Council of Asian Liberals and Democrats –
Alliance of Liberals and Democrats for
Europe
Bi-Annual Conference
The Global Economy : Successes and
Lessons from Asia and Europe
“Sri Lanka – Experiences and Lessons Learnt”
Prof Rajiva Wijesinha
14 November 2010 at Kuala Lumpur, Malaysia
1
The world faced many challenges during
2007/2008
 World food prices increased rapidly.
Equity Markets (March 2000 = 100, National Currency)
 Global energy prices rose to unprecedented
levels.
 The US subprime mortgage market crisis
quickly engulfed the entire world, quickly
resulting in the global financial crisis.
9/11
Subprime crisis
 Global market liquidity dried-up and reversal
of capital and financial flows was observed.
 Governments pumped billions of US dollars
into their economies in a coordinated effort to
stem the impact of the crisis.
Source: IMF
International (FAO) Food Price Index (1998 – 2000 = 100)
240
220
2006
2007
2008
2005
200
180
 Global unemployment sharply increased.
160
140
120
100
J
F
M
A
M
J
J
A
S
O
N
D
Source: Food and Agriculture Organization (FAO)
2
Sri Lanka too was faced with its unique set of
challenges during 2007/2008
10
5
 As external borrowing became difficult, the
Government had to rely heavily on domestic
borrowing, thus creating a crowding out effect.
Year-on-year
Dec-08
Sep-08
Jun-08
Mar-08
Dec-07
Sep-07
 The budget deficit increased.
Jun-07
0
Mar-07
 Government revenue was lower than expected.
15
Dec-06
 Domestic economy activities slowed down.
20
Sep-06
fueling high inflation.
25
Jun-06
 Domestic food prices increased rapidly, thus
30
Mar-06
decades intensified.
Colombo Consumers’ Price Index (% change)
Dec-05
 The civil war that was raging for over 2 ½
Annual Average
Source: Department of Census and Statistics
Overall Budget Deficit (As a % of GDP)
0.0
-2.0
-4.0
-6.0
-8.0
-7.0
-7.0
-6.9
-7.0
-10.0
-9.9
-12.0
2005
2006
2007
2008
2009 (P)
Source: Central Bank of Sri Lanka
3
5.0
6.0
Sri Lanka too was faced with its unique set of
challenges during 2007/2008
5.0
4.0
4.0
3.0
3.0
2.0
2.0
4.0
3.0
2.0
1.0
5.0
5.0
5.0
country’s reserves reduced alarmingly.
Gross Official Reserves (Left Axis)
Oct-09
Sep-09
Aug-09
Jul-10
Jul-09
Jun-10
Months of Imports6.0
(Righ
6.0
Months of Imports (Right Axis)
5.0
5.0
4.0
4.0
4.0
7.0
7.0
4.0
4.0
3.0slowed down to 3.5% in
 The economic growth3.0
3.0
3.0
3.0
GrossOfficial
OfficialReserves
Reserves (Left
(LeftAxis)
Axis)
Gross
Source: Central Bank of Sri Lanka
Jun-09
Apr-09
Jul-10
Jul-10
May-09
Feb-09
May-10
May-10
Mar-09
Jun-10
Jun-10
Dec-08
Mar-10
Mar-10
Jan-09
Apr-10
Apr-10
Oct-08
Jan-10
Jan-10
Nov-08
Feb-10
Feb-10
Aug-08
Nov-09
Nov-09
Sep-08
Dec-09
Dec-09
Jun-08
Sep-09
Sep-09
Jul-08
Oct-09
Oct-09
Apr-08
Jul-09
Jul-09
May-08
Aug-09
Aug-09
May-09
Feb-08
May-09
Mar-08
Jun-09
Jun-09
2.0
2.0
Apr-09
Jan-08
Apr-09
Mar-09
Mar-09
Feb-09
Feb-09
Jan-09
Jan-09
Dec-08
Dec-08
Nov-08
Nov-08
Oct-08
Oct-08
Sep-08
Sep-08
0.0
0.0
Jul-08
Jul-08
0.0
Aug-08
Aug-08
0.0
0.0
Jun-08
Jun-08
1.0
1.0
May-08
May-08
1.0
Apr-08
Apr-08
1.0
1.0
Mar-08
Mar-08
2.0
Feb-08
Feb-08
2.0
2.0
Jan-08
Jan-08
Dec-09
1.0
Months
Monthsof
ofImports
Imports
0.0
May-10
Jun-09
Apr-09
Apr-10
May-09
Mar-09
Mar-10
Gross Official Reserves (Left Axis)
Feb-10
Jan-09
Feb-09
