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Quarterly
review of the economy In the agricultural sector the output of tea dropped, but the outputs of rubber and coconut improved during the 3rdquarter compared to the previous quarter. Tea output dropped by 11% to 72 million kgs from 81 million kgs in the previous quarter. Third-quarter output of tea was equivalent to the first quarter. Rubber output increased by nearly 5% to 23 million kgs from 22 million kgs in the previous quarter. However, it was still lower than the first quarter output of 25 million kgs. Coconut output increased by nearly 7% to 648 million nuts from 608 million nuts in the previous quarter. Coconut output has been consistently rising since the second quarter of this year, which is a turnaround compared to last year's low output. The Colombo auction price of tea has been rising consistently throughout the quarter under review. Colombo auction price of tea increased to USD 1.50 per kg in July (in comparison to USD 1.44 per kg in June), to USD 1.56 per kg in August, and to USD 1.62 per kg in September. These monthly auction prices were marginally higher than the prices during the corresponding months last year. The rising auction prices of tea may be due to drops in output. Industrial production was on a declining trend, in terms of the Industrial Production Index (1997 = 100), during the quarter under review. The private sector industrial production index dropped to 121 points in July (from 126 points in June), increased to 128 points in August and then dropped again to 113 points in September. The public sector industrial production index dropped even further to 36 points in July (from 111 points in June), but recovered to 72 points and 97 points in August and September respectively. On the other hand, industrial exports, in terms of value, shot up by 36% in July to USD 433 million compared to June, but dropped by 26% to USD 322 million in August, and then increased by 10% to USD 354 million in September. Overall, the quarterly industrial exports worth USD 1,109 million during the third quarter were the highest during this year (the corresponding values for first and second quarters were USD 918 million and USD 915 million respectively). Thus, despite drops in industrial production indices industrial exports have increased by 21% during the quarter under review. It is not certain whether industrial export volume has also increased during the quarter under review because of non-availability of data. Interest
Rates Since last year market clearing rates determine the Central Bank interest rates. Thus, the declining trend of interest rates was due to excess liquidity in the money market. Excess liquidity in the money market was due to the repayment of debts of the state-owned Bank of Ceylon, People's Bank, Ceylon Petroleum Corporation, and the Ceylon Electricity Board by the government. Inflation, as measured by the Sri Lanka Consumer Price Index (SLCPI 1995-1997 = 100), has been on a declining trend month after month during the third quarter, and indeed since the beginning of the year. The point-to-point inflation dropped (in comparison to the preceding month) to 1.4% in July, 1.2% in August, and then climbed to 1.4% in September. In a similar line, the annual average rate of inflation dropped (in comparison to the preceding month) to 5.4% in July, to 4.8% in August, and to 4.3 % in September. The annual average rate of inflation has been declining consistently since the beginning of this year. Likewise, inflation in terms of the Colombo Consumer Price Index (CCPI 1952 = 100) has also been on a downward trend, both point-to-point and annual average rates. Yet, inflation measured in terms of the CCPI has been higher than in terms of the SLCPI as always. For instance, the annual average rate of inflation measured by the CCPI was 8.3% in July, 7.8% in August, and 7.6% in September. Public
Debt Out of the total debt of Rs 42 billion incurred during the third quarter Rs 25 billion was incurred in September and Rs 14 billion in July. August incurred the lowest debt of Rs 3 billion. Overall, out of the total debt incurred during the third quarter 72% was external and 28% was domestic. International trade sector was very favourable during the quarter under review, i.e. exports rose and imports dipped, in terms of values. Hence, the trade deficit dropped considerably compared to the first two quarters. Exports, in terms of value, increased by almost 20% to USD 1,424 million during the quarter compared to the previous quarter (USD 1,188 million). Exports, in terms of value, recorded USD 493 million in July, but declined to USD 470 million in August and to USD 461 million in September. Imports, in terms of value, increased by almost 8% to USD 1,664 million during the quarter under review in comparison to the previous quarter (USD 1,545). Imports, in terms of value, recorded USD 616 million in July, but declined to USD 523 million in August and then increased marginally to USD 525 million in September. The gross official reserves continued to rise from USD 1,939 million by the end of July to USD 2,065 million by the end of August (6.5% rise), and to USD 2,258 million by the end of September (9% rise). The gross official reserves increased by 14% to USD 2,258 million at the end of the third quarter from USD 1,979 million at the end of the second quarter. The gross official reserves were bolstered by foreign aid received, net private remittances, tourism earnings and much reduced trade deficit. Total reserves of foreign exchange at the end of the quarter were adequate to finance 5.6 month's import needs of the country. Remittances The inflow of net private remittances during July (USD 109 million) and August (USD 95 million) was more or less at the same level of monthly inflow of remittances during the first six months of the year. However, USD 1 million net outflow of remittances during September overturned the usual trend. The reason for this unusual negative inflow is unexplained, but the author supposes that this could be due to data correction by the Central Bank. However, overall,
the net private remittances received during the first nine months
of this year is about 10% greater than that received during the
corresponding period last year. The tourism sector has been a major
beneficiary of the indefinite ceasefire in Sri Lanka since early-2002.
