Financial Times

Economic recovery gathers pace
Sri Lanka's economy grew a healthy 5.5 percent in the first quarter of this year, the third consecutive quarter in which growth exceeded five percent, and all indications are that the budget targets are likely to be achieved by year's end.

Finance Minister K.N. Choksy said the economy had strengthened despite the ill effects on petroleum prices and the drop in tea exports caused by the US war against Iraq, and the damage from recent floods. "All main economic sectors have shown resilience and greater output," he told a news conference held last week to unveil the government's mid-year fiscal position report.

This is a requirement under the new Fiscal Management (Responsibility) Act No. 03 of 2003, which places "self-imposed financial management discipline on the government".

It requires the Finance Ministry to report twice a year to the public and parliament the state of the nation's economy. The second report is due by year's end. Choksy described the results as "encouraging" and said the budget deficit target remains unchanged at 7.5 percent of GDP forecast in the 2003 budget. The deficit was 8.9 percent last year.

The Central Bank said that first quarter growth, which was boosted partly by the revival in economic activity and consumer demand in the north and east, confirms the recovery that started in early 2002.

"The cease-fire between the government and the LTTE that had continued for more than a year, impacted positively on both investment as well as consumer expenditure," a bank statement said.

The services sector reported the highest growth of 7.6 percent and contributed 71 percent of the overall economic growth. The telecommunication sub-sector provided the impetus for part of this growth, maintaining continuously high growth rates and expanding by 25.6 percent during the quarter.

The provision of cellular phones increased by 50 percent during the period under review, while that of Internet and e-mail services grew at 23 percent. "The demand from the northern and eastern provinces for telecommunication services following the cease-fire in February 2002 has not abated and contributed to this growth," the Central Bank said.

The growth in agriculture and industry was 0.7 percent and 5.4 percent respectively. The contributions of agriculture and industry to the overall growth were three percent and 26 percent respectively.

In domestic agriculture, paddy production increased by 6.7 percent with a record Maha paddy output of 1.89 million metric tonnes, mainly due to the increase in the cultivated area.

The peace process enabled paddy cultivation in areas in the north and the east, which had earlier been abandoned due to the war, the Central Bank said. Much of the growth in service activities came from the commercial banking sector. "The commercial banking sector took advantage of the continuous decline in interest rates with the decline in deposit rates being greater than that in lending rates," the Central Bank said.

"This situation could adversely impact on the overall investment potential, as the full benefit of the reduction in interest rates is not made available to investors, but rather manifests itself in higher profits in the banking sector." It said inflation had come down and remains in the single digits and that interest rates were also coming down.

Choksy said commercial banks had cut lending rates after requests by the Finance Ministry. Foreign reserves have grown and were now enough to cover 5.1 months of imports while the rupee has stabilised, having depreciated only by around 0.5 percent against the US dollar in the first half of 2003.

The rupee depreciated by 3.8 percent against the dollar last year and 12.4 percent in 2001, at the beginning of which the Central Bank floated the currency. Choksy said confidence in the economy has grown among foreign investors and that privatisation proceeds were expected to increase to Rs. 17 billion from the original estimate of Rs. 13.5 billion.

Despite lower collections from Value Added Tax the government was taking "strong measures" to generate additional revenue to offset this reduction as well as ensure strict control on expenditure, he said.

Kalutara chamber in mini industrial revolution
The Kalutara District Chamber of Commerce and Industries (KDCCI) has created a mini industrial revolution in the district through an industrial project in line with the Regaining Sri Lanka concept.

Explaining the details of the proposed programme, Amal Fernando, President KDCCI, said it was necessary to uplift the trading and industrial sector by bringing all entrepreneurs under one umbrella.

Along with this initiative, the KDDCI has already started several business awareness programmes on productivity, employee relations, safety and occupational health and import-export documentation, which are conducted by a full time faculty with specially trained graduates and professionals.

Fernando said a socio and economic survey in all Grama Seva Niladhari divisions in the Kalutara District is being undertaken by university graduates Once the survey is completed, the business development experts will study the data and prepare a feasibility report for KDCCI's consideration.

There are about 5,000 or more small business entrepreneurs and industrialists in the district. While many are doing well, some are having problems due to environment concerns.

World Bank raises support to Sri Lanka by 50 percent
Economic Reforms Minister Milinda Moragoda was recently told by World Bank officials that the bank has increased by 50 percent its allocations to Sri Lanka to $300 million per year from the earlier planned $200 million per year over the next two years.

Moragoda in the US for a series of meetings, including the launch of his new book, met Shengman Zhang, Managing Director of the World Bank and S. Sugisaki, Deputy Managing Director of the IMF among a number of senior officials of the US Administration, Congressional leaders, media personalities and members of the academic community.

He discussed with US government officials post-Tokyo developments involving the peace process and bilateral matters including the proposed official visit of Prime Minister Ranil Wickremesinghe to the U.S. to meet President George W. Bush later this year.

At his meeting with the U.S. Trade Representative Ambassador Robert Zoellick, Moragoda discussed Sri Lanka’s economic reform process and Sri Lanka-US bilateral trade liberalization.

Ambassador Zoellick complimented the leadership of Prime Minister Wickremesinghe and the minister in implementing economic reforms and assured that his office stands ready to support this process and agreed to stay in regular contact.

He also participated in the inaugural meeting of the Sri Lanka Congressional Caucus of the 108th Congress. This meeting was attended by the Co-Chairs, Representative Jerry Weller (Republican - Illinois) and Frank Pallone (Democrat - New Jersey).

Representatives Weller and Scott Garrett (Republican - New Jersey) will visit Sri Lanka to discuss trade and business relations. Representative Weller serves on the powerful House Ways and Means Committee responsible for trade matters.

Sri Lankan firm to market top welding machines
C.W. Mackie and Co was recently appointed as the sole agent in Sri Lanka for Migatronics, Europe's leading welding machine.

Migatronic AS Denmark Managing Director, Peter Roed told a recent ceremony to mark the occasion that the company has been in the welding business for 30 years. Representatives from Migatronic's India office were also present.

"We have a good and well equipped factory in India which we could use to back up the Sri Lankan market through service and spares," noted Indian representative S.R. Rawo. C.W. Mackie, founded in 1900, is one of the oldest established trading houses in the country.

Back to Business