned. Although Sri Lanka’sgeneration system remains predominantly hydro-based, there is now a betterbalance with thermal power accounting for 30% of power generation, com-pared with 19% in 1995. The commissioning of another 51-mw plant in 1998will further improve this ratio. Most of the thermal plants have been con-structed by private investors on a build-own-operate (BOO) or BOT basis as partof a policy decision in 1996 to open up power generation to the private sector.

—increases tariffs Consumers have paid a heavy price for the expansion in thermal generation. InSeptember 1997 electricity tariffs were raised by 11%. There is also intenselobbying by businesses for a rationalisation of the electricity pricing mecha-nism, which subsidises households at the expense of the industrial sector.Commercial loss in distribution is another factor which has contributed to therelatively high price of electricity.

20 Sri Lanka: Energy provision


Oil is the largest source ofcommercial energy

The increased electrification of households and the development of othersources of energy has reduced usage of firewood for energy. In 1995 57% oftotal energy demand was provided by firewood, compared with 64% in 1991,while the share of hydro power, the country’s only other indigenous source,had increased to 17% from 13% in 1991.

Imported oil, much of which is refined domestically, is the largest source ofcommercial energy. The state-owned Ceylon Petroleum Corporation (CPC) isresponsible for importing, refining and distributing all petroleum products ex-cept liquefied petroleum gas (LPG); the latter is marketed by Shell, which boughtthe Colombo Gas Company in 1995. The transmission and distribution of elec-tricity are handled by the Ceylon Electricity Board (CEB). Increased thermalpower generation and rising demand for transport caused a 20% increase incrude oil imports between 1995 and 1997. (Reference table 12 includes a rangeof energy statistics.)

Energy balance, 1997(m tonnes oil equivalent)

Elec- Oil Gas Coal tricity Other Total

Primary supplyProduction 0.0 0.0 0.0 0.8a 2.3 3.1Imports 3.0 0.0 0.0 0.0 0.0 3.0Exports 0.2 0.0 0.0 0.0 0.0 0.2Total 2.8 0.0 0.0 0.8a 2.3 6.0

Processing & transformationLosses & transfers –0.4 0.0 0.0 –0.9 0.0 –1.3Transformation output 0.0 0.0 0.0 0.43b 0.0 0.43

Final consumption 2.4 0.0 0.0 0. 4b 2.3 5.1

a Input basis.b Output basis.

Source: Energy Data Associates.

Financial services

Sri Lanka’s financial sector has grown rapidly both in terms of the number ofinstitutions and in the scope of services offered. Since 1996 financial sectorreforms have focused on the stabilisation of interest rates, the deepening ofcapital markets and tighter regulation of the banking sector.

Since 1996, when the slowdown in economic activity led to a sharp rise innon-performing assets, the Central Bank has increased its surveillance of, andtightened regulations in, the financial sector. Provisioning requirements arebeing made more stringent. The time period for full provisioning of non-performing loans is to be reduced from 18 months to 12 months.

Commercial banknetwork has grown

Although the commercial banking system is dominated by the two large state-owned banks, the Bank of Ceylon and the People’s Bank, the branch networkof private local banks has expanded in recent years, rising to around 1,000 in1997, of which only 42 were foreign banks. In 1998 the restrictions on thenumber of branches operated by foreign banks were lifted.

Sri Lanka: Financial services 21


State banks are beingreformed

Defaults on government-directed loans, uneconomic branch expansion andheavy overhead costs have progressively eroded the commercial viability of thetwo state-owned banks, necessitating their recapitalisation in 1992 and againin 1996. Having resisted pressure from international lending agencies for theirprivatisation, the government has begun a programme of cautious reformaimed at improving the commercial orientation of the banks.

Increased competition hasencouraged

diversification

Increased competition in the banking sector has blurred the distinction betweenthe type of services provided by commercial banks, development banks andother financial institutions. Although short-term trade finance remains themainstay of commercial banks, they have begun diversifying into less tradition-al services such as leasing, underwriting and project and housing finance. Thecountry’s two premier development banks, the National Development Bank andthe Development Finance Corporation of Ceylon, which are the main conduitsfor channelling long-term funds from international lending agencies to ind-ustry, have now been permitted to raise time deposits—until now the preserveof commercial banks. Lower interest rates and a growing tendency by domesticcompanies to raise cheaper funds in capital and money markets, have reducedthe profitability of corporate banking. Banks are now increasingly turning toconsumer credit to widen spreads, as shown by the boom in the credit cardindustry. (Reference table 13 includes statistics on commercial banking.)

Other banking andfinancial institutions

Other principal financial institutions include merchant banks (seven), venturecapital companies (six), leasing companies (four), finance companies (25) andtwo state-owned housing finance companies. Six insurance companies, two ofwhich are state owned, together with the National Savings Bank and twopension funds, the Employee’s Provident Fund and the Employee’s Trust Fund,predominate in the mobilisation of long-term resources. Pension funds, whichhave traditionally been pre-empted by the government to finance the budgetdeficit, are now being encouraged to invest in capital markets.

The stockmarket The fortunes of the Colombo Stock Exchange (CSE) have moved in tandem witheconomic and political developments in the country. The boom of 1993-94—when the all-share price index (ASPI) surged through the 1,000 points barrier—are long gone. By the end of 1996 the deterioration in political stability andeconomic performance reduced the ASPI to the 600 points range. In the secondquarter of 1997 perceptions of an improved economic and political climatespurred a recovery in investor confidence, pushing the index to 780 by the endof September. However, the spread of the Asian financial crisis accelerated for-eign selling, despite improved economic and corporate performance and drovethe ASPI down to the 700 point mark again by the end of 1997. In 1998increased privatisations have breathed some life into the market, as has dom-estic retail interest. (See Reference table 14 for stockmarket indicators.)

In a technical sense, the CSE is on par with stock exchanges in developedcountries. Since 1992 it has had a functioning central depository system andscreen-based trading was introduced in May 1997. However, the lack of liquid-ity in the stockmarket has limited its expansion, and in its budget for 1998 thegovernment announced wide-ranging incentives including tax breaks to en-courage more companies to go public.

22 Sri Lanka: Financial services


Other services

Tourism has been hit bythe civil war

With its tropical climate, long beaches and historic sites, tourism has thepotential to become Sri Lanka’s leading foreign-exchange earner. However, thesecurity situation and ineffective marketing have prevented tourist arrivalsfrom rising above the peak of 407,511 visitors recorded in 1994. Tourists fromwestern Europe form the bulk of the tourist traffic. The numbers of Japanesetourists, who are more generous spenders, have been affected by the deteriora-tion in the political climate. Their share of the market more than halved from7% in 1992 to 3.1% in 1997. (See Reference table 15 for tourism statistics.)

