- Published on Thursday, 03 January 2013 11:38
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A major growth momentum was witnessed in the aftermath of the conflict with the economy recording growth rates of above 8 per cent for two consecutive years for the first time ever in 2010 and 2011.
This was stated by the Governor of the Central Bank Ajith Nivard Cabraal announcing the Bank’s “Road Map for Monetary and Financial Sector Policies for 2013 and Beyond” at a function held at the Central Bank premises Wednesday (02).
He said that 2013 is the seventh consecutive year that the Central Bank is presenting its policy direction and work plan for the upcoming period. Governor’s presentation comprised an assessment of the macroeconomic developments in the previous year, policy direction for 2013 and for the medium term, particularly to ensure a smooth transition into the post-US$ 4,000 per capita era.
He said that the protracted recovery in the global economy as well as rapidly rising domestic credit, which fueled a higher than desired import demand, and adverse weather conditions hindered economic performance last year and it is projected that overall economic growth in 2012 would be about 6.5 per cent. He said however, due to the monetary policy measures taken by the government an economic growth of 8.5% is anticipated this year.
The Governor said that as a result of the contraction of the trade deficit and the increase in other earnings such as higher workers’ remittances and earnings on account of tourism, the current account deficit reduced substantially in 2012 leading to the BOP improving to a surplus of over US$ 100 million in 2012 from a deficit of US$ 1,061 million in 2011. He said that the growth of broad money also decelerated to 18.1 per cent by November from a peak of 22.9 per cent in April this year.
Referring to Inflation, the Governor said that the Inflation moved upwards during the year due to several reasons including supply disruptions on account of drought conditions and the one-off direct impact of some of the policy measures taken. Nevertheless, he said that prudent conduct of monetary policy has enabled inflation to remain at single digit levels during the year, and in December 2012, year-on-year inflation was at 9.2 per cent while annual average inflation was 7.6 per cent. He said that by end 2012, both headline and core inflation has remained at single digit levels continuously for 47 months.
Cabraal said that the Government maintained public investment at a level sufficient to sustain the high growth momentum of the economy by supporting the infrastructure drive. He said that Public debt has been managed prudently, and the Debt to GDP ratio is estimated to be 81 per cent in 2012 in comparison to 78.5 per cent of GDP in 2011 mainly due to the one-off increase on account of the depreciation of the rupee. Nevertheless, the fact that risk indicators of Sri Lankan public debt have improved at a time where global risk has been rising is commendable.
The Governor said that the country’s macroeconomic fundamentals have strengthened over time while moving in the right direction, and as a consequence, the country is well on track to achieving its target of doubling the per capita income to US$ 4,000 by 2016. He said that the Central Bank as such is now focusing on preparing for the post US$ 4,000 era by ensuring that Sri Lanka progresses along a steady growth path by carefully planning a second wave of growth to avoid the “middle-income trap.” The Governor also gave details of the projections of economic growth made in various sectors. (niz)