Jan-10
Dec-08
Dec-09
Nov-08
Nov-09
Oct-09
Oct-08
Aug-08
Sep-09
Sep-08
Jul-08
Aug-09
Jun-08
Jul-09
May-08
6.0
Jun-09
Mar-08
Apr-09
US$ bn
Mar-09
Feb-08
Feb-09
Jan-08
 Due to heavy foreign exchange outflows, the
Jan-09
Dec-08
Nov-08
Oct-08
Sep-08
Aug-08
Jul-08
Jun-08
Apr-08
May-08
Mar-08
6.0
6.0
Feb-08
Jan-08
US$ bn
0.0
Apr-08
May-09
Official reserves (without ACU) and months of imports
0.0
Nov-09
1.0
 Investors repatriatedUS$
their
investments.
bn
2009.
5.0
Monthsof
ofImports
Imports
(Right
Axis) (Left Axis)
Months
(Right
Axis)
Gross
Official
Reserves
M
Real GDP growth (% change)
Tsunami
Drought
6.9
4.3
Global
Security +
Recession
Weather
7.7
5.6
5.5
6.3
3.8
4.7
4.3
6.0
4.0
5.9
5.4
6.2
6.8
6.0
3.5
-1.5
High Oil Prices
1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 20
Source: Central Bank of Sri Lanka
4
However, Sri Lanka geared its economy to
weather these turbulent times
 The government was firm in eradicating terrorism
The government gave new life to the economy by
defeating terrorism within a period of less than 3 years.
from Sri Lanka despite huge foreign pressure.
 Prudent policies pursued even before the eruption of
the financial crisis helped to minimise its impact,
particularly on the domestic financial system.
 The government’s emphasis on promoting domestic
agriculture (“Api Wavamu – Rata Nagamu” policy)
helped Sri Lanka to withstand the world food crisis.
 The reduction in world commodity prices along with
higher domestic production, as well as the tight
monetary policy in particular, helped in curbing
domestic inflation, from around 28% in June 2008 to
3.3% in May 2009.
Source: Media Center for National Security: http://www.nationalsecurity.lk
Colombo Consumers’ Price Index (% change)
30
25
20
of banks. Because of this reason, the global financial
crisis had no serious direct impact on Sri Lanka.
10
5
0
Dec-05
Mar-06
Jun-06
Sep-06
Dec-06
Mar-07
Jun-07
Sep-07
Dec-07
Mar-08
Jun-08
Sep-08
Dec-08
Mar-09
Jun-09
Sep-09
Dec-09
Mar-10
Jun-10
Sep-10
 Prudent regulations helped to limit foreign exposure
Percent
15
Year-on-year
Annual Average
Source: Department of Census and Statistics
5
Poverty alleviation and regional development
were given constant & continuous attention...
 Great potential for poverty alleviation, ahead
of many other countries.
Headcount poverty ratio
(% of population)
 The Millennium Development Goals are well
on track
 Focus on regional development is continuing.
 Policies are so far successful and many
drivers are in place at national, provincial and
village level.
 Development with equity is vital. That is a
major goal in the “Mahinda Chintana”. Safety
nets remained in place.
26.1
28.8
22.7
15.2
1990/91
1995/96
2002
2007
 Poverty ratio in 2010 is expected to be
substantially lower.
6
Northern & Eastern Provinces will contribute
more to economic growth…
Gross domestic product by province (2009)
Gross domestic product by province (2002)
Eastern Northern
North
5%
3%
Central
Reclaimed area:
Uva 4%
8% share of GDP
4%
North Eastern
Central
6%
5%
Uva
5%
Northern
3%
Reclaimed area:
9% share of GDP
Central
10%
Central
10%
Western
45%
Western
50%
Sabaragam
uwa
7%
Southern
11%
North
Western
10%
Sabaragamu
wa
6%
Southern
10%
North
Western
10%