Concessions to aid thehotel industry

Sri Lanka’s hotel industry has been the main casualty of the decline in tourism.Occupancy rates have generally been around 50% or below. Profitability hasbeen hurt further by excess capacity in the industry. The number of hotelrooms is expected to grow to 16,900, far in excess of present demand. In 1997the government declared tourism a priority sector and announced several con-cessions, including a 15% tax rate and a duty waiver on imports of equipmentto aid the beleaguered industry.

Production

Industry

The private sectoraccounts for 93%

of output

Liberalisation, deregulation and the progressive privatisation of state-ownedenterprises have reinforced the growth of Sri Lanka’s dynamic private sector inrecent years. In 1997 it accounted for 93% of industrial output, of which nearlythree-quarters was generated by small and medium-sized enterprises. Except in1996, when a power crisis interrupted production, private-sector manufac-turing has grown at double-digit rates, averaging 11.5% since 1993. (See Refer-ence table 16 for a breakdown of manufacturing output.)

The public sector is dominated by the Ceylon Petroleum Corporation (CPC),the output of which fluctuates sharply from year to year as a result of changesin capacity and whether or not maintenance shutdowns occur.

The manufacturing basehas hardly changed

Despite its recent boom, the manufacturing sector has undergone little struc-tural change. Textiles and clothing, food, beverage and tobacco processing andchemical, rubber and petroleum products continue to dominate; their share oftotal industrial output has remained unchanged at 83% in 1993-97.

The clothing industrypredominates—

The development of the clothing and leather products industry has been themain success story. Growing by an unprecedented 18.7% year on year in 1997,the industry’s share of industrial production expanded to 42% in 1997. Theclothing sector has benefited from qualitative improvement and a shift tohigher value-added categories. But the lack of development in the domestictextile and other accessories base, which supplies only a small proportion ofthe clothing sector’s requirement, remains an area of vulnerability. In 1997 thegovernment removed import duties on textiles and related accessories as a

Sri Lanka: Other services 23


means of providing additional support to the clothing sector. Although thefood, beverages and tobacco sector lags behind the garment industry in termsof total value of industrial output (25%), its value-added ratio is higher. The1998 budget announced fiscal and import duty concessions for investment infruit, vegetable and tea processing, which have shown growing potential inrecent years. (See Reference table 16 for manufacturing production data.)

The rubber and gemindustries are affected by

the regional slowdown

Increased international demand for tyres, gloves and other rubber products hasstimulated growth in the rubber products industry, which now accounts forclose to 40% of total rubber production. Increased competition from Asiancountries following the devaluation in their currencies has reduced the com-petitiveness of the rubber products industry.

The diversity of Sri Lanka’s other industrial products is indicated by the sharesin manufacturing production in 1997 of non-metallic mineral products (7%)fabricated metal products (4%), paper and wood products (3%) and basic metalproducts (1%). The ceramic and diamond cutting and polishing industry andthe electronic components industry have displayed dynamic growth in recentyears. However, they appear to have been most affected by the Asian economiccrisis, either by way of reduced demand (diamonds) or reduced compet-itiveness (electronic components).

Foreign investment hasbeen thin

Foreign investment has played a crucial role in the development of the manu-facturing sector. Although Sri Lanka has one of the most attractive and openinvestment regimes in Asia, it has been unable to attract large volumes offoreign direct investment (FDI). Political instability, unimpressive macro-economic fundamentals, inadequate infrastructure and a minuscule marketsize have kept FDI at less than 5% of total investment. After peaking at $187min 1993, FDI declined sharply in 1994-95 with the deterioration in the politicaland economic climate. Following a modest recovery in 1996, FDI rose to$130m in 1997. The financial crisis in the region has dampened prospects of asignificant rise in FDI. Several projects by Malaysian and South Koreaninvestors—among the country’s largest investors—have either been cancelledor put on hold (see The external sector).

The industrial sector, 1997

SLRs m % of total

Total output 303,089 100.0 of which: textiles, clothing & leather 126,440 41.7 food, beverages & tobacco 75,713 24.9 chemicals, rubber & plastics products 50,682 16.7

Total manufacturing exports 203,114 100.0 of which: textiles & clothing 134,455 66.2Source: Central Bank of Sri Lanka, Annual Report, 1997.

A more even playing fieldbetween foreign and local

investors

Since 1996 the government has moved to reduce the bias in the incentivestructure, previously weighted in favour of foreign firms. Both the 1997 and1998 budgets announced expanded concessions to domestic firms, including a

24 Sri Lanka: Industry


relaxation in the eligibility criteria for tax concessions. Access to foreign fi-nance was also extended to local exporters.

Mining and semiprocessing

Liberalisation hasbenefited the gem industry

Sri Lanka has one of the highest concentrations of gem-bearing rocks andsediments in the world and the country has gained a reputation for its prod-uction of precious and semi-precious stones. Liberalisation and the provision ofattractive export incentives have benefited the industry. Gem exports rosefrom SLRs3.4bn ($51m) in 1993 to SLRs4.9bn in 1997. The gem, jewellery andgold industry was declared a priority sector in the 1998 budget and imports ofgold and gems were made duty free. The sector also received additional conces-sions including an exemption from income tax and the defence levy. (Refer-ence table 18 gives data on mining and quarrying exports.)

The phosphate projectprovokes strong

opposition

Significant deposits of rock phosphate have been discovered in the Eppawelaarea. A joint venture between the US-based Freeport-McMoRan and TomenCorporation of Japan to set up a $400m phosphate mining and fertiliser manu-facturing plant, was approved in 1996 but the project has met with stiff resis-tance from opposition political parties and environmental groups. Sri Lanka isalso seeking foreign investment to exploit its other mineral resources whichinclude graphite, ilmenite and mineral sands. Exports of minerals have beennegligible, at less than 0.2% of total exports.

Agriculture

Plantation agriculture comprises the three main export crops of tea, rubber andcoconut. The domestic agriculture sector is dominated by paddy rice, sugar andother field crops. Fish production accounts for 1.6 % of GDP; exports of shrimpand ornamental fish have grown in recent years.

The privatisation ofplantation agriculture—

The plantation sector has a history of inefficient management by state corpor-ations. In 1992 the two giant state corporations which managed the plantationswere split into 23 companies, management of which was turned over to theprivate sector. By 1997 the majority shareholding in 19 companies had beensold; the remaining 39% is expected to be divested by the end of 1998. Privatis-ation has benefited tea but rubber and coconut production has stagnated.

—is followed by firmmeasures to revamp

domestic agriculture

The lacklustre performance of domestic agriculture—which accounts for over70% of total value-added in the agriculture sector—has restricted overall agri-cultural growth. Inconsistent trade and pricing policies and restrictions oncropping have stifled growth. The sector also suffers from inadequate researchand poor marketing facilities. In 1997 the formulation of a new strategy aimedat revamping non-plantation agriculture was followed by the announcementin the 1998 budget of new fiscal and tariff concessions targeted at increasingprivate-sector investment in areas such as seed production, agricultural pro-cessing and marketing. This is to be complemented by the gradual withdrawal

Sri Lanka: Mining and semiprocessing 25


of state intervention either through privatisation or by reducing the role of thestate to that of a regulatory agency.

