Regional growth in South Asia is expected to spill over into the Sri Lankan economy fuelling a 7% growth this year, according to a study based on the report “Economic and Social Survey of Asia and the Pacific 2007.”
The survey, which is the flagship publication of the United Nations Economic and Social Commission for Asia and the Pacific (UNESCAP) showed that the Asian and Pacific nations are rapidly emerging as engines of global growth.
In fact 2006 showed a 7.9% increase in the size of the regions developing economies representing a third of the worldwide growth. This is seen as one of the main reasons behind the 7.4% GDP rate posted by Sri Lanka during the same period and analysts are hoping for the good prognosis to continue in 2007.
However, the question now is whether this growth momentum can be maintained. Institute of Policy Studies Executive Director Dr. Saman Kelegama believes so, but he maintains that urgent economic reforms are needed to stop state corporations such as the Ceylon Petroleum Corporation (CPC), Ceylon Electricity Board (CEB) and other state owned enterprises haemorrhaging millions of hard earned GDP.
“US$ 800 million or 3.4% GDP was spent on State Owned Enterprises (SOE) last year. Even though reforms have taken place in certain areas it has not been adequate to reduce the burden of these enterprises on the government budget. Reforms such as the new Electricity Act should come into effect soon. Reforms in education, agriculture and other areas should move in parallel. The public should be made aware of these reforms, we have seen in the past that decisions made from the top do not have any effect in Sri Lanka and this reform process should be monitored closely,” he said.
He also stressed on the need for economic reforms to support fiscal management. “If the government can save 3.4% of the GDP from SOE’s then it can be redirected for infrastructure development and other investments. The government can reduce expenditure and reduce the budget deficit and inflation thereby reducing pressure on interest rates.”
Expressing that the political situation might stabilise with the proposals made by the All Party Conference (APC) by mid-2007 Dr. Kelegama said that this would provide the government with the opportunity to control defense expenditure and stabilise the investment climate.
“If such action is taken then sustaining the growth momentum is possible. The growth forecast for 2007 is about 7%, which includes 5% from the existing open economy, 1.0% from new investments, 0.2% from policy reform and 0.8% from the Asian buoyancy. The formation of the National Economic Council will hopefully accelerate reforms and with the CEPA to be signed with India, Sri Lanka can benefit from the spill over from the Indian economy,” he said. (UJ)