PB upbeat on 2013 prospects

• Values water-filled reservoirs worth $ 2 b considering benefit of not having to import extra oil for thermal generation
• Confident GDP growth will rebound to 7.5% from an estimated 6.5-7.5% improvement in 2012
• Forecasts bumper Maha harvest, higher hydro power generation helping
• Tourism, urban development, and construction along with robust public investment program to support growth

By Nisthar Cassim

Finance Secretary Dr. P.B. Jayasundera on Friday sounded upbeat over prospects for the economy in 2013, in addition to being emphatic that the Government would firmly stick to the path of fiscal consolidation.

“We are confident that the economy in 2013 will rebound to achieve a growth of 7.5%,” Dr. Jayasundera said, adding that it was too early to revise projections for the New Year even though favourable weather would have a positive impact, along with recovery in major economies globally.

He noted that higher rainfall in recent times had boosted hydro power capacity, thereby enhancing its share in electricity generation to over 80%. This, in comparison to the 18% low during the drought, was a big advantage. He also suggested that the higher water levels in hydro catchment areas could be worth $ 2 billion when considering the requirement of oil imports in a drought period.

The Treasury Secretary also said that though recent floods had impacted agriculture areas, a bumper harvest was expected in the Maha Season with over 700,000 hectares under cultivation. This, along with continuing buoyancy in tourism, urban development, and construction, among other factors, points to a rebound in the economy in 2013.



The Treasury estimates GDP to have grown by 6.5% or 6.75% in 2012, a year which Dr. Jayasundera described as “very challenging locally and globally”. He said that the over 6% growth was despite four-and-a-half months of drought, impact on Yala harvest, drop in tea production, and the year-end floods.

During his first media interaction in the New Year, Dr. Jayasundera listed a host of key achievements for 2012.

Apart from containing the Budget deficit (see box story), he said that policy measures implemented in the early part of the year effectively helped to stabilise the economy from internal and external shocks. Measures included devaluation and maintaining a flexible exchange rate, thereby reducing the extra trade deficit, price adjustments in petroleum, electricity, and transport, and tariff measures on select imports such as vehicles.

The Finance Secretary also said that despite the four-and-a-half months of drought in the early part of 2012 and a fair share of the Yala harvest being lost, there was no food shortage. However, he said that the impact on agriculture, livestock, manufacturing, and power generation saw GDP growth in the third quarter of 2012 dip.

This period also saw higher import of fuel for power generation, owing to the drought and amidst curbs on imports from Iran. Oil imports are estimated to be around $ 5.5 billion for the entirety of 2012. However, he said there had been a rebound in fourth quarter, thanks to better weather, leading to improved outlook for agriculture and hydropower generation. 

Dr. Jayasundera said inflation being kept at single digit level (around 7% for the full year) despite multiple effects of drought and price adjustments as well as the flexible exchange rate was another key achievement of the Government in 2012.

“We have managed to stabilise inflation and the exchange rate in addition to ensuring a moderation in credit growth,” added Dr. Jayasundera, further explaining the benefits of the well-coordinated monetary and fiscal policy measures in 2012.

In response to a question from the media on how credible the Government’s forecast would be when previously expressed estimate of a US dollar exchange rate of Rs. 120-125 hadn’t materialised, Dr. Jayasundera responded: “I am not an astrologer or a journalist, but economic fundamentals will decide the right rate. Actions taken by the Government have stabilised the exchange rate.”

The Finance Secretary also expects losses of Ceylon Petroleum Corporation (CPC) and Ceylon Electricity Board (CEB) to come down in 2013, though he is of the view the transfer pricing remains inadequate. This confidence stems from price revisions made in 2012 as well as higher hydropower generation.

Dr. Jayasundera also said that restructuring of public sector would be continued to improve efficiency and cut losses. The Government is also in the process of redefining the public sector enterprises comprising at present around 270 entities, by segregating the fully-owned commercial entities.