Tea In 1997 tea production increased for the fifth consecutive year, reaching a newrecord of 277m kg, surpassing the 1996 peak of 258m kg. Reversing a decliningtrend since 1981, the combined output of high-grown and medium-grown teasrose by 17.5% in 1997. The output of low-grown teas, which has soared inrecent years to account for more than half of production, fell by 2% in 1997,mainly because of dry weather. A little over half of low-grown teas are grownby private smallholders whose yields per ha are about one-and-a-half timeshigher than those of the large plantations. Nevertheless, yields have improvedunder private management, rising to 1,465 kg/ha in 1997 from 1,372 kg/ha in1993, although they are still below Kenya’s 2,000 kg/ha. Part of the reason ispoor soil and elderly stock in many plantations.

In 1997 Sri Lanka regained its pre-eminence as the world’s leading tea exporter,a position it lost to Kenya in 1996. Sri Lanka is second only to India in theproduction of black tea which accounts for over 55% of tea exports. Productionof the more lucrative cut, torn and curled (CTC) teas has been rising, and in1997 accounted for 7.1% of total production, up from 5% in 1994.

Tea prices boomed in 1996-97, owing to a combination of strong demand fromthe countries of the former Soviet Union—Sri Lanka’s leading market for tea—and a reduction in world supplies in 1997. This improved profitability inplantations, despite a sustained rise in the cost of production, which remainsthe highest among tea producing nations. Politically motivated wage increases,unrelated to productivity, have been the main reason.

Rubber Rubber production has stagnated at an annual average output of 105m kg since1991, with the exception of 1996, when higher prices encouraged increasedtapping of rubber. The long-term declining trend in rubber production is theresult of a reduction in the area devoted to rubber and a low level of replanting.Two-thirds of rubber plantations are owned by smallholders and suffer fromobsolescence and neglect. Yields are low and costs of production high. Dom-estic consumption of rubber has been increasing since 1985, as rubber-basedmanufacturing has grown. Exports of natural rubber have therefore declined—Sri Lanka accounts for only 2% of total world production—while exports ofrubber products such as crêpe rubber and tyres have risen.

Coconuts Three-quarters of coconut cultivation is undertaken by smallholders on tractsof less than 8 ha. Coconut production has not shown any appreciable increase,stagnating at an average of 2.5bn nuts since 1993. A rapid decline in the extentof coconut plantations—it is estimated that 1,000 ha of land are annually lostfor housing purposes—and inefficient cultivation practices by smallholders areprimarily responsible. Over two-thirds of production is domestically consumedand the balance exported. Sri Lanka is second only to the Philippines in theexport of desiccated coconut, and is also a major supplier of activated carbonand coir products.

26 Sri Lanka: Agriculture


Rice Paddy (unmilled) rice dominates the non-plantation agricultural sector, andaccounts for one-fifth of total agricultural output, making it an importantdeterminant of agricultural growth. Sri Lanka has on occasions come close toachieving self-sufficiency in rice. After a bumper harvest in 1995, when outputclimbed to 2.8m tonnes, a severe drought in 1996 reduced paddy production to2.1m tonnes—the lowest recorded since 1979. Production recovered to 2.2mtonnes in 1997 but was still 25% short of consumption requirements. In recentyears ad hoc revisions of the duty on rice have made the rice market highlyunpredictable and have interrupted supplies leading to fluctuations in prices.(Reference table 19 gives value and volume for the main agricultural crops.)

Output of key agricultural crops, 1997

Tea (m kg) 277

Rubber (m kg) 106

Coconut (m nuts) 2,631

Paddy (’000 tonnes) 2,239Source: Central Bank of Sri Lanka, Annual Report, 1997.

Construction

Construction growth hasslowed

Growth in the construction sector slowed to an average of 5.8% per year in realterms in 1993-97. Cutbacks in public investment (buildings and civil worksaccount for over one-third of government capital expenditure), have limitedgrowth in construction, while a slowdown in private investment and highinterest rates have reduced the demand for commercial buildings and housing.Private developers are being encouraged to invest in housing projects to meetthe growing demand for urban housing. The government has traditionallyfocused on the provision of housing for low-income groups and the ruralpopulation.

The external sector

Merchandise trade

The trade deficitnarrowed for the third

consecutive year

Export growth has generally outpaced import expansion, except in 1994 whenthe purchase of aircraft by Air Lanka inflated imports. In 1995-96 a sharpreduction in import growth led to a significant narrowing of the trade deficit.Although imports recovered in 1997, exports rose at a much faster rate and thetrade deficit shrank further to $1.2bn from $1.3bn in 1996.

Foreign trade, 1997(SLRs m)

Exports fob 274,193

Imports cif –345,285

Trade balance –71,091Source: Central Bank of Sri Lanka, Annual Report 1997.

Sri Lanka: Construction 27


Clothing exports arepre-eminent

Since 1986 textiles and clothing have remained the country’s leading source ofexport earnings, accounting for 49% of total exports and 66% of manufacturedexports in 1997. Since 1993 the value of clothing exports has grown by anannual average rate of 20%. As a substantial proportion of textile and garmentinputs are imported, the sector’s net exports are around 60% of their grossvalue, but there was some improvement in value-addition in 1997.

Other industrial exportsalso grew robustly

The rapid expansion in other manufactured exports, in particular chemical andrubber products, cut diamonds and gems, ceramics, leather products, and ma-chinery and electrical equipment, has somewhat diversified the country’s nar-row export base. The share of total manufactured exports accounted for by theseindustrial exports rose from 29% in 1993 to 34% in 1996, but contracted to 31%in 1997 primarily owing to a sharp fall in demand for jewellery and diamonds asa result of the downturn in Asian markets. There are concerns that the growthof other industrial products could also slow in the wake of increased compet-ition from Asian countries and a relatively slower depreciation of the rupee.

Tea has sustained growthin agricultural exports

Agricultural exports normally account for about one-quarter of total exports,although receipts vary with crop size and commodity prices. Booming pricesand higher volumes boosted earnings from tea exports to over 15% of totalexports in 1997, helping to offset the declining share of coconut and rubberexports. Improvements in the quality of tea, thanks to private management,have enabled Sri Lanka to sustain demand for its teas. (Reference table 20 givesa breakdown of exports.)

