UN-ESCAP tips 6.5% growth for Sri Lanka

By Shabiya Ali Ahlam

The United Nation Economic and Social Commission for Asia and the Pacific (UN-ESCAP) is forecasting Sri Lanka’s economy to grow by 6.5% this year, marginally up from 6.2% in 2012 but lower in comparison to the Central Bank estimate of 7.5%.

The UNESCAP’s 2013 Annual Report released yesterday stated that in 2013 GDP growth is expected to improve due to the easing of both monetary and fiscal policies and improved performance in all major sectors, mainly the agricultural sector which had suffered a setback in 2012 due to adverse weather conditions.

Analysing the growth trends in 2012, the report stated that a strong growth momentum continued in the first quarter of the year but moderated from the second quarter onwards in response to policy tightening and weakening global demands, which UN-ESCAP Economic Affairs Officer Shuvojit Banerjee at the launch event of the Annual Report linked to the double-dip recession prevailing in the EU and the sluggish recovery of the US economy.

“Given the dependence of most of the regions on the developed markets of the world, the continuing uncertainty and slow growth of developed economies are the most significant effects on the Asian region,” Banerjee said, while speaking at the launch which was also attended by UNDP Senior Program Analyst Dr. Fredrick Abeyratne, Institute of Policy Studies (IPS) Chairman Professor W.D. Lakshman and IPS Executive Director Dr. Saman Kelegama.

Noting that GDP grew at 6.2% for the year as a whole, UNESCAP said the deceleration in growth was attributed mainly due to lower performance of the agricultural and service sector. Taking into account the demand side, the investment-to-GDP ratio has been improving and crossed the 30% mark in 2012.

With the inflation rate for 2013 being forecasted to be 7.3% in 2013, the report highlighted that inflation for 2012 stood at 7.6% in average as compared with the 6.7% in 2011. Reasons for the increase from 2011-2012 was due to the upward revision and administered energy prices, rise in food prices due to draught conditions, depreciation of the domestic currency, and increase in import duties on several food items, which contributed to upward pressure on prices.

Pointing that the budget deficit in the country is still high, the report acknowledged that it has been narrowing in recent years. With the figure falling to 7.8% of GDP in 2011 from 8.1% in 2012, it was expected that the Government’s target for budget deficit at 6.2% of GDP in 2012 would be achieved by restraining expenditure and improving revenue collection, particularly through the strengthening of tax administration.

Furthermore, while the country’s current account deficit has been narrowing, it was noted that the foreign exchange reserves have stabilised. It was stated that both, imports and exports contracted in 2012 due to the global slowdown which helped to contain trade deficit, whereas tighter monetary and credit policies slowed credit and import growth.

With the current account deficit being brought down to 5% in 2012 to 7.8% in 2011, strong growth in worker’s remittances by 16.3% was noted to have contributed to this.

The UNESCAP 2013 report, titled ‘Forward Looking Macro-Economic for Inclusive and Sustainable Development,’ noted overall that Asia Pacific would have subdued growth as the region is impacted by developed world policy uncertainty. It said regional slowdown underlines urgency for new macro-economic policy paradigm whilst noting that China’s pro-poor economic rebalancing would benefit other Asia Pacific nations.

Recognising the need for policy changes to realise development potential, the report stated that countries in South Asia in general would have to overcome a number of development challenges, which include large concentrations of poverty and hunger, rising inequality, poor levels of human development, wide infrastructure gaps, lack of a diversified base for high value added products and exports, along with the widespread of food and energy and high risks of disasters.

Stating that sub-regions of Asia face the dual challenge of raising productivity to ensure that income levels are rising and poverty is being reduced, it stressed on the need for creating enough jobs for the growing working-age population, which is noted to be expanding by 2% per annum.

It also stated that countries falling under the sub-regions of Asia should work towards providing good quality education, health, sanitation, and other infrastructure to make the most of the youth bulge. In addition, it emphasised the need to have a minimum social protection floor to meet the basic needs of the vulnerable population.