The Eastern province had been freed of terrorism in 2007. Despite financial difficulties
in 2008, government pursued rapid infrastructure development along with the first
democratic elections in decades. This contributed to confidence in an equitable
development process, and commitment to the liberation process in the North as well.

The post conflict environment and the gradual recovery of the global economy will
provide enhanced prospects to the entire country, with the Northern and Eastern
provinces having the best ever opportunities to grow faster.
7
Tap vast potential of conflict affected areas
in the North and East
Eastern Province


Trincomalee port is a natural harbour
which has the potential to become a
major commercial and industrial hub
for the South Asian region
Large stretches of beautiful beaches
and ecological conservation areas can
support a vibrant tourism industry
Northern Province

Fertile agricultural lands

Mineral ores

Forests

Palmyra based industries

Wet lands




Untapped productive agricultural crop
land with low population density can
be developed for high intensity and
productive agricultural enterprises
Value addition for sea foods
Livestock and fishery resources can be
developed substantially


Beautiful beaches and coral
deposits
Value addition for fruits,
vegetables and sea foods
Livestock and fishery
resources can be developed
substantially
8
Measures Sri Lanka adopted in safeguarding its
foreign reserves
 Several measures were taken to strengthen foreign
exchange inflows to the country.
Remittances Inflows (US$ bn)
3.3
2.9
 Conducted road shows to promote investment
2.5
in Treasury bonds and bills among the Sri
Lankan Diaspora and expatriate community.
 Remittance inflows were promoted through
2.2
1.9
1.6
1.3
1.2
1.2
2000
2001
1.1
1.4
several stimulus schemes.
2006
2007
2008
2009
6.0
3.0
3.0
2.0
2.0
1.0
1.0
0.0
0.0
Sep-10
4.0
Jun-10
4.0
Mar-10
5.0
Dec-09
5.0
Sep-09
 Policies remained practical, yet firm.
2005
Months of Imports
7.0
Jun-09
importation of select non-essential items.
2004
Months of Imports (Right Axis)
6.0
Mar-09
 For a short period of time, curtailed the
2003
Gross Official Reserves (Left Axis)
Dec-08
prices to the consumers early.
US$ bn
7.0
Sep-08
 The government passed on the increase in oil
2002
Official reserves (without ACU) and months of imports
Jun-08
exchange outflows from the country.
1999
Mar-08
 Further measures were taken to curtail the foreign
Source: Central Bank of Sri Lanka
9
Cultivating appropriate macroeconomic
management in Sri Lanka
 Sri Lanka has had continuous dialogue with its friendly nations and investors.
 This was aimed at sharing the true story of Sri Lanka, thus building investor confidence.
 In 2007, amidst global uncertainties, Sri Lanka launched its debut international sovereign
bond of US$ 500 mn which was more than 3 times oversubscribed.
 In 2008, Sri Lanka approached the IMF and amidst many challenges secured a US$ 2.6 bn
Stand-by Arrangement facility, the highest approved for the country thus far.
 In 2009, during the height of the war against terrorism, Sri Lanka launched its second
international sovereign bond of US$ 500 mn which was more than 13 times oversubscribed.
 In October 2010, the third international sovereign bond issue of US$ 1,000 mn was 6 times
over subscribed in under 14 hours.
 These are some of many snapshots indicating foreign investor confidence that has
developed further in anticipation of post-war economic growth and stability in Sri Lanka.
10