The total tourist arrivals during the quarter under review were
the highest quarterly number for this year, so far. This is more
significant given the fact that traditionally this is an off-season
for the tourism sector. Tourist arrivals numbered almost 44,000, 42,000 and 36,000 in July, August, and September respectively, i.e. a total of almost 122,000 for the quarter, which was a 28% rise compared to the previous quarter. The earnings from tourism recorded almost USD 28 million, USD 27 million, and USD 23 million in July, August, and September respectively, i.e. in total almost USD 79 million for the quarter, which was a rise of 24% in comparison to the preceding quarter. Reason for the rise in earnings from tourism being lower than the rise in number of tourist arrivals could be lower expenditures by the tourists and/or the depreciation of the rupee. On average, monthly tourist arrivals during the third quarter were almost 41,000, which was 17% higher than the monthly average of almost 35,000 during the same quarter last year. Likewise, the average monthly earnings from tourism were nearly USD 26 million in the third quarter compared to nearly USD 22 million in the same quarter last year, i.e. a rise of almost 18%. The stock market remained bullish during the quarter under review continuing its strong performance since the Tokyo donor conference in June. Both the All Share Price Index (ASPI) and the Milanka Price Index (MPI) were on the rise. As a corollary the average daily turnover in the stock market also was rising during the quarter. Pause-in-Conflict
Economy Sri Lanka's
largest thermal power generating multinational company, Aggreko
International, invested USD 50 million on a 20-megawatt power generation
plant in Jaffna. This power plant is expected to significantly boost
power supply to the Jaffna peninsula, which was cut off from the
national grid during the protracted civil war. The Point Pedro harbour in the Jaffna peninsula was taken over by the Sri Lanka Ports Authority (SLPA) in July 2003, which was hitherto managed by the District Secretariat (Kachcheri). At the time of the takeover about 10,000 tons of goods were unloaded at the harbour. The takeover
by the SLPA is expected to result in renovation and upgradation
of the harbour. As the Kankesanthurai harbour is used by the Sri
Lanka Navy Point Pedro harbour is important for transport of goods
by sea to the peninsula from Colombo. Prior to 1990 the Elephant Pass and Kurunchativu salterns (in the North), spanning an area of 100 acres, used to produce 85,000 metric tons of salt annually. This output was sufficient to meet the entire demand for salt in Sri Lanka. These salterns were destroyed during the war. However, 10 acres of these salterns are rehabilitated since the ceasefire and are reportedly producing 15% of the total capacity. The UNICEF has funded the construction of an iodisation plant, which is operational now. The extent and output of paddy cultivation in the North more than doubled in 2002 (to a lesser extent in the East) compared to the previous year. The extent of paddy cultivation in the North increased from 28,000 hectares in 2001 to 62,000 hectares in 2002. As a corollary, the output of paddy in the North has increased from 76,000 metric tons in 2001 to 154,000 metric tons in 2002. In the East, the extent of paddy cultivation increased from 108,000 hectares in 2001 to 143,000 hectares in 2002, and paddy production increased from 324,000 metric tons in 2001 to 407,000 metric tons in 2002. However, structural problems persist in the war-torn areas in the N&E despite more than 18 months of peace. For instance, shortage of teachers at schools is one such structural problem. About 100 schools in the Kilinochchi, Mannar, Mullaitivu, Trincomalee, and Vavuniya districts have only one teacher each. For example, in Vavuniya district there are 35 schools with just one teacher each. In Mannar and Jaffna districts there are 4 and 5 schools respectively with just one teacher. |
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