Imports are dominated byintermediate and

capital goods

Sri Lanka’s manufacturing sector remains heavily dependent on imported capi-tal goods and industrial inputs which together account for three-quarters oftotal imports. Among intermediate goods, imports of textiles and yarn pre-dominate; their value has grown by over 60% from $865m in 1993 to $1.4bnin 1997, reflecting the rapid expansion of the clothing industry. The expansionin thermal electricity generation increased the demand for petroleum importsin 1996-97, raising the country’s oil bill from 7.7% to 9.2% of total imports.Growth of imports of machinery and equipment slowed in 1994-95 reflectingthe unattractive investment climate that prevailed at the time; they picked upin 1996 and grew by 14% in 1997 to $742m. Although a large part of theincrease was due to the import of generators and telecommunications equip-ment, fiscal concessions offered on imports of capital goods also stimulatedexpansion.

Imports of consumerdurables have slowed

Foodstuffs account for 13-14% of imports, with the quantity dependent on thedomestic harvest. In 1996 the failure of the rice harvest, which necessitatedlarge-scale imports, inflated food imports to 14.7% of total imports, but theratio fell back to 13% in 1997 with the resumption of normal domesticsupplies. Wheat imports, which peaked at 1.05m tonnes in 1995, following thereintroduction of the subsidy in 1994, fell by over 30% to 725,000 tonnes in1997. The slow rise in disposable incomes in recent years has weakeneddemand for consumer durables, whose share of total imports of progressivelyfallen from 8.9% to 7.5% in 1993-97. (Reference table 21 gives imports data.)

28 Sri Lanka: Merchandise trade


The West is the largestmarket—

Sri Lanka runs large trade surpluses with the US and UK, which together takenearly half of the country’s visible exports. The US remains the leading marketfor clothing exports (61% in 1997) followed by the EU, which has a marketshare of 34%. Western Europe is also the principal source of tourism. TheMiddle East and the countries of the former Soviet Union, the largest buyers ofSri Lankan teas, accounted for 11% of export value.

—and Asian countries arethe biggest suppliers

Sri Lanka’s trade deficit with India nearly doubled from SLRs15.6m in 1993 toSLRs30.4m in 1997, as economic ties between the two countries improved. In1996 India overtook Japan as Sri Lanka’s leading supplier of imports. Importsfrom South Korea, Malaysia and Hong Kong, who are also among the country’sleading investors, have also been growing rapidly. (Reference table 22 givesnational data on major trading partners.)

Main trading partners, 1997

Exports to: % of total Imports from: % of total

US 35.8 India 9.5

UK 11.3 Japan 8.2

Japan 5.0 South Korea 7.8

Germany 4.9 Hong Kong 7.0

Former Soviet Union 3.7 Taiwan 6.3Source: Central Bank of Sri Lanka, Annual Report, 1997.

Invisibles and the current account

The Central Bank has revised the presentation of its balance-of-payments data,which now conforms closely to IMF practise. The incomes and services accountshave been disaggregated and data are published in dollars and rupees as opposedto special drawing rights (SDRs). The principal departure is that nationalaccounts still report merchandise imports cif, while the IMF lists merchandiseimports fob, counting freight and insurance as service imports.

Surplus in the servicesbalance —

The 1993 recovery of tourism, including the resulting growth in air travel andan increase in port revenue turned the services balance from deficit to surplusin the national accounts. In 1996 a slump in tourism reduced services inflowsbut a recovery in tourism in 1997 led to a sharp improvement in the servicessurplus which rose by 51% in dollar terms to $159m.

—has been offset bydeficit in incomes account

As with most developing countries, Sri Lanka runs a deficit on income fromoverseas assets (mainly interest, profit and dividends) owing mainly to intereston foreign debt. The increase in remittances of profits and dividends, whichhas accompanied higher levels of foreign direct investment (FDI) and invest-ment in privatised state enterprises, has limited the reduction in the incomedeficit despite higher interest inflows on securities and trading profits of theCentral Bank.

Private remittances arethe third largest forex

earner

Remittances from Sri Lankans working abroad have become an increasinglyimportant positive component of the current account of the balance of pay-ments, ranking behind only tea and garments in terms of net foreign-exchange

Sri Lanka: Invisibles and the current account 29


earnings, and offsetting up to 50-60% of the combined trade and servicesdeficit. Between 1993 and 1997 net private transfers swelled by more than 40%to $787m in 1997.

The current-accountdeficit has remained

relatively small

The current-account deficit has been lower than the merchandise trade deficitowing in part to the net effect of private transfers. Since 1995 a narrowing of thetrade deficit has also helped to cut the current-account deficit, which more thanhalved from $866m in 1994 to $387m in 1997. As a percentage of GDP thecurrent account deficit fell to 2.5% in 1997, the lowest for the past five years,according to national estimates. (IMF estimates of the balance of payments aregiven in Reference table 23; national estimates are in Reference table 24.)

Capital flows and foreign debt

Privatisation boostedcapital flows in 1997

Traditionally inflows of concessionary foreign aid and IMF support have beensufficient to finance Sri Lanka’s current-account deficit. However, with thedeclining trend in overseas development assistance in recent years, the countryhas come to rely more on inflows of foreign investment to cover its deficits.Since 1995 privatisation proceeds have boosted capital inflows. In 1997 inflowsfrom privatisation totalled a considerable $301m, which combined with$130m in FDI resulted in a $163m surplus in the overall balance of payments.

Concessional borrowingdominates external debt

Sri Lanka’s low exposure to short-term debt has stood it in good stead andinsulated it from the contagion effect of the Asian financial crisis. Most of SriLanka’s foreign borrowing is in the form of concessional loans from multi-lateral bodies and from foreign governments. The effective interest rate on thisborrowing is therefore low. The country’s external debt in 1997 totalledSLRs513.8bn ($8.4bn), of which 89% consisted of medium- and long-termdebt. In recent years, total foreign indebtedness has declined, falling fromaround 72% of GDP in 1995 to 56% in 1997, partly owing to a reduction in theuse of project loans. Over one-third of Sri Lanka’s debt is denominated in SDRs,22% in yen (reflecting the high proportion of direct lending from Japan as wellas from the Asian Development Bank) and 22% in dollars. With exports andnet private remittances growing rapidly, servicing this debt from foreign-exchange earnings has not presented a major problem. The debt-service ratio(including IMF transactions) fell below 10% in 1993-97. (Reference table 25gives World Bank data on external debt.)

Foreign reserves and the exchange rate

The level of reserves iscomfortable

Since 1993 foreign-exchange reserves have been maintained at levels equiva-lent to around four to five months of imports. In 1996 an overall balance-of-payments deficit necessitated a running down of reserves. In 1997 a surge inprivate capital inflows led to an overall balance-of-payments surplus allowingreserves to rise. (Reference table 26 shows data on external reserves.)

30 Sri Lanka: Capital flows and foreign debt


Foreign exchange reserves comparisons, 1996(year-end)

Total Per head ($ bn) ($)

Sri Lanka 1.9 107.6

Pakistan 1.2 8.6

India 24.3 25.5 Source: IMF, International Financial Statistics.

