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Economic indicators point to weak performance

Sunday, 9 September 2012 - 2:00 PM SL Time


By Nimal Sanderatne

IMPERATIVES FOR ECONOMIC DEVELOPMENT

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The emerging weak economic performance is of serious concern. Three important economic indicators the trade balance, fiscal balance and debt are on an unfavourable trend.

The failure of the monsoon has added a further setback to the economy. Poor governance has weakened economic prospects for the country for the near future. This year`s slow economic growth and poor governance are likely to damage the high growth trajectory that was expected after the end of the war. The peace dividend is fast fading away. It is likely that economic growth would slide further than expected earlier with all three sectors showing a poor performance.


There are a few favourable developments, too. Among the favourable developments is the rapid growth in tourism and investments in the hospitality trade. This has boosted several economic enterprises in the fields of arts and crafts, travel trade and gems and jewellery. Worker remittances have been growing and the development of infrastructure is continuing despite the financial constraints. However, on balance, these are inadequate to boost the economy.

Trade deficit

Being an export-import dependent economy, trade performance is an important determinant of the country`s economic performance. Therefore, unfavourable global economic conditions have been an important factor for the deterioration of these economic indicators. The poor performance of exports has had adverse repercussions on the economy. The trade deficit increased by 11.2 percent in the first half of this year to reach US$ 4.7 billion, compared to the deficit of US$ 4.2 billion in the first half of last year, when the trade deficit reached an unprecedented and unmanageable US$ 9.8 billion. This year`s trade deficit is on course towards a massive deficit of last year`s magnitude or more owing to the poor performance of exports and continuing large import expenditure. Import expenditure in the first half of the year was nearly twice (95 percent) export earnings. While export earnings were US$ 4.96 billion, import expenditure was US$ 9.66 billion.

Global economic conditions have affected exports adversely. Export earnings in the first half of the year decreased by 2.2 percent. Both agricultural and industrial export earnings have declined in the first half of the year. Tea exports declined by 4.2 per cent and exports of textiles and garments by 1.6 per cent. The continued decline of these two important exports that are likely to continue in the second half of the year is of serious consequence for this year`s trade balance. These trends in trade figures for the first half of the year could lead to a large trade deficit.

The poor performance of exports has had unfavourable backward linkages. The decline in manufactured exports is especially serious for the economy as it implies not only lower export earnings, but loss of employment and incomes. Arresting the decline in exports is a challenging task as global developments that have a significant bearing on import prices and export demand are beyond our control.

Fiscal deficit

The slowing down of the economy has been responsible for a growing gap between the government`s revenue collection and expenditure. Although an important objective of government fiscal policy was to reduce the deficit to 6.8 per cent of GDP this is becoming a mirage as government expenditure is growing, while tax revenues are declining. The fiscal gap as a percent of GDP will be particularly large as the 2012 GDP is likely to grow by a lower amount.

Meanwhile, the data showed that the government`s revenue, including grants stood at Rs. 389.1 billion for January-May 2012. This was a small increase from Rs.357.4 billion in the same period of the previous year. While tax revenue during the five months increased, non-tax revenue fell to Rs.33.3 billion from Rs.38.5 billion. Revenue from grants also fell to Rs.2.5 billion from Rs.3.1 billion in 2011.

These statistics imply that the fiscal deficit would be larger this year and the fiscal deficit as a proportion of GDP would go beyond the objective of the announced fiscal policy targets. A large fiscal deficit means that government borrowing will increase and the financing of the deficit is likely to generate inflationary pressures. Such destabilisation of the economy is likely to affect economic growth adversely.

Increasing debt

The public debt increased to Rs. 5,902 billion at the end of May 2012. This was a 23 per cent increase from the debt of Rs. 4,801 billion at the end of May 2011. Of the total debt, Rs. 3,142 billion was domestic debt, while foreign debt component stood at Rs.2760 billion up from Rs. 2,733 million at end May last year.

Low rainfall

The economy has been adversely affected by the failure of the monsoon and the slow growth internationally. The monsoon has affected food production as well as tea production. Besides this the low rainfall in the catchment areas has led to reliance to a larger extent on more costly thermal generation.

About 50,000 hectares of paddy are estimated to have been affected by the drought conditions. Vegetable and other food crops too have been badly affected. However there are parts of the country such as the Eastern Province where farmers have been able to cultivate fields with irrigation water. Yet the paddy crop is likely to have fallen appreciably.

