Central Bank Assistant Governor, Dr. P. Nandalal Weerasinghe said the economy has been diversified and as a result Sri Lanka recorded a 1.8 percent growth in Gross Domestic Production (GDP) on a year on year basis in the first half of this year.
The three main sectors of agriculture, industry and services grew by 3.7 percent, 2.4 percent and 1.1 percent and with the rehabilitation in the Northern and Eastern provinces it is expected to provide an impetus to growth. He was speaking at a seminar on Statutory and Regulatory Requirements for Registered Finance Companies (RFCs) and Specialized Leasing Companies (SLCs) on Recent Economic Developments and Future Prospects for Financial Services on Tuesday.
With the dawn of peace, the Colombo Stock Exchange has rallied across the board since April this year and it is amongst the best performing national stock exchanges globally. International investors have purchased Sri Lankan Government securities amounting to US$ 1,646 million from May to October 2009, which shows that foreign investors are confident in investing in the country. Investor confidence is also expected to promote growth in the industry and service sectors with the global economic recovery, he said.
He said the Sri Lanka Development Bonds (SLDB s) offered were oversubscribed and the yields tightened continuously.
The US$ 500 Sovereign Bond offered in October 2009 was oversubscribed more than thirteen times. Private remittance inflow increased significantly with the post conflict, leading to an appreciation of the exchange rate and considerable increase in foreign exchange reserves.
During the past six years, Sri Lanka s exports grew on an average of 10 percent, which was facilitated by enhanced market access at bilateral, regional and multilateral levels. The apparel sector in Sri Lanka has acquired a number of strengths over the years and has a reputation of being a reliable supplier of high quality products to world-renowned brands, which shows much scope in enhancing the country s exports especially in the apparel sector.
Earnings from tea exports, which surpassed the US$ 1 billion benchmark in 2007 are expected to record US$ 2 billion in a few years, Dr. Weerasinghe said.
In 2008 the Central Bank modified its quarterly reserve money approach by basing it on the quarterly averages of daily reserve money to ensure a more disciplined growth and this has been successful in dampening inflationary pressures on the economy. We expect the inflation rate to remain at single digits in the medium term, he said.
He said the banking system has been extremely resilient amidst many challenges and has maintained its performance amidst internal and external shocks.
Though there were financial institution failures recorded in developed countries, not a single financial institution in the country collapsed during the global financial crisis. Key financial soundness indicators were maintained at healthy levels.
Asset quality deteriorated marginally. However, the reduction in interest rates is expected to bring about an improvement in the asset quality of banks. At present all banks report capital adequacy ratios under the Basel II framework. The economy re-entering the high growth path with the positive developments in the economy, strengthened by the policy stimulus has created vast opportunities for the financial sector, Dr. Weerasinghe said.