Transform Sri Lanka into a strategically
important economic centre
Naval Hub
Aviation Hub
 Hambantota port
 Mattala international airport
 Southern Colombo Port
 Further
 Galle Port to a Tourism Port
 Other Ports
 Many fisheries harbours
Energy Hub
 Develop own energy resources
modernisation of the
Katunayake International Airport
 14 new domestic airports
Commercial Hub
 Establish
Sri Lanka as the
foremost
centre
in
the
provision
of
commercial
services, international banking
and international investments
Knowledge Hub
 Reverse brain drain and obtain
knowledge and services of
local experts who have
excelled internationally
 Build new refineries
 Make changes to the education
structure of universities &
technical colleges
 Initiate programmes in
communication, naval, aero,
commercial and environment
 Commence training
programmes that directly target
foreign markets
11
Despite the ongoing conflict , Sri Lanka had embarked
on a number of major infrastructure projects, which
gave out a clear message even in the time of crisis
 Ports & Airports
 Roads & Flyovers
 Power Projects
 Water Projects
 Economic Zones
 Hotels & Apartment
Developments
 Hospitals, Schools etc.
12
Harness the Tourism Sector…
 The post conflict tourism sector is expected to expand
significantly in the near term:
 Earnings – US $550 mn in 2010 to US $2,000 mn by
2016
 Arrivals: 0.5mn now to 2.5mn tourists by 2016
 Average stay to move from 6 to 10 days
 Tourist spending to increase from US $88 to
US $150 per day
 Investment in the sector to treble over the next 6 years
 Potential areas of investment:
 Hotels and restaurants, particularly in the East &
North /West
 Tourist transportation
 Entertainment and sporting activity
 Ocean related services
13
Promote education, IT and human resources
development
 Developing human capital potential :
 Education and skills development
 IT and BPO related services
 Human resource development
 Potential areas of investment:
 Branches of foreign universities for foreign & local
students
 Professional study centres
 Institutes for English courses
 Institutions for IT and skills development
 BPO centres
14
Fast track industrial development...
 Potential areas of investment:
 Electric, Electronic and Assembling Industries
 Rubber and Rubber based industries
 Dockyard services
 Garments and apparel – Target to export US $5 bn by 2013
 Gems and Jewellery
 Fishing and Related Industries
 Salterns
 Shipping
 Sugar factories
 Cement factories
 Chemical industries
15
Continue the agricultural renaissance
 Huge potential for growth exists in commercial agriculture
 Tea :Target US $2 bn by 2015
 Rubber & Rubber products: Target US $1 bn by 2015
 Fruits and Vegetables: to US $0.75 bn by 2015
 Fisheries sector to target US $0.75 bn exports by 2015
 Potential areas of investment:
 Agriculture and agro processing
 Fresh vegetables and fruit exports
 Fish canning and processing factories
 Cold rooms and ice plants
Such developments require enhanced training in technology
and entrepreneurship for rural communities to ensure they
share fully in the increasing fruits of traditional livelihoods.
16
The fiscal sector was further strengthened
Total government revenue and grants increased by
18.6% during January-June 2010
370
Total expenditure and net lending increased by only
3.1% during January-June 2010
600
361.5
360
340
Rs bn
320
304.9
300
560
559.6
540
520
290
280
500
270
2009 Jan - Jun.
2009 Jan - Jun
2010 Jan - Jun.
2010 Jan - Jun
Budget deficit during first 6 months of 2010 is 3.9% of
