Economic insights

Wednesday, 6 March 2013 00:00 - - {{hitsCtrl.values.hits}}

THE state of the economy is a universal concern. Yet, when it becomes the foremost concern of citizens, it takes on an aura of uncertainty that in a premonition of financial hardship needs to be addressed for the common good.

A recent poll conducted by Nielsen Sri Lanka has shown that the economy has become the clear major concern for citizens between the ages of 20 and 45 over the next six months. This will not strike anyone as a landmark discovery but it does show how wide uncertainty has spread despite Government assurances that the economy is well.

Despite Government authorities being upbeat on the economy, insisting that it will grow by 7-7.5% this year, there are many others that believe using GDP and per capita income as the sole measurement of economic growth is flawed. HSBC in a report published on Monday put forward the calculation of GDP growth for 2013 at 6.1% and stressed that inflationary pressures would have a deep impact on consumer spending.

The results of the Nielsen poll also underscore this aspect well. It points out Fast Moving Consumer Goods (FMCG) sector remained stagnant over 2012 showing just 1% growth, against 15% in 2011, likely a result of sudden price increases over the last year, with the devaluation of the rupee and increased energy costs which in turn created inflationary pressure.

Whilst the official Colombo Consumer Price Index compiled by the Department of Census and Statistics put inflation at approximately 9% over the latter half of last year and carrying on into 2013, an Urban Price Index created by Capital Alliance Research based on a different basket of goods, found that key essential expenses for urban middle-class households in Sri Lanka rose by over 20%, a figure which would appear to be more cohesive with the drastic slowdown in the FMCG sector.

Another poll carried out by Nielsen also found that 40% of 20 to 45-year-olds had put their spare cash into savings against 37% in the previous year, whilst another 41% of citizens polled stated that they had no spare cash as compared with 39% in 2011.

Additionally, a study from another private research firm, Verite found that Sri Lanka has been experiencing a phenomenon of ‘jobless growth’ where job growth in the country from 2006 to the second quarter of 2012 was merely 1%, despite a 40% increase in the GDP over the same period.

Such discrepancies together with decreasing exports and growing income inequalities are creating deep chasms in Sri Lanka’s social fabric. Data from the World Food Programme (WFP) shows that an alarming 50% of households in the Northern Province live on less than one dollar a day, a clear indication that extreme poverty does exist in Sri Lanka.

Be that as it may, the hardships experienced by the masses belie the rosy picture painted by the authorities. Rather than allocating blame, the best option to spur growth and bring benefits to the average person would be to support the private sector and allow it to create jobs. Even though managing the macroeconomic front to create economic progress will reduce inflation resulting in better standards of life in a long term process, it requires renewed attention now.