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will help the country forge ahead with rapid but sustainable and inclusive growth. He urged the private sector to take note of these “stars” and prepare to harness the unfolding opportunities.
The shift from an estimated $ 3,282 per capita income to over $ 4,000 by 2016 and expanding the economy from an estimated $ 67 billion to $ 100 billion by the next three years is being aggressively pursued by the Government and the Central Bank yesterday outlined its own initiatives to empower the country to avoid what Cabraal described as “dreaded” middle income trap.
“From 2014 onwards the Central Bank will ‘step up to avoid the trap’,” was the emphatic message from the CB Chief when he unveiled a series of far-reaching monetary and financial sector policies for 2014 and beyond.
“Since the first Road Map in 2007, the Central Bank has been at the forefront of a remarkable transformation of the Sri Lankan economy. This transformation did not come easy, and was achieved amidst scepticism and brickbats of some, and accolades from others,” Cabraal told the Road Map launch attended by business leaders, bankers, diplomats and senior public sector officials.
His detailed near two hour presentation did respond to some of the critics and opponents of the Government and the Central Bank in addition to dismissing their politically-motivated criticism.
“The year 2013 was a year of many notable achievements, having successfully responded to the economic stabilisation package that was implemented in 2012,” the CB Chief said, adding that the economy in 2013 rebounded and is estimated to have grown by 7.2% as opposed to the original target of 7.5%.
He said the level of investment maintained at over 30% of GDP and the headline inflation declined to 4.7% thereby enabling the achievement of the lowest level of inflation for the longest period (59 months) in the history of Sri Lanka.
He also said that during the past four years, Sri Lanka was a nation that enjoyed high growth in a low inflation environment. He noted that during the past four years average growth was 7.5% (the highest) and past eight years the average was 6.7%. Core 
inflation at 2.1% in December was lowest ever.
“Growth has been broad-based and inclusive,” Cabraal said, adding that share of Western Province GDP has declined to 43% in 2013 from 51% in 2005 and other provinces expanding.
He also said unemployment remained at low levels (4.5% in H1-2013) and poverty has declined. Labour productivity is also on the rise.
He said exports are expected to grow by 6.9% with monthly export earnings exceeding US$ 1 b since October 2013 and the trade deficit estimated to contract by 8.7%. Other achievements include over $ 1 billion in tourism receipts and one million in tourist arrivals, remittances estimated to reach $ 6.7 billion in 2013 and FDI surpassing $ 1 billion for the third consecutive year.
The cumulative deficit in the trade account declined by 10.7% to US$ 7,831 m during the first 11 months of 2013 from the corresponding period of 2012. The trade deficit is expected to contract to US$ 8,594 m (12.8% of GDP) in 2013.
The Current Account Deficit reduced to the projected levels with year-end figure likely to be $ 2.6 billion or 3.9% of GDP in 2013, down from 6.6% in 2012. These positive external sector developments resulted in further improvements in the BOP in 2013.
The BOP improved from a surplus of US$ 151 m in 2012, to a surplus of over US$ 700 million in 2013 or closer to $ 1 billion (when final data is available), Cabraal said. He also said Sri Lanka would enjoy similar improvements in both balance of payments and current accounts in the medium term as well.
Foreign reserves were at healthy levels – US$ 7.1 b (4.5 months of imports) – whilst the rupee remained stable amidst global market volatility.
Thanks to lower interest rate environment and growth opportunities the private sector has picked up, whilst credit to public corporations has moderated sharply. Furthermore, stability of the banking sector was preserved throughout the year, supported by strong capitalisation and liquidity conditions.
“These results were achieved, even while global economic conditions continued to remain weak,” the Governor said, adding that the effect of global uncertainties was experienced closer home in South Asia as well.
“However, amidst the challenging global environment, Sri Lanka’s economy remained resilient and on track,” he emphasised, adding that “the economy returned to the high growth trajectory, with the vigilant and prudent policies of the Central Bank and the Government”.
The year 2013 however saw overall monetary expansion being somewhat higher than projected.
Year-on-year growth of broad money (M2b) decelerated from the high levels observed in 2012. Average growth of broad money (M2b) decreased to 16.5% during January-November 2013 compared to 20.2% in 2012. Reserve money growth was in line with the projected path during the year while it remained marginally above the projected levels in the second quarter of 2013, Cabraal said.
On the fiscal side, he said the Government commendably reduced the budget deficit to 5.8% of GDP in 2013 from 6.4% in 2012 in addition to reducing the debt to GDP ratio to 78.0% in 2013 from 79.1% in 2012.
“In the fiscal sector, the Government’s curtailment of the budget deficit was a major boost to the health of the economy and monetary management,” the Governor explained. He said that robust public investment program and the Government’s steadfastness in expanding infrastructure played a key role in the overall rebound and resilience of the economy.
Focusing on 2014 and beyond, the Central Bank Chief said the conduct of the monetary policy would be fashioned towards realising a sound medium-term macroeconomic framework. The GDP growth target for 2014 is 7.8% and a high 8.5% by 2016.
Diversification needed for sustained growth will continue to be based on the 5+1 hub concept complemented by the Government’s poverty reduction, high productivity, provincial development, sound macroeconomic fundamentals, improved social infrastructure and SME and women focused development.
Cabraal also said that the country had moved from the decades-old “vicious cycle” of high inflation, high interest rates, low investor confidence, sluggish investments, low growth, high debt and high fiscal deficit to a virtuous cycle of low inflation, real interest rates, enhanced savings, regular investments, sustained growth, low debt levels and low fiscal deficits. Progression in this virtuous path will be relentlessly pursued, the CB Chief added.
