Sri Lanka’s post-war economic growth slowed down to 6.4 percent in 2012, after two years of consistent growth at 8.0 percent in 2010 and 2011, the Central Bank annual report for 2012 released yesterday showed.
This is despite the monetary authority thrice revising down growth projections during the year to 6.5 percent (from an original 8.0 percent) citing sluggish recovery in global economy, adverse weather conditions and the stringent monetary and fiscal policies adopted in February 2012.
Interestingly, though the country’s economy has advanced to Rs.7.5 trillion in value in 2012 against Rs.6.5 trillion in 2011, in US dollar terms the GDP has remained virtually flat at US $ 59.4 billion, converted at an exchange rate of Rs.127.64/US $.
The per capita income however edged up slightly to US $ 2,923 from US $ 2,836 in 2011 assisted by reduced mid-year population of 20.33 million in 2012 against 20.98 million the year before.
In 2012, the agricultural sector contributed 11.1 percent to the Rs.7.5 trillion economy, while industry and services sector contributions were 30.4 percent and 58.5 percent respectively. The structural composition however remained virtually flat from 2011.
Meanwhile another slippage was evident in the fiscal front where the budget deficit of 6.4 percent of GDP slightly overshot the 6.2 percent projection for the year.
However, the improvement from last year’s 6.9 deficit demonstrated the government’s continued commitment towards fiscal consolidation amid CPC & CEB reforms that are currently taking place to achieve a 5.8 percent deficit for this year.
Further, the external sector was somewhat marred by the gloomy performance in exports which plunged as much as 7.4 percent in 2012.
However, the narrowing trade deficit (15.8 percent of GDP), contained the current account deficit (6.6 percent of GDP) due to increased inflows from trade in services and the higher inflows into the Capital & Financial account that gave some cushion for the balance of payments to record a surplus of US $ 115 million.
The two rounds of policy tightening along with the credit ceiling saw a more rapid curtailment of credit and thus slowing down economic activities which peaked in 2010 and 2011.
However, the Central Bank and the Finance Ministry continuously gave strong indications of policy easing by May or June this year to accelerate the economy, in a view to record 7.5 percent growth this year, amid high single digit headline inflation which hovers around 9.0 percent, demonstrating the country’s growth-biased monetary policy.
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