• Economic growth dips to 7.4% from 7.8% forecast in 2014 but up from 7.2% in 2013
• Budget deficit rises for the first time in post-conflict period to 6% of GDP from targeted 5.9% due to shortfall in revenue and unexpected expenditure
• Public debt dips to 75.5% of GDP from 78.3% in 2013Unemployment rate remained low at 4.3%; public investment at 5% of GDP in 2014
• Overall surplus of BOP up to $ 1.37 b from $ 985 m

Finance Minister Ravi Karunanayake receives the 2014 Annual Report of the Central Bank from Governor Arjuna Mahendran yesterday

Sans fanfare the Central Bank yesterday released the 2014 Annual Report which in essence gave a mixed scorecard on the performance of the economy and fiscal management. As opposed to the targeted growth of 7.8%, the actual achievement was 7.4% but slightly higher than 7.2% posted in 2013. The Central Bank said amidst uneven developments in the global economy, continued domestic economic activity helped sustain growth in the industry and services sectors, while adverse weather conditions dampened the performance of the agriculture sector during the year. The services sector, which represents 57.6% of GDP, grew by 6.5% in 2014 compared to the growth of 6.4% in 2013. The share of the Industry sector within GDP increased further to 32.3%, with a sectoral growth of 11.4% in 2014 compared to 9.9% in the previous year. Affected by extreme weather conditions, the agriculture sector, which represents 10.1% of GDP, contributed only marginally to real GDP growth. The growth of the agriculture sector was 0.3% in 2014, compared to 4.7% recorded in the previous year. The report also revealed that the budget deficit rose for the first time in the post-conflict period to 6% from the previously targeted figure of 5.9%. This was due to the shortfall in revenue and unexpected expenditure on account of adverse weather. Inflation was maintained at a low single-digit level and unemployment too was at a low 4.3%. Public debt as a percentage of GDP declined to 75.5% by the end of 2014 from 78.3% by the end of 2013. As a percentage of GDP, domestic debt and foreign debt of the Government stood at 43.7% and 31.8%, respectively, at the end 2014. The Central Bank said the external sector demonstrated its resilience in 2014 amidst headwinds originating from the global economic environment. As a percentage of GDP, the deficit in the trade account improved to 11.1% in 2014 from 11.3% in 2013. However, in nominal terms, the trade deficit increased to $ 8.3 billion in 2014 from $ 7.6 billion in the previous year, as a result of a higher increase in the expenditure on imports compared to the increase in earnings from exports. With the considerable improvement in service exports as well as increased workers’ remittances, the current account deficit narrowed to $ 2 billion in 2014 from the deficit of $ 2.5 billion in the previous year. As a percentage of GDP, the current account deficit was 2.7% in 2014, a notable improvement from 3.8% of GDP in 2013. Although some outflows were observed in the rupee denominated Government securities market towards the end of the year, other financial inflows, together with the improvement in the current account, helped improve the overall surplus of the BOP to $ 1,369 million in 2014 from $ 985 million in the previous year. Gross official reserves improved to $ 8.2 billion at end 2014 in comparison to $ 7.5 billion at the end of 2013. It also said some reversal in the fiscal consolidation process was observed during the year, with the overall fiscal deficit as a percentage of GDP increasing for the first time in the post-conflict period. The Government aimed to reduce the fiscal deficit to 5.2% of GDP in 2014 from 5.9% of GDP in the previous year. This was to be achieved by improving revenue to 14.5% of GDP in 2014 from 13.1% in 2013, and reducing recurrent expenditure to 13.4% of GDP in 2014 from 13.9% in 2013, while maintaining public investment at a high level of 6.7% in 2014 compared to 5.5% in 2013. However, contrary to expectations, the continued decline in revenue as a percentage of GDP led to an increase in the overall fiscal deficit to 6% of GDP in 2014. Although unexpected expenditure due to extreme weather conditions added pressure on Government finances, recurrent expenditure as a percentage of GDP remained broadly on target at 13.5%, mainly as a result of the decline in interest cost of the Government. “A large deviation of public investment from the envisaged levels was observed due to rationalising the public investment program in response to the revenue shortfall. Accordingly, public investment was 5.0% of GDP in 2014,” the Central Bank said.

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