GDP compared to 5.3 in 2009
260
254.7
250
240
Rs bn
Rs bn
330
310
576.8
580
350
230
220
215.3
210
200
190
2009 Jan - Jun .
2010 Jan - Jun .
Source: Central Bank of Sri Lanka
17
Encourage foreign direct investment
 Investor confidence will closely follow positive
Sector-wise private direct investment in 2009
political and market events.
 There is now great potential to attract more
FDIs to the country.
 Aim for FDI to be at least 5% of GDP, i.e. US
$2 bn. by 2013.
 Domestic investment will also rise with the take
off of the economy.
on-going
Othe r ,
21 .4%
P o we r
ge ne ra tio n,
11.3%
C he m ic a l
c o a l,
pe tro le um &
pla s tic
pro duc ts , 2.6%
 Key features to attract FDI:
 Geographic position - Regional Trading Hub
 Strategic access to Indian markets
 High quality workforce
 Open market economy
 Numerous Free Trade Agreements
 Attractive and Transparent Laws
F o o d,
be ve ra ge s &
to ba c c o ,
1.7%
Te le pho ne &
te le c o m
infra s truc ture ,
49.2%
Te xtile ,
we a ring
a ppa re l,
le a the r
pro duc ts ,
8.5%
Ho us ing &
c o ns truc tio n,
3.0%
F a bric a te d
m e ta l,
m a c hine ry &
tra ns po rt,
2.3%
Breakdown of FDI (2009)
Equity capital
3.2%
25.6%
20.1%
Loans and
advances
Intra-company
borrowing
Foreign loans
Reinvestment of
retained earnings
18.3%
32.8%
18
Increase remittances substantially...
 Diversified remittances are an important source
Remittances by regions (US$ mm)
of growth and FX generation
203
 Remittances:
Far East Asia
175
 2009 : US $3.3 bn. (7.9% of GDP)
100
 Target: about 7.4% of GDP by 2013
South East Asia
90
 Focus on export of skilled services, not unskilled
labour.
Distribution of workers’
remittances across regions (2009)
149
Europe Other
129
603
European Union
525
Far East
Asia, 6.1
Other, 3.3
South East
Asia, 3.0
2009
127
North America
Australia &
Newzealand,
1.7
Europe
other, 4.1
Middle East,
59.9
2008
114
1995
Middle East
1745
EU, 18.1
North
America, 3.8
153
Other
140
19
The Sri Lankan response to the global economic
and financial crises had been highly effective…
 The economy has bounced back to
Economic Growth (%)
normalcy
7.7
 International reserves have
6.2
6.8
7.8
8.0
3.5
recorded historically highest levels
 The Colombo Stock Exchange is
8.0
6.0
2005
2006
2007
2008
2009
2010F 2011F 2012F
among the world’s best stock
exchanges.
 Inflation continues to be at- single
digit-levels.
6.0
 Interest rates have moderated
significantly
Gross Official Reserves (Left Axis)
Months of Imports (Right Axis)
Months of Imports
10.0
4.0
5.0
2.0
0.0
Jan-08
Feb-08
Mar-08
Apr-08
May-08
Jun-08
Jul-08
Aug-08
Sep-08
Oct-08
Nov-08
Dec-08
Jan-09
Feb-09
Mar-09
Apr-09
May-09
Jun-09
Jul-09
Aug-09
Sep-09
Oct-09
Nov-09
Dec-09
Jan-10
Feb-10
Mar-10
Apr-10
May-10
Jun-10
Jul-10
0.0
857
900
Per capita Income : US $ 2,014 2,053
1,634
1,421
1,241
981 1,062
2001
2002
2003
2004
Gross Official Reserves (Without ACU) and Months of Imports
US$ bn
2005
2006
2007
2008
2009
20
Sri Lanka, a model for Asia
 In
eradicating terrorism to provide
security for all people, investments and
investors, we have promoted inclusivity
and focused on prosperity for all.
 With the focus on rapid infrastructure
development, the Sri Lankan economy
has a lot to offer while it gradually
transforms into a strategically important
economic centre.
 We have continued with social safety
nets, providing high-level health and
education facilities for all and maintained
our high position with regard to quality
of life.
 Now policy consistency & certainty are
finally possible in our country.
21