The rupee continues todepreciate—

The Central Bank has followed a policy of allowing the rupee to float, within a2% band, against a basket of currencies weighted towards the US dollar. TheCentral Bank maintains a 2% margin between daily buying and selling rates, toguide commercial banks in quoting their rates. Persistent current-account defi-cits and relatively high inflation rates have exerted a downward pressure on therupee, although the rate of depreciation slowed perceptibly in 1993-94. A sharprise in domestic inflation necessitated a faster depreciation of the currency,which fell on an average by 7.8% in 1996 and about 7.5% in 1997 against thedollar. (Reference table 27 gives exchange rates against several currencies.)

—but a sharp devaluationis unlikely

Sri Lanka’s relatively small exposure to short-term debt and controls on capitaltransactions have insulated the rupee from the currency turmoil in Asian mar-kets. In early 1998 the Central Bank checked speculation in foreign-exchangemarkets that the crisis would prompt a devaluation of the rupee by raising itsrepo rates. Because of its potential inflationary impact, the Central Bank hasavoided a sharp devaluation of the rupee. Exporters, who complain that thecompetitiveness of Sri Lankan exports is harmed by an overvalued rupee, havebeen partially compensated by other incentives, such as lower taxes and conces-sionary finance, aimed at reducing production costs in the export industries.

Sri Lanka: Foreign reserves and the exchange rate 31


Appendices

Sources of information

National statistical sources Central Bank of Sri Lanka, Annual Report

Central Bank of Sri Lanka, Monthly Bulletin

Central Bank of Sri Lanka, Selected Economic Indicators (fortnightly)

Central Bank of Sri Lanka, Sri Lanka Socio-Economic Data 1997 (annual)

Department of Census and Statistics, Sri Lanka Labour Force Survey (quarterly)

Department of Census and Statistics, Statistical Abstract (annual)

Department of National Planning, Public Investment Programme 1996-2000

Sri Lanka Customs, External Trade Statistics (annual)

International statisticalsources

Energy Data Associates, 1 Regent Street, London SW1Y 4NR

IMF, International Financial Statistics (monthly)

World Bank, World Development Report (annual)

Select bibliography Economist Intelligence Unit, Sri Lanka Country Forecast (quarterly)

Economist Intelligence Unit, Sri Lanka Country Report (quarterly)

Economist Intelligence Unit, Sri Lanka Country Risk Service (quarterly)

Centre for Regional Development Studies, Sri Lanka 2000: Towards the 21st century

Selected Internet sites Board of Investment: http://www.boisrilanka.org

General information and news: http://www.lk

Government Departments: http://www.lk/government/htm

Public Enterprises Reform Commission:

http://www.lanka.net/lisl2/yellow/perc/

32 Sri Lanka: Sources of information


Reference tables

Reference table 1

Government finances(SLRs m unless otherwise indicated)

1993 1994 1995 1996 1997a

Total revenue & grants 106,364 118,295 145,286 154,018 172,365 Tax revenue 85,891 99,417 118,543 130,202 144,006 Non-tax revenue 12,448 10,621 17,715 16,077 20,860 Grants 8,025 8,257 9,028 7,739 7,500

Total expenditure & net lending 140,460 167,768 200,482 213,932 212,362 Current expenditure 102,288 127,084 154,159 175,149 184,746 Capital expenditure & lending 38,172 40,684 46,323 38,783 27,616

Budget deficit (before grants) 73,321 60,726 67,225 72,382 70,032 % of GDP 8.7 10.5 10.1 9.4 7.8

a Provisional.


Reference table 2

Money supply and credit(SLRs m; year-end)

1993 1994 1995 1996 1997

M1 59,355 70,461 75,217 78,203 85,852

M2 160,136 191,670 228,536 253,201 288,258

Domestic credit 150,697 173,795 223,799 252,317 272,733Source: Central Bank of Sri Lanka, Annual Report, 1997.

Reference table 3

Interest rates(%; year-end)

1993 1994 1995 1996 1997

Interbank call loan rate (range) 16.5-28.0 14.0-28.0 16.0-102.0 13.0-31.0 9.0-20.0

Prime lending rate (weighted average) 20.4 17.8 19.9 18.4 14.2

Treasury-bill rate3-month 18.1 18.7 19.3 17.5 10.012-month 19.4 19.4 19 17.4 10.2Source: Central Bank of Sri Lanka, Annual Report, 1997.

Sri Lanka: Reference tables 33


Reference table 4

Gross domestic product and gross national product(factor cost; output basis)

1993 1994a 1995a 1996 1997a

GDP (SLRs m)At current prices 453,092 523,300 598,327 695,934 803,698 At constant (1982) prices 150,783 159,269 167,953 174,261 185,500 Real change (%) 6.9 5.6 5.5 3.8 6.4

GNP (SLRs m) At current prices 447,113 514,990 591,369 684,676 793,764 At constant (1982) prices 148,744 156,571 165,897 171,176 182,950 Real change (%) 7.7 5.3 6.0 3.2 6.9

GDP per head (SLRs) At current prices 28,365 32,414 36,869 41,940 47,999 At constant (1982) prices 8,567 8,898 9,279 9,515 10,219 Real change (%) 5.7 3.9 4.3 2.5 7.4

a Provisional.


Reference table 5

Gross domestic product by expenditure(SLRs m; current market prices)

1993 1994 1995 1996 1997

Private consumption 373,785 434,933 489,057 569,416 643,839

Public consumption 45,791 56,002 76,604 81,021 92,196

Gross domestic fixed capital formation 125,875 154,260 170,875 183,509 216,873

Stockbuilding 1,800 2,250 950 2,755 230

Exports of goods & services 168,858 195,805 237,711 268,640 324,923

Imports of goods & services –216,544 –264,166 –307,425 –337,213 –387,576

GDP 499,565 579,084 667,772 768,128 890,485Source: Central Bank of Sri Lanka, Annual Report, 1997.

34 Sri Lanka: Reference tables


Reference table 6

Gross domestic product by expenditure(SLRs m unless otherwise indicated; constant 1982 prices)

1993 1994 1995 1996 1997

Private consumption 124,359 131,710 135,581 141,774 152,749 % change 7.5 5.9 2.9 4.6 7.7 % of GDP 78.6 78.8 76.9 77.5 78.5

Government consumption 15,370 16,947 21,160 20,253 20,967 % change 4.3 10.3 24.9 –4.3 3.5 % of GDP 9.7 10.1 12.0 11.1 10.8

Fixed investment 39,946 43,571 44,011 45,027 47,184 % change 12.8 9.1 1.0 2.3 4.8 % of GDP 25.2 26.1 25.0 24.6 24.2

Stockbuilding 325 387 152 380 29 % change –0.2 0.0 –0.1 0.1 –0.2 % of GDP –0.2 0.0 –0.1 0.1 –0.2

Exports, goods & services 55,016 62,168 63,971 66,018 73,689 % change 13.1 13.0 2.9 3.2 11.6 % of GDP 34.8 37.2 36.3 36.1 37.9

Imports, goods & services 76,808 87,715 88,618 90,497 99,954 % change 14.5 14.2 1.0 2.1 10.5 % of GDP 48.5 52.5 50.3 49.5 51.3

GDP 158,346 167,068 176,399 182,995 194,664 % change 6.9 5.6 5.5 3.8 6.4Source: Central Bank of Sri Lanka, Annual Report, 1997.



