The Sri Lankan economy grew at a commendable
rate of 6.4 percent in 2012, following over 8 percent growth in the preceding
two years revelled in an International
Monetary Fund (IMF) report recently. According to the report the Industry sector
grew at a healthy rate with a significant contribution coming from the
construction sub-sector. The growth in the Services sector moderated largely
due to a slowdown in external trade, while the agriculture sector continued to
be affected by adverse weather conditions.
The unemployment rate declined to 4.1 per cent in 2012. The continued high growth in aggregate demand led to some imbalances in the external sector, increased pressure on the exchange rate and high credit growth. To address these imbalances, the Central Bank tightened its monetary policy and limited its intervention in the foreign exchange market. The government raised duties on selected non-essential imports and allowed upward revision of energy prices, Inflation was maintained within single digit in 2012 although there were upward pressures during the second half of the year largely due to supply side factors.
The unemployment rate declined to 4.1 per cent in 2012. The continued high growth in aggregate demand led to some imbalances in the external sector, increased pressure on the exchange rate and high credit growth. To address these imbalances, the Central Bank tightened its monetary policy and limited its intervention in the foreign exchange market. The government raised duties on selected non-essential imports and allowed upward revision of energy prices, Inflation was maintained within single digit in 2012 although there were upward pressures during the second half of the year largely due to supply side factors.
The year-on-year headline inflation at 2.7
percent in February 2012 gradually increased to 9.2 percent by end 2012
reflecting upward adjustment in energy prices, the pass-through of the currency
depreciation, supply disruptions due to adverse weather conditions as well as
demand pressures caused by high monetary growth in the preceding years.
Inflation has since moderated to 7.5 percent in March 2013. The external sector
recovered significantly during the year with lower trade and current account
deficits and higher inflows to the capital account leading to a surplus in the
balance of payments. International reserves increased to comfortable levels.
Despite some setback in revenue generation, the government remained committed
to fiscal consolidation and the overall fiscal deficit further reduced to 6.4
percent of GDP in 2012 from 6.9 percent in 2011.
Money
supply growth decelerated in the tightened policy environment. These developments
provided room for the Central Bank to relax its monetary policy stance in
December 2012. The financial system remained stable and sound with high capital
adequacy and moderate non-performing loans (NPLs), while profitability of
industry improved. Meanwhile IMF
Director for Asia and the Pacific region Dr. Anoop Singh said IMF assures
continued support to Sri Lanka and focuses on long term economic stability. IMF board of directors released US$ 426.8 million to
Sri Lanka after reviewing the country’s implementation of economic policies
attached to a $2.56 billion loan this year and the Executive
Board of IMF approved about US$ 415.0 million last year, bringing total
disbursements under the arrangement to about US$ 2.49 billion.
