Central Bank champions quest for $ 100 b economy

By Nisthar Cassim

The Central Bank yesterday made compelling case as to why and how the country can progress to a US$ 100 billion economy from $ 60 billion at present with a $ 4,000 per capita income by 2016 from $ 2,900 today.

Having detailed the progress of the country and the economy since 2007 amidst many challenges, the Central Bank at its eagerly-awaited annual road map presentation said the stage was now set for sustained progress towards a $ 100 billion economy and a $ 4,000+ per capita income.

“Over the past six years we have embarked on a planned and systematic journey and today we are well positioned to realise higher goals,” Central Bank Governor Nivard Cabraal said in his presentation of the Road Map for 2013 and Beyond.

His confidence and optimism stems from the assertion that the Government as well as the Central Bank has delivered on a continuous basis. The road map highlighted some key achievements in 2012 and some setbacks owing to external and internal shocks as well as provided an overview of what could be expected based on estimates as well as a slew of monetary and financial sector policies along with various Government initiatives in general.

“We have had remarkable progress right across the economy between 2007 and 2011, whilst there was a slight deceleration in 2012 for very good reasons,” noted Cabraal, who compared the slowdown in 2012 to a racing car having to do so when taking a bend before heading on to a fresh straight path. “We didn’t skid but took the bend confidently,” he added.

Perhaps alluding to the overheating of the economy owing to the 8% GDP growth for two consecutive years prior to 2012, the CB Chief quipped, “there was a situation where, as the saying goes, victim of our own success.” To illustrate, the fast-paced rise in consumption post-war, Governor said that in 2011, Sri Lanka imported two years of vehicles and six years of gold within a year.

However he said thanks to a multi-pronged policy package from the Government, the Treasury, and the Central Bank, the economy was able to get back on track fast, following what Cabraal described as the “shortest tightening cycle” since 2001.





“Today we have established benign macroeconomic fundamentals across all vital sectors. They (macroeconomic fundamentals) are moving in the right direction though may not be at the right speed we want,” Cabraal said.

Among many key achievements highlighted by CB was the optimism in containing the 2012 Budget deficit, almost within the target previously set – 6.2% of GDP.  “Containing the fiscal deficit was really a tough call and despite many external and internal challenges as well as amidst the fight to contain inflation, the achievement of a deficit of 6.2% or thereabouts, though ambitious originally, is highly commendable,” said Cabraal, in addition to commending Treasury Secretary and Monetary Board member Dr. P.B. Jayasundera.

Cabraal also said inflation being contained to single digit level for the longest-ever period of 47 months was another key milestone, though supply side pressures were severe.  Key progress in terms of reducing poverty, unemployment, containing the trade deficit, boosting economic activity in provinces, foreign reserves, etc. were also highlighted, apart from the Government’s massive thrust for public investment and overall development goal via the five hubs concept.

Commenting on the Central Bank’s future role, Cabraal said it would continue to focus on keeping demand-driven inflation pressures in check and maintain core inflation at the desired mid-digit level.

“With inflation stabilising, achieving sustainable economic growth will be a key focus,” he said, though noting that 8% and above GDP growth would only come in two years’ time. He also said that focus on further reducing unemployment and poverty would continue, in addition to boosting domestic savings by offering real positive interest rates, as well as encouraging foreign inflows. A flexible exchange rate policy with select intervention when imperfections arise was also stressed. Credit growth will be contained at 18.5%, same as in 2012.

He also said that in pursuit of future goals, the private sector would be required to adjust as well as maximise from opportunities, whilst reforms and efficiency improvement in the public sector were warranted as well, apart from an overall uptake in labour productivity, especially in the agriculture sector.

Other recommendations were diversifying exports into new markets and rapid development of export of services, focus on imports replacement activities, and energy conservation.