Reference table 7

Gross domestic product by sector(SLRs m unless otherwise indicated; constant 1982 prices)

1993 1994 1995 1996 1997

Agriculture, forestry & fishing 31,554 32,593 33,659 32,109 33,095 % change 4.9 3.3 3.3 –4.6 3.1 % of GDP 20.9 20.5 20 18.4 17.8

Mining & quarrying 3,693 3,915 4,048 4,408 4,558 % change 11.9 6.0 3.4 8.9 3.4 % of GDP 2.4 2.5 2.4 2.5 2.5

Manufacturing 28,806 31,418 34,294 36,539 39,943 % change 10.5 9.1 9.2 6.5 9.3 % of GDP 19.1 19.7 20.4 21.0 21.5

Construction 10,400 11,024 11,564 11,957 12,603 % change 6.5 6.0 4.9 3.4 5.4 % of GDP 6.9 6.9 6.9 6.9 6.8

Electricity, gas & water 2,125 2,335 2,573 2,522 2,724 % change 12.0 9.9 10.2 –2.0 8.0 % of GDP 1.4 1.5 1.5 1.4 1.5

Transport & communications 17,287 17,823 18,803 20,213 21,790 % change 4.1 3.1 5.5 7.5 7.8 % of GDP 11.5 11.2 11.2 11.6 11.7

Wholesale & retail trade 32,584 34,667 35,906 37,765 40,234 % change 8.3 6.4 3.6 5.2 6.5 % of GDP 21.6 21.8 21.4 21.7 21.7

Banking, insurance & real estate 8,023 8,785 9,707 10,687 11,734 % change 10.8 9.5 10.5 10.1 9.8 % of GDP 5.3 5.5 5.8 6.1 6.3

Ownership of dwellings 3,841 3,887 3,938 3,989 4,037 % change 1.2 1.2 1.3 1.3 1.2 % of GDP 2.5 2.4 2.3 2.3 2.2

Public administration & defence 6,642 6,848 7,218 7,579 7,912 % change 3.0 3.1 5.4 5.0 4.4 % of GDP 4.4 4.3 4.3 4.3 4.3

Other services 5,828 5,974 6,243 6,493 6,870 % change 2.0 2.5 4.5 4.0 5.8 % of GDP 3.9 3.8 3.7 3.7 3.7

GDP 150,783 159,269 167,953 174,261 185,500 % change 6.9 5.6 5.5 3.8 6.4Source: Central Bank of Sri Lanka, Annual Report 1997.



Reference table 8

Prices and earnings

1993 1994 1995 1996 1997

Price indices (1952=100)Colombo consumer prices index 139.6 151.4 163.1 189.0 207.1 % change 11.7 8.5 7.7 15.9 9.6Wholesale prices index (1974=100) 127.7 134.1 146.0 175 .9 188.0 % change 7.6 5.0 8.8 20.5 6.9

Wages indices (1978=100)Agriculture 803.7 821.5 830.9 907.9 971.8 % change 21.0 2.2 1.1 9.3 7.0Industry & commerce 528.7 555.8 651.6 682.8 710.8 % change 3.5 5.1 17.2 4.8 4.1Services 365.9 431.4 456.7 487.2 487.2 % change 0 17.9 5.9 6.7 0Sources: Central Bank of Sri Lanka, Annual Report, 1997; IMF, International Financial Statistics.

Reference table 9

Population(m; mid-year; % change year-on-year in brackets)

1993 1994 1995 1996 1997

Total 17.6 17.9 18.1 18.3 18.5(1.2) (1.4) (1.4) (1.1) (1.3)


Reference table 10

Labour force(% unless otherwise indicated)

1993 1994 1995 1996 1997

Labour force (’000) 6,066 6,046 6,172 6,245 6,218 Employed 5,227 5,315 5,433 5,535 5,571 Unemployed 839 731 739 721 647

Labour force participation rate 49.5 48.1 48.3 48.5 48.3

Unemployment rate 13.8 12.1 12.0 11.1 10.4

Share of employmentb

Agriculture, livestock & fisheries 43.7 34.6 36.8 37.7 35.4 Personal services 14.8 20.4 16.2 17.7 17.2 Manufacturing 14.1 14.5 16.2 15.2 16.2 Trade & hotels 12.1 12.1 11.3 11.0 12.4

Note. Fourth quarter 1993-96, third quarter 1997.




Reference table 11

Transport statistics

1993 1994 1995 1996 1997

RoadNew vehicle registrations Motorcycles 53,934 36,791 34,207 31,955 36,755 Passenger cars 16,802 22,517 30,046 31,921 31,338 Land vehicles 6,646 7,160 9,294 8,340 7,652 Goods transport vehicles 4,948 5,213 7,293 5,660 5,561 Buses 1,835 3,347 1,653 1,364 1,999

RailPassenger traffic (’000 passenger km) 2,822 3,202 3,321 3,241 3,342Freight traffic (m tonnes km) 159 154 136 107 92

SeaVessel arrivals 4,345 4,294 3,612 3,857 4,088 Colombo 3,887 3,790 3,277 3,467 3,627 Trincomalee 248 281 266 306 464 Galle 210 223 69 84 57Total container traffic (’000 TEUs) 858 973 1,049 1,356 1,687Source: Central Bank of Sri Lanka, Annual Report, 1997.

Reference table 12

National energy statistics

1993 1994 1995 1996 1997

ElectricityAvailable capacity (mw) 1,409 1,409 1,409 1,453 1,607 Hydro 1,137 1,137 1,137 1,137 1,137 Thermal 272 272 272 272 427 Private power – – – – 23 Hired power – – – 44 20Units generated (gwh) 3,979 4,364 4,783 4,530 5,126 Hydro 3,796 4,089 4,514 3,249 3,448 Thermal 183 275 269 974 1,050 Private power – – – 155 411 Self generation – – – 152 217Total sales (gwh) 3,270 3,565 3,915 3,740 4,254

Petroleum productsImports (’000 tonnes) 2,132 2,236 2,488 2,833 2,988 Crude oil 1,800 1,898 1,860 2,033 1,814 Refined products 294 288 562 729 1,087 Liquefied petroleum gas 38 50 66 71 87Source: Central Bank of Sri Lanka, Annual Report, 1997.



