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Economy demonstrates resilience in 2005 - Central Bank |
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Friday, 28 April 2006 |
From the perspective of economic development, Sri Lanka's economy demonstrated its resilience once again in 2005 by growing at a rate of 6 per cent, exceeding expectations in the immediate aftermath of the tsunami disaster of 2004, writes Daily News 280406 at http://www.dailynews.lk/
Forwarded by Budhi Mulyawan 280406.
Inflation was subdued mainly through prudent monetary policy measures supported by favourable developments in aggregate supply, the Central Bank said yesterday.
Thus, inflation declined from a peak 15.9 per cent in February 2005, to reach 8 per cent December 2005.
The stability of the financial system was strengthened through improved supervision and regulation in line with international best practices. Higher economic growth and relatively lower population growth pushed the country's per capita income to a higher level of US dollars 1,197.
The unemployment rate also declined to 7.7 per cent by August 2005 from 8.3 per cent in 2004.
All major sectors of the economy grew at a healthy pace in 2005. The Agriculture sector grew by 1.5 per cent, the Industrial sector by 8.3 per cent and the Services sector by 6.4 per cent. The three sectors contributed 4.4 per cent, 36.3 per cent and 59.3 per cent, respectively, to the GDP growth in 2005.
The Agriculture sector rebounded from the setback in 2004. In 2005 both paddy and tea production reached new record levels. Paddy harvests in both Maha and Yala seasons reached their historically highest levels of 2,013 thousand metric tons and 1,233 thousand metric tons, respectively.
Tea production reached a record 317 million kg. Output of rubber, vegetables and other agricultural crops also increased in 2005. Coconut output declined and fish production did not recover fully, but showed signs of recovery by end 2005.
Looking ahead, productivity and profitability in the Agriculture sector could be improved through further development of technology, research, extension services and reducing post harvest losses.
The Government has already taken measures to improve access to finance and land, and to develop infrastructure facilities.
Market based methods to encounter adverse price fluctuations are still being developed. The persistent drop in farm gate prices of paddy and many varieties of vegetables at the time of harvesting indicates the absence of competitive market forces.
This could be due to anti-competitive practices prevailing in the regions of paddy and vegetable cultivation as well as weak infrastructure. Hence, the country needs to intensively examine existing market practices to bring about a sustainable market based solution to the low farm gate prices, the bank said in its Annual Report.
The Industrial sector growth, particularly the growth in the textile and garments sub sector continued, despite the uncertainty that prevailed in early 2005.
With the termination of the Multi Fibre Arrangement (MFA) in 2005, the Government aggressively pursued its efforts to enhance access to major markets, and those efforts were complemented with entrepreneurs' efforts in capturing new markets and consolidating existing markets through firm level efforts.
Sri Lanka's high labour and environment protection standards, a conducive trade and investment promoting policy atmosphere and high literacy of the labour force aided this process.
The Services sector maintained its growth momentum in 2005, especially in port services, telecommunication, and financial services.
Its contribution to growth could have been far greater had the planned infrastructure development taken place, especially road development, port and airport development, as well as further development of social infrastructure, especially, education and health services.
Domestic savings improved with private domestic savings increasing from 19.7 per cent to 19.9 per cent of GDP in 2005. The Government sector still registered a deficit in its current account but it declined from 3.9 per cent of GDP in 2004 to 2.7 per cent of GDP in 2005.
The savings-investment gap and the corresponding current account deficit were financed through increased inflows from foreign direct investment, portfolio investment, and loans and grants to the Government.
Dependence on external inflows to meet the savings-investment gap could be reduced by raising the domestic saving component by strictly adhering to the medium term budgetary target of maintaining a surplus in the current account and raising private savings, the Bank said.
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