Tea production has fallen by about 6 per cent in the first seven months. The annual tea crop is expected to be about 8 per cent less this year. Manufactured exports have been adversely affected by a fall in demand in western countries. Garments exports were 1.6 per cent less while earnings from other industrial export too have declined in the first half of the year.
The exception has been rubber manufactures whose export earnings increased by 5.5 per cent in the first half of the year. The decline in manufactured exports affects wages incomes and employment of workers in industry. These shortfalls in production imply slower economic growth.

Tourism and remittances

One of the bright spots in the economy is the growth in tourism. In the first six months of this year tourist arrivals have reached 452,867 and earnings from tourism reached US$ 460 million which is an increase of about 25 per cent from that of last year. Worker remittances grew by 12.1 per cent to US dollars 452 million in the first half of the year. It is likely that these two sources would bring in about US$ 2 billion this year. This would offset about 20 per cent of the likely trade deficit.

Conclusion

It is important to recognise that the economy is facing severe difficulties and take appropriate measures to mitigate the unfavourable developments. Most of the adverse developments are beyond the control of governments. However, good governance and appropriate economic policies could mitigate the adverse impacts and ensure stability in the short run and growth in the long term.

Source(s)
The Sunday Times

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elephanthouse
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LK Information  9 Sep 2012 07:04:30 GMT  Report for Abuse  
Fully agree with the conclusion. Let's concentrate on the elements that can be influenced in a positive way and start with discontinuing 'the white elephant policy'.
elephanthouse
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LK Information  9 Sep 2012 07:57:46 GMT  Report for Abuse  
This has boosted several economic enterprises in the fields of arts and crafts, travel trade and gems and jewellery.

For gems and jewels I know for a fact that tourists still buy, but the average purchase value has come down quite significantly. No surprise, considering the current situation in so many countries.
Bonggo
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LK Information  9 Sep 2012 08:56:09 GMT  Report for Abuse  
Elephenthouse,

There will always be adverse conditions, that is why a government is there to take corrective action and provide relief.

We cannot forever rely on Western countries for tourism and investment. Government must encourage the look East policy.

Did you know that last year 2 million Sri Lankans visited India !! So why cant we get more Indians to visit Sri Lanka? South Asia may be poor in general but their rich can help to boost our economy
elephanthouse
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LK Information  9 Sep 2012 09:17:26 GMT  Report for Abuse  
Bonggo
I like your approach.
A real business development manager would be looking in all directions, not just westwards!
Let's just hope our guys are not getting influenced by the recent events in TN and try to chase the Indians away, haha! Good neighbourhood is important too.
Roshan2007
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LK Information  9 Sep 2012 11:06:32 GMT  Report for Abuse  
Bonggo,

We cannot forever rely on Western countries for tourism and investment. Government must encourage the look East policy.

Thailand did it 5 years ago. Most Thailand investments are from East Japan, Korea, Taiwan.

Our problem is we don't any policy to encourage investments.

Did you know that last year 2 million Sri Lankans visited India !! So why cant we get more Indians to visit Sri Lanka?

Again from last year onwards our Gov started an anti-India attitude after Geneva debacle.

the bottom line is our priorities all not aligned with our economy.
elephanthouse
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LK Information  9 Sep 2012 11:35:12 GMT  Report for Abuse  
International investors are looking for political and social stability. Of course we cannot expect a triple A rating, if even countries like France have lost it, but a serious effort has to be made for the country to be more attractive.

Note the list of countries with lowest risk factor (status June 2012:

Rank

Previous

Country

Overall score


1

1

Norway

90.37


2

2

Switzerland

88.83


3

3

Singapore

88.03


4

4

Luxembourg

87.90


5

4

Sweden

86.79


6

5

Finland

84.30


7

7

Canada

84.26


8

8

Denmark

83.52


9

9

Netherlands

83.07


10

7

Germany

82.24

elephanthouse
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LK Information  9 Sep 2012 19:51:48 GMT  Report for Abuse  
A good news for the economy

Sri Lanka oil refinery to resume operations this week
Sun, Sep 9, 2012, 09:34 pm SL Time, ColomboPage News Desk, Sri Lanka.


Sept 09, Colombo: Petroleum Minister of Sri Lanka Susil Premajayantha says the refining of crude oil at the Sapugaskanda refinery, which is currently shut down, would commence this week.

He said the repair work on a leaking pipeline connected to a buoy that pumps oil from ships has been completed.