Reference table 13

Banking statistics

1993 1994 1995 1996 1997

Number of banksCommercial banks 23 23 26 26 26Domestic 6 6 8 8 8Foreign 17 17 18 18 18Rural development banks 17 17 17 17 17Savings – – – – 1

Assets & liabilities of commercial banks(SLRs m; year-end)Assets 243,904 281,066 335,515 389,797 442,791 of which: loans 74,136 86,194 107,668 117,743 137,711 overdrafts 40,505 46,254 64,526 65,950 71,977Liabilities 243,904 281,066 335,515 389,797 442,791 of which: time savings deposits 124,745 148,882 185,656 213,040 249,503 demand deposits 34,592 41,708 42,576 48,867 52,704Source: Central Bank of Sri Lanka, Annual Report, 1997.

Reference table 14

Stockmarket indicators

1993 1994 1995 1996 1997

CSE all-share price index (year-end; 1985=100) 979.0 986.7 663.7 603.0 702.2

CSE sensitive index (year-end; 1985=100) 1,422.4 1,438.8 990.5 897.7 1,068.0

Market capitalisation (SLRs m) 123,790 143,210 106,869 104,197 129,128

Turnover (SLRs m) 18,579 34,522 11,249 7,403 18,315

Daily average turnover (SLRs m) 77.1 147.5 46.9 30.6 75.9

No. of listed companies 201 215 226 235 239Source: Central Bank of Sri Lanka, Annual Report, 1997.

Reference table 15

Tourism1993 1994 1995 1996 1997

Total visitor arrivals 392,250 407,511 403,101 302,365 366,165 of which from: Europe 257,883 261,045 254,730 171,888 218,481 North America 13,743 15,612 14,565 12,462 15,951 Asia 105,093 116,352 118,323 102,558 113,565 Australasia 11,610 12,033 10,254 8,763 11,712

Gross tourism receipts (SLRs m) 10,037 11,375 11,569 9,195 12,316

No. of hotel rooms 11,927 12,787 13,300 14,109 14,903

Average occupancy rate (%) 57.0 56.6 52.6 40.3 49.1Source: Central Bank of Sri Lanka, Annual Report, 1997.



Reference table 16

Manufacturing production(SLRs m unless otherwise indicated; current prices)

1993 1994 1995 1996 1997

Total manufacturing 166,475 190,643 221,440 260,247 303,089 of which: textiles, clothing & leatherware 70,057 78,211 89,944 101,627 126,440 % of total 42.1 41.0 40.6 39.1 41.7 food, beverages & tobacco 39,709 45,054 54,927 68,209 75,713 % of total 23.9 23.6 24.8 26.2 24.9 chemicals, rubber & plastics products 28,876 34,017 38,321 46,936 50,682 % of total 17.3 17.8 17.3 18.0 16.7 non-metallic mineral products 12,351 14,580 16,740 18,997 21,403 % of total 7.4 7.6 7.6 7.3 7.1 fabricated metal products 5,915 7,122 7,977 8,807 11,327 % of total 3.6 3.7 3.6 3.4 3.7 paper & paper products 3,438 4,066 4,959 5,069 5,462 % of total 2.1 2.1 2.2 1.9 1.8

Private-sector industrial production index (1990=100) 155 172 192 205 230 % change 13.1 11.0 11.6 6.9 12.0Source: Central Bank of Sri Lanka, Annual Report, 1997.

Reference table 17

Realised investments in Board of Investment projects(cumulative as at year-end)

1993 1994 1995 1996 1997

No. of enterprises 440 678 766 860 985

Completed projects (SLRs m) 22,160 41,881 50,370 60,957 78,961

Total investment potential (SLRs m) 36,729 59,809 72,219 91,622 118,997Source: Central Bank of Sri Lanka, Annual Report 1997.

Reference table 18

Mining & quarrying exports(SLRs ’000)

1993 1994 1995 1996 1997

Precious & semi-precious stones 3,402 3,917 3,972 4,771 4,899

Metallic ores & iron pyrites 0 18 89 209 4

Natural graphite 94 96 98 151 168

Ilmenite 74 171 127 64 105

Others 83 90 160 96 96

Total 3,653 4,293 4,447 5,292 5,272Source: Central Bank of Sri Lanka, Annual Report, 1997.



Reference table 19

Agricultural production

1993 1994 1995 1996 1997

Value (SLRs m; current factor cost) 90,369 98,519 106,753 122,594 138,999 Tea 6,811 6,879 7,230 10,332 12,685 Rubber 2,177 3,185 4,007 4,011 3,132 Coconut 9,711 9,167 9,323 12,838 14,960 Paddy 21,586 21,241 21,645 19,892 24,469 Other agriculture 50,084 58,047 64,548 75,521 83,753

VolumeTea (m kg) 231.9 242.2 245.9 258.4 276.9Rubber (m kg) 104.2 105.3 105.7 112.4 105.8Coconut (m nuts) 2,164 2,622 2,755 2,546 2,631Paddy (’000 tonnes) 2,570 2,684 2,810 2,061 2,239Source: Central Bank of Sri Lanka, Annual Report, 1997.

Reference table 20

Exports(SLRs ’000; fob)

1993 1994 1995 1996 1997

Agricultural exports 31,618 34,692 42,478 53,206 62,667 Tea 19,911 20,964 24,638 34,067 42,533 Coconut products 2,796 3,761 5,271 6,091 6,939 Rubber 3,086 3,582 5,713 5,753 4,640 Other products 5,825 6,385 6,857 7,295 8,555

Manufactured exports 101,437 118,544 147,069 166,543 203,114 of which: textiles & garments 68,150 76,685 94,946 105,341 134,455 machinery & equipment 3,528 4,572 6,348 8,572 12,076 rubber products 3,445 5,026 7,851 9,357 10,513 leather & footwear 2,841 4,456 6,054 7,690 10,812 diamonds & jewellery 7,449 8,419 10,023 10,643 8,384

Gems 3,402 3,917 3,972 4,771 4,899

Total incl others 138,175 158,554 195,092 226,801 274,193Source: Central Bank of Sri Lanka, Annual Report, 1997.



Reference table 21

Imports(SLRs m; cif)

1993 1994 1995 1996 1997

Consumer goods 42,981 51,810 60,508 68,372 72,062 Food & drink 25,675 29,739 36,901 44,377 45,996 Consumer durables 17,306 22,071 23,607 23,995 26,066

Intermediate goods 98,343 114,004 138,475 153,117 182,013 of which: textiles 41,740 51,299 59,375 64,601 81,816 petroleum 14,920 14,641 19,827 26,525 31,828 chemicals 5,244 5,975 7,310 7,402 8,024 fertilisers 3,108 3,097 4,407 4,189 3,175

Investment goods 50,508 67,524 60,916 66,647 78,232 of which: machinery & equipment 22,377 27,635 25,769 35,987 43,853 building materials 9,342 11,898 13,956 14,540 16,030 transport equipment 15,012 22,245 15,564 9,885 12,276

Total incl others 193,550 235,576 272,200 301,076 345,285Source: Central Bank of Sri Lanka, Annual Report, 1997.

