Sri Lankas Economy in 2012 Whats Going Right and Whats Going Wrong?

Prepared for the Colombo Club Luncheon Meeting

Anila Dias Bandaranaike 28 June 2012

Our World -Then and Now

Post World War II development targeted consumption to rebuild after war Then, resources served 2.5 billion peoples needs Technology, populations, incomes, wants grew Fresh water, forest cover, ozone layer depleted Now, falling resources serve 7bn peoples wants Widening gap between Haves and Have-nots Global paradigm shift in development focus

Our World -Then and Now

Then Development was measured by Output (GDP), material wealth, profits, consumer and business confidence Now Development is measured by Human Development Index (per capita GDP, longevity, education), human rights, governance

Basic Premise

Na#ons strive to improve the quality of life of all ci#zens through sustainable development with social jus#ce that upli<s human well-being

What do we understand by
Sustainable Development lasting progress towards human well-being

Social Justice impartiality in access and

opportunities for all citizens, regardless of ethnic, religious or political affiliation Human well-being material, intellectual and emotional contentment

Sri Lankas Current Development Model

Targets infrastructure for regionally balanced development and economic access Focuses on Hubs in Services sector for growth Promotes home-grown strategies and selfsufficiency for development Desires private participation in development Advocates state presence in economic activities Uses idle armed forces in development efforts Encourages migrant employment to earn $ and reduce unemployment Basically sound but needs to address inconsistencies

Recent Economic Performance

Indicator Per Capita GDP-$ Investment: GDP National Savings: GDP Inflation GDP Growth Budget Deficit Debt :GDP External Debt Servicing 2009 2010 2011 2,057 2,400 2,836 24.4 23.7 5.9 3.5 9.9 86 19.0 27.6 25.4 7.3 8.0 8.0 82 15.9 29.9 22.1 7.8 8.3 6.9 79 12.6 2012 2015 Target Target 2,939 4,574 30.5 26.7 7.0 7.2 6.2 78 16.1 32.3 32.5 5.0 8.5 5.0 65 16.6

Most Macro-economic indicators improved in the last 3 years. Recent growth reflected post-conflict pent-up demand and existing capacity. Targets presume infrastructure-led development will generate revenue to meet governments expenditure and debt-servicing Targets were down-sized due to lower than expected performance

Material Well-Being in Sri Lanka (a)

Category Housing-owned or rent-free Housing-permanent floor, walls, roof Electricity Safe water Sanitation TV Telephone Non-Poor Headcount (74% in 1996)
(a) Share of Households with access

2011 - % 89 86-92 91 88 90 80 77 91

In 2011, 1.8 mn migrant workers remitted USD 5 bn to Sri Lanka, equivalent to Rs. 30,000/ worker/ month Poverty Line in April 2012 - Rs. 13,692/ Household/ month

Household Expenditure Shares

Category Food, Clothing, Housing Other (Transport, Communication, Education, Health, Recreation & Culture, Miscellaneous Goods & Services 1996/97 2009/10 75 25 64 36

Shift from basic needs to expenditure of choice with rising disposable incomes Significant recent improvements in material well-being

Intellectual Well-Being in Sri Lanka

Category Population growth rate-% Dependency ratio-% Life expectancy-yrs Infant mortality/ 000 Secondary Education or higher LFPR-% Unemployment-% 1970 2011 2.1 88 66 48 34 35 19 1.0 48 75 9 71 48 4
Free State preventive and curative health services Private health care expanding.

In 2010, 61% eligible, but only 10% could enter Free State Universities. Opinion divided on Private Universities In 2011, over half working age population choose not to work State provided 14 % of employment in 2011 20% equivalent of labour force (1.8 mn) are migrant workers

Recent improvements in intellectual well-being but way to go

Emotional Well-being in Sri Lanka

Terrorism not a threat, but perceived apathy on reconciliation issues is excessive army presence counter-productive? Are development decisions perceived as inclusive? Rising thuggery, gun culture, violence do police, courts protect citizens? Balanced language policy, but slow implementation do schools have teachers for English and link language? Are minority rights observed for official letters, notices, court proceedings? No access to consistent information Can households and businesses take informed decisions based on oft-contradictory official communications?

Long way to go! What is our countrys commitment to improving Emotional well-being?

Whats Going Right?

Land: mostly arable, plentiful water, nutrition, mostly flat, accessible mountains, easy road/air/sea access Strategic location: next to India and on key trade routes to China, both rising economic powers with massive markets Conducive living conditions: beautiful country with lots to offer for a high quality of life Work Force: healthy, educated, aware, living better Political and economic stability: With end to terrorism, safer and more stable for investment than many countries Conducive business climate: Government needs private participation Infrastructure: Policy focused on reducing regional disparities, so can invest anywhere in Sri Lanka Macro- economic conditions: considerably improved

Trends vs. Targets

Indicator Investment - % GDP
GDP Deflator - % chg

2010 (Target) 7.3 (6.0) 8.0 (7.5)

2011 (Target) 7.8 (6.0) 6.9 (6.8)

Mid-2012 (Target) (30.5) (7.0) (6.2)

27.6 (27.8) 29.9 (29.5)

Budget Deficit - % GDP Money Supply (M2b) - % chg Official Reserves - $ Mn Trade Deficit -$ Mn Exchange Rate - Rs/$ Interest Rate (3M Tbills) - %

Credit to Private Sector - % chg 24.9 (13.2) 34.5 (18.8) 34.0 (19.0) 15.8 (13.5) 19.1 (14.5) 22.9 (15.0) 6,610 (5,728) 4,825 (4,874) 113.06 7.24 5,958 (8,004) 9,710 (6,762) 110.57 8.68 5,835 (7,945) 3,320 (9,183) 132.09 10.95

When direction went off-target, policy action was too little, too late.

Whats the Buzz in Colombo?

Whos accountable for (mis?)management of UN resolutions? exchange rate and debt (mis?)management? EPF (mis?)investments? funding sports tamashas and others? Who calls the shots in private commercial banks? Whose assets were underperforming? Who killed cock robin at the JVP rally? Who abducts dissidents in white vans? Whats happening to Economic and Foreign policy? Whats happened to governance and public opinion? 14

Whats Going Wrong?

Credibility of Government Economy, Devolution, Reconciliation, Foreign Affairs, Education Reforms Inept Political System Cannot deliver Ineffective Regulatory Framework undermined Weakening Systems and Procedures politicised Non-cohesive Corporate Sector cannot influence reform Expectant, Confused Citizens know not what to expect Accountability sadly lacking Opinions - Polarised

Government terrified of alternate views Citizens guarding their own interests Insecure government, insincere citizens No collective effort for greater good of the country

Current Challenges
To Raise Sri Lankas Credibility Space for non-confrontational dialogue Consistent, professional Government communication of timely, relevant information Pro-active, vocal public opinion from a cohesive citizenry (Corporates, NGOs, individuals) To improve Overall Human Well-Being Reduce focus on material wealth, income, profits Raise focus on environmental protection and freedom of speech and human rights

In conclusion, Sri Lankas potential is unlimited, We need to buy into and exploit it for sustainable development. So, lets get our act together!

Thank you