Turning around numbers

Reduced income from exports has become a regional issue with Sri Lanka as well as other South Asian nations struggling to maintain their 2011 performance. The economic challenges posed by reducing exports will be a challenge for the private sector as well as the Government.

The Asian Development Bank has downgraded the growth forecast for South Asia by 0.2 per cent to 5.3 per cent in 2012 and 6.2 per cent in 2013 on a slowing Indian economy. In its latest Asian Development Outlook, Gross Domestic Product growth has dipped to 5.3 per cent in the second quarter of 2012 from 6.7 per cent a year earlier, with poor output from farm and manufacturing sectors. Growth in private consumption expenditure was one of the lowest in years.

India’s exchange rate has fallen over the past year amid interventions by the Reserve Bank of India. In 2012 India is expected to grow 5.4 per cent down from an earlier forecast of 5.6 per cent, and a 2013 forecast has been cut to 6.5 per cent from 6.7 per cent. In the Maldives, recent political turmoil, growing concern over the increasing fiscal deficit, rising public debt, and the effect of the weaker European economy on tourism point to continued economic fragility, report pointing out. Other economies in South Asia are expected to resilient, ADB said.

Sri Lanka has said it expects growth to be about 6.7 per cent this year but is struggling under slowing exports that have dipped 6.6% so far in 2012. In its latest report the Central Bank stated that earnings from exports declined in October 2012 with earnings from agricultural exports as well as industrial exports declining. Within the category of agricultural exports, earnings from tea, which account for about 14 per cent of total earnings from merchandise exports, declined in October, with geo-political tensions which continue to hamper demand from some Middle Eastern countries partly accounting for this drop.

Earnings from rubber, coconuts and coconut products also declined in October. Earnings from exports of spices including pepper and cloves, however, increased on a year-on-year basis, in October 2012.

Given the slowing down of global demand, exports of industrial exports continued to decline by October 2012. Even more alarmingly earnings from exports of garments, which have a share of around 38 per cent in total export earnings, have made the largest contribution to the decline in earnings from industrial exports.

Lower exports mean low foreign exchange and lower foreign exchange in turn means a small purchasing capacity of a nation in the international market. Fluctuations in export earnings introduce uncertainties in an economy. These uncertainties influence economic behaviour by adversely affecting the level and efficiency of investment and in turn have a negative effect on growth.  In addition to the above factors, export growth is also important because of its effect on internal trade and economic stability. Even more, the rate of economic growth and the distribution of income and wealth in a country are closely related to export growth.

All this means that the Government has to work with the private sector to funnel assistance and resources to bolster exports to wean the country off loans and promote overall economic stability and growth. Fast tracking niche market concepts, promoting branding, stepping up trade agreements and streamlining export procedures are just a few steps that need to be taken if Sri Lanka is to turn around its numbers.