Given the fact that the economy shrank by 1.4 per cent last year, the value of the total goods and services produced this year is expected to be only about 1.6 per cent higher than what it was in 2000. This growth rate is somewhat misleading, as it was after a severe dip in production in the previous year. The growth of 3 per cent this year is due to the recovery of the economy after the worst- ever-economic performance. Therefore the growth rate of 3 per cent is to some extent a misleading statistical artefact.

When we make an allowance for the population increase of about 1.1 per cent, our per capita incomes would be about the same this year as it was two years before in 2000. This means that our economic conditions have been basically stagnant. The economic growth of this magnitude will not get us far ahead of even what we were. It appears that we are" a slow sort of country (where) it takes all the running you can do to keep in the same place". And as Lewis Carroll says in Alice in Wonderland, " If you want to get somewhere else, you must run at least twice as fast as that."

The economic growth of both 2001 and 2002 are among the lowest experienced in recent years. Since the dip in economic growth in the JVP insurgent years, the economy grew by between 3.8 to 6.3 per cent during 1995 to 2000. The lower figure was in 1996, when the economy faced a severe drought and power crisis. The highest growth was in 1997, when there was resurgence after the crisis of 1996. Again this growth rate in 1997 was somewhat misleading, as it was after a dip in production in the previous year as it too was due to the recovery of the economy after a poor economic performance.

The unfortunate fact is that our economic growth does not match the expectations of around 7 that has been articulated as needed to resolve the country's problems of poverty, low incomes and unemployment that are the underlying reasons for social tensions that often ends in a disruption in economic activities. Maintaining an economic growth rate of 7 to 8 per cent over a decade or so has become more a dream. The euphoria generated by the peace prospects has made the Finance Minister to again hope that such a dream would be a reality. Budget 2003 has projected higher growth rates once again to reach nearly the desirable 7 per cent by 2005.

Certainly if a durable peace is attained we will have a higher rate of growth. Yet, peace alone will not suffice. There are many changes and reforms that are needed, if we can ensure that the fruits of peace are not a temporary boom but a sustained growth momentum. Therein lies the difficulty. The social engineering required to enable the higher sustained growth is difficult in our cultural and political milieu. Equally important are favourable global economic conditions Sri Lanka's trade dependent economy can grow only in a hospitable international environment. The global recession was largely, though not solely, responsible for the low growth last year. The revival of the global economy had its favourable impact on the Sri Lankan economy in recent months and accounts for the second half's expected growth of 4.5 per cent. However it is vitally necessary that we are not solely dependent on the global growth alone. There have been unfavourable developments in the industrial sector that makes our main exports less competitive in international markets. High costs of production due to many reasons are fast making the competitiveness of our products in the international market doubtful. China, Indonesia, Vietnam and Bangladesh are among the countries whose industrial products are cheaper. They pose a real threat to our industries unless input costs especially that of electricity is brought down and the management of industry ensures a higher productivity.

The international Monetary Fund has been careful to point out " increased concerns about the strength and durability of the global economic recovery." The world economic situation has been summed up, by these words of the IMF: " By early 2002, it seemed that a global economic recovery led by the United States, was underway. By middle 2002, however weaknesses in emerging markets, as well as in mature equity markets, indicated an increase in risk aversion among investors. This sentiment in turn, raised questions about the strength of the recovery.''

This is hardly the environment in which a global economic recovery could be maintained. There are real concerns about the Japanese economy, especially its financial services that have been in crisis ever since the East Asian Financial Crisis. If war does break out in the Middle East, the fragility of the Sri Lankan economy would be once again exposed. A rise in crude oil prices would have a serious impact on our industries and on our balance of payments. There is very little advantage that we can expect from a war situation. Tea prices, tourism, Middle Eastern worker remittances and foreign investment, are all likely to be adversely affected. The only hope is that the current efforts of the UN would avert such a catastrophe. Given an uncertain international environment, difficult as it may be, we must look towards internal reforms that would enhance productivity and bring down the costs of production. The growth of the Sri Lankan economy based on the reconstruction effort and the resuscitation of the depressed sectors of the economy in the North and East, must be supplemented with improvements in infrastructure and increase in efficiency. Without such developments it is difficult to achieve a sustained growth of the economy in a highly volatile, harsh competitive environment. Higher rates of economic growth cannot be achieved by a mere presentation of statistical projections. It must be backed by both governmental actions to stimulate the economy as well as by individual resolves to ensure higher productivity. There is certainly new hope with the prospects of a durable peace, but we have much more to do if we are to achieve the higher growth projected in the Budget.

Back to Top

Back to Columns

Copyright © 2001 Wijeya Newspapers Ltd. All rights reserved.
Webmaster