Situation Analysis and Current Issues of Sri Lankan Economy with Special Emphasis on Fiscal and Debt Issues

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Oct 28, 2013 (3 years and 9 months ago)

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1

Situation Analysis and Current
Issues of Sri Lankan Economy
with Special Emphasis on Fiscal
and Debt Issues

Dr. H. N. Thenuwara

Director

Economic Research Department

Central Bank of Sri Lanka


30 August 2005

2

Outline


Salient Features of the Economy


Economic Environment


Economic Performance


Major Fiscal and Debt Issues


Threats and Challenges


Strategies

3


19.5 mn


Population in 2004


Rs. 2,029 bn
-

Nominal GDP in 2004


US$ 1,031
-

Per capita income in 2004


7.6 %
-

Inflation in 2004


Rs. 311 bn


Govt. revenue in 2004


Rs. 477 bn


Govt. expenditure in 2004


Rs. 165 bn


Budget deficit in 2004


8.2% of GDP
-

Budget deficit in 2004


Salient Features

4


35:65


Hydro
-
thermal ratio


$ 64 /brl


Average international price of
oil in August 2005 (Brent)


$ 44/ brl


Average international price of
oil in January 2005 (Brent)


$ 1,209 mn


Oil import bill in 2004


$ 1,702 mn


Oil import bill in 2005 (est.)


11.5%


Export growth (Jan


June ‘05)


10.3%
-

Import growth (Jan


June ‘05)


105.5
-

Govt. debt as a % of GDP in 2004

Salient Features

5

Economic Environment



External Environment



Domestic Environment



6


IMF

projects

the

global

output

growth

in

2005

to

be

around

4
.
3

per

cent


This

growth

momentum

is

expected

to

continue

in

2006

at

around

4
.
4

per

cent,

although

some

downside

risks

remain,

as

oil

prices

continue

to

rise

unabated
.



External Environment

7

Domestic Environment



Open Liberal Economic Policies


Extent of the Market


Dependence on Weather


Energy Restrictions


Country’s Budget Constraints


Domestic resources constraint


External resources constraint


8

Per Capita Income


Selected Countries (in US$)

Sri Lanka

1,031 (in 2004)

India

478 (in 2002)

Malaysia

3,881 (in 2003)

Singapore

21,531 (in 2003)

USA

35,060 (in 2002)

Economic Performance

9

Figure 1


GDP Growth and Inflation since 1950


Economic Performance

10

Economic Performance

GDP Annual Growth Rate

11

Composition of GDP in Sri Lanka


Economic Performance

12



Economic Performance

13

Economic Performance

14

Economic Performance


Inflation

15

Economic Performance


Interest Rates

16

Economic Performance


International Trade

17

Economic Performance


Balance of Payments

18

Economic Performance


External Reserves

19

Economic Performance


Exchange Rate

20

Exchange Rate Management


Sri Lanka moved to independently floating
exchange rate regime from 23 January 2001.


The exchange rate stabilized within a short
period after an initial overshooting.


The rate behavior is monitored against a
basket of 24 currencies.


The rate has been depreciating at an annual
rate of about 5
-
7% over the past few years.


Depreciation against US$ in 2004 is about
6.2%.


Appreciation against US$ so far in 2005 is
about 3.7% (as at 26 August)

21

Economic Performance


Exchange Rate Regime

22

Economic Performance


Government Finance

23


Government Finance

Economic Performance

24

Economic Performance


Government Finance

25

Fiscal and Debt Related Issues


Major Issues



Declining revenue GDP ratio



Lower level of public investment



Persistently high budget deficits



Relatively high debt/GDP ratio

26

Fiscal and Debt Related Issues


Medium Term Policy Direction




Fiscal Management (Responsibility)


Act (FMRA) and related targets



Medium Term Macroeconomic


Framework and Fiscal Targets


therein



27

Threats and Challenges


Oil prices


Trade gap


Low export base


Infrastructure


Adv selection and moral hazard and
State Owned Enterprises (SOEs)


Political stability


Human capital


28


Oil Prices


International energy prices may continue to be high,
due to excessive demand from high growing
economies


Oil reserves are adequate for few more decades (only
for 36 years), but new fields are also being discovered


Coal deposits may last at least 200 years, but prices
may increase


Coal usage will also have environmental concerns, but
new research may pave way for cleaner coal usage

Threats and Challenges

29


Trade Gap


Trade gap widens with high demand for
imports


Exchange rate will have to adjust if other
inflows are not forthcoming

Threats and Challenges

30


Low export base


Exports are not yet diverse enough.


However, a several initiatives have begun to
encourage export diversity

Threats and Challenges

31

Principal Agent Problem and
State Owned Enterprises


Government as the principal has to depend
on other agents to run state owned
enterprises


In general state owned enterprises are slow
due to rules and regulations imposed to
avoid the principal agent problem.

32

Strategies


Economic expansion to avoid


Low purchasing power high consumption
needs


Too many people doing meager tasks


Floating rates


low reserves


Malaysia India Thailand


Developing infrastructure

33


Developing Human Capital


Developing technology


Encouraging research and development
(R&D)

Strategies

34

The End