The pumping of crude oil from a shipment carrying 135,000 tons of crude oil commenced on Friday.

The shipment reached Colombo on August 28th but the pumping was delayed due to a leak in the pipeline connected to the buoy.

However, Premajayantha said the refinery would commence the refining process from today.

Nevertheless, it would take about three days to start up the machinery that have now been shut down in the refinery.

Ceylon Petroleum Corporation (CPC) Managing Director Susantha Silva has said they were hopeful that crude oil could be refined and the output taken out by Wednesday.

elephanthouse
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LK Information  9 Sep 2012 19:54:36 GMT  Report for Abuse  
But this here is not that good....

South-west monsoon fails to bring sufficient rainfall to Sri Lanka's hydropower reservoirs
Sun, Sep 9, 2012, 09:23 pm SL Time, ColomboPage News Desk, Sri Lanka.


Sept 09, Colombo: The Meteorology Department of Sri Lanka says the re-activation of the south-west monsoon has not brought sufficient rainfall to the hydropower catchment areas.

The Department says the situation is not likely to change in the next few weeks.

Amongst the hydropower catchment areas, Norton had received the highest rainfall last week with only 3.5 mm while Lakshapana and Canyon had received a rainfall of 2.9 and 0.3 mm respectively. Castlereagh, Kotmale, Bowatenna and Victoria had not received any rainfall.

The hydropower reservoir storage stood at 23.4 % and the contribution to the power demand was only 13.3%.

According to the Meteorology Department, the south-west monsoon has brought rainfall to the Western, and Sabaragamuwa Provinces and the Galle and Matara Districts.

However, the drought weather conditions in the North and North Central Provinces are still continuing.

Director General of the Meteorology Department, S.H. Kariyawasam has said the North and North Central Provinces, which are two main agricultural areas, was unlikely to receive rains any time soon.

He has observed that significant rains could be experienced in the two provinces around mid-September, but would not be sufficient to address the water shortage in the area.

Rains to the provinces would be received only with the onset of the north-east monsoon during the latter part of the year.

elephanthouse
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LK Information  9 Sep 2012 19:55:11 GMT  Report for Abuse  
Neither is this.

More time needed to supply power from Sri Lanka's coal power plant
Sun, Sep 9, 2012, 09:13 pm SL Time, ColomboPage News Desk, Sri Lanka.


Sept 09, Colombo: The Power and Energy Ministry of Sri Lanka says more time is needed to supply power to the national grid from the Norochcholai coal power plant.

Power and Energy Minister Patali Champika Ranawaka said the main repair work on the plant has now been completed and that repair work on the transmission line was currently underway.

He told ColomboPage that once the repair work to the transmission line is completed, a test run would be done on the plant before re-connecting its power supply to the national grid.

He explained that the power supply from Norochcholai would therefore take a few more days to connect to the national grid.

According to Ranawaka, an eight member team of Chinese experts and a group of specialized engineers from the CEB are currently carrying out the repair work.

Power and Energy Ministry officials say the power supply from Norochcholai was likely to be connected to the national grid by the end of the week.

The Norochcholai power plant has broken down on 12 occasions since it was commissioned in March last year. The latest break down at the plant occurred on August 8th.

elephanthouse
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LK Information  9 Sep 2012 19:58:28 GMT  Report for Abuse  
At least the power cut was good for something, haha!

Power cut costs a seat to TNA in EPC elections
TamilNet, Sunday, 09 September 2012, 03:14 GMT

The Tamil National Alliance (TNA) was getting 7 seats and was leading in the counting of votes for the Batticaloa district, taking place at Vincent Girls College. Then, there was a 30 minutes power cut and when the lights came back, it was announced that the TNA got only 6 seats. The lost one went to the UPFA. As it stands now TNA has secured 11 seats, trailing behind the ruling UPFA that has won 12 seats in the province. The Sri Lanka Muslim Congress (SLMC) has secured 7 seats, while the UNP got 4 seats and Wimal Weerawansa's National Freedom Front (NFF) got one. The counting for Batticaloa district that usually takes place at the Hindu College was shifted this time to Vincent's College close to a paramilitary camp.

Unconfirmed reports said UPFA aligned Sivanesathurai Chandrakanthan alias Pillayan and Seyed Ali Zahir Moulana have polled much less personal votes and struggle to get their seats.

Total number of votes polled by the main parties:

UPFA: 200,044
TNA: 193,827
SLMC: 132,917
UNP: 74,901
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