Reference table 22

Main trading partners(% of total)

1993 1994 1995 1996 1997

Exports to:US 36.7 35.8 37.0 35.9 35.8UK 7.4 9.2 9.4 10.0 11.3Japan 5.4 5.3 5.5 6.6 5.0Germany 8.3 7.1 7.0 6.2 4.9Former Soviet Union 1.8 1.2 2.6 3.2 3.7

Imports from:India 9.2 9.0 9.9 11.2 9.5Japan 12.1 11.8 10.5 10.0 8.2South Korea 7.0 7.3 7.3 7.0 7.8Hong Kong 8.4 7.1 7.5 7.1 7.0Taiwan 6.0 5.6 6.0 5.8 6.3Source: Central Bank of Sri Lanka, Annual Report, 1997.



Reference table 23

Balance of payments, IMF estimates($ m)

1992 1993 1994 1995 1996

Goods: exports fob 2,301.4 2,785.7 3,208.3 3,797.9 4,095.2

Goods: imports fob –3,016.5 –3,527.8 –4,293.4 –4,782.6 –4,872.2

Trade balance –715.1 –742.1 –1,085.0 –984.7 –776.9

Services: credit 621.4 634.4 753.9 819.2 765.5

Services: debit –823.2 –874.3 –1,052.3 –1,199.1 –1,201.8

Income: credit 68.1 111.4 143.9 223.3 175.1

Income: debit –246.2 –234.3 –312.0 –360.6 –378.2

Current transfers: credit 730.4 795.4 882.3 846.7 886.2

Current transfers: debit –86.1 –72.6 –88.1 –114.7 –122.4

Current-account balance –450.7 –382.2 –757.4 –769.9 –652.5

Direct investment abroad –1.6 –6.9 –8.3 0.0 0.0

Direct investment in Sri Lanka 122.6 194.5 166.4 56.0 119.9

Portfolio investment assets 25.7 200.1 292.9 105.3 76.8

Portfolio investment liabilities 0.0 –132.9 –265.9 –107.3 –70.2

Other investment assets –100.3 16.4 –134.0 41.7 –27.9

Other investment liabilities 432.7 750.9 907.6 634.4 375.0

Financial-account balance 479.0 1,022.1 958.8 730.1 473.6

Net errors & omissions 173.3 128.0 106.3 157.9 83.1

Overall balance 201.7 767.9 307.7 238.7a 9.0a

Financing (– indicates inflow)Movement of reserves –284.6 –820.7 –373.5 –204.7 36.2 Use of IMF credits & loans 82.9 52.8 65.9 –34.1 –45.2 Exceptional financing 0.0 0.0 0.0 0.0 0.0

a Totals do not add in original.

Source: IMF, International Financial Statistics.



Reference Table 24

Balance of payments, national estimates(SLRs m)

1993 1994 1995 1996 1997a

Merchandise exports fob 138,176 158,554 195,092 226,801 274,193

Merchandise imports cif –193,550 –235,576 –272,201 –301,077 –345,285

Trade balance –55,375 –77,022 –77,109 –74,276 –71,091

Net services 7,847 8,884 7,796 5,805 9,386

Net income –6,025 –8,364 –7,032 –11,232 –9,760

Net private transfers 26,889 30,766 34,593 39,230 46,494

Net public transfers 2,712 2,890 3,114 2,709 2,625

Current-account balance –23,952 –42,847 –38,639 –37,765 –22,347

Net capital transfers 5,238 5,590 6,009 5,286 5,140

Direct investment net 9,107 7,815 2,931 6,606 25,505 Foreign direct investment 9,107 7,815 1,011 4,756 7,587 Privatisation proceeds 0 0 1,920 1,850 17,918

Net private long-term 8,998 15,628 2,856 202 4,044

Net government long-term 12,579 12,204 23,210 11,987 8,327

Net short term 17,453 10,799 7,712 5,865 –6,194 Portfolio investment 3272 1,334 –89 353 749 Net private short term 7,110 12,930 1,430 1,355 4,340 Net commercial bank assets 905 –7,093 1,904 –1,103 –20,048 Commercial banks liabilities 6,167 3,627 4,469 5,260 8,766 Net government short term 0 0 0 0 0

Capital and financial account (net) 53,375 52,036 42,719 29,946 36,822

Valuation adjustments –1,420 –1,380 6,394 4,213 –562

Errors & omissions 3,217 5,891 –2665 3,614 1,932

Overall balance 31,220 13,700 7,809 9 15,845

a Provisional.




Reference table 25

External debt, World Bank estimates($ m unless otherwise indicated)

1992 1993 1994 1995 1996

Public medium- & long-term 5,643 5,982 6,650 7,011 6,818

Private medium- & long-term 99 90 83 90 80

Total medium- & long-term debt 5,742 6,071 6,732 7,101 6,898 Official creditors 5,060 5,461 6,148 6,485 6,368 Bilateral 2,960 3,098 3,492 3,627 3,426 Multilateral 2,100 2,363 2,656 2,858 2,942 Private creditors 682 611 584 616 530

Short-term debt 250 266 538 535 566 of which: interest arrears 19 25 32 35 103

Use of IMF credit 464 516 617 595 531

Total external debt 6,456 6,854 7,888 8,231 7,995

Principal repayments 329 253 247 259 267

Interest payments 154 142 147 160 160 of which: short-term debt 13 9 17 24 26

Total debt service 483 395 394 419 427

Ratios (%)Total external debt/GNP 67.8 67.1 68.3 63.8 58.3Debt-service ratio, paida 13.6 9.5 8.2 7.4 7.3Short-term debt/total external debt 3.9 3.6 6.8 6.5 7.1Concessional long-term debt/total long-term debt 88.1 89.9 91.3 91.3 92.3Variable interest long-term debt/total long-term debt 5.6 5.1 4.4 4.4 3.7

Note. Long-term debt is defined as having original maturity of more than one year.a Debt service as a percentage of earnings from goods and services.

Source: World Bank, Global Development Finance, 1997.

Reference table 26

Foreign reserves($ m; year-end)

1993 1994 1995 1996 1997

Foreign exchange 1,601 2,016 2,057 1,931 1,996

Reserve position in the IMF 28 30 30 29 27

Total reserves excl gold 1,629 2,046 2,088 1,962 2,024

Gold (national valuation) 6 6 6 5 n/aSource: IMF, International Financial Statistics.

Reference table 27

Exchange rates(SLRs per unit of currency; period averages)

1993 1994 1995 1996 1997

US$ 48.25 49.42 51.25 55.27 58.99

¥ 0.43 0.48 0.55 0.51 0.49

Rs 1.58 1.58 1.58 1.56 1.63Source: Central Bank of Sri Lanka, Annual Report, 1997.

Editor: Elisabeth PaulsonAll queries: Tel: (44.171) 830 1083 Fax: (44.171) 830 1023



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