The Central Bank Annual Report-2014 was submitted recently to Finance Minister Ravi Karunanayake by Central Bank Governor Arjuna Mahendran.
As for the economic performance during 2014, the economic analysts here and abroad have pointed out that the Sri Lankan economy fared well during last year’s global slowdown with GDP growth of 7.4 percent.
At the public presentation held on 14th May at the Central Bank office reflecting the state of the economy, Arjuna Mahendran in his concluding remarks has advised the government that sooner the elections, better for the economy.
"It seems that the present government is concentrating more on the progress of the FCID and not necessarily on exploring foreign investments"
Does it mean that he expected a new government formed after the parliamentary elections could perform better and deliver results for the economic welfare of the people?
We all agree that, at the moment, the economy is entering a kind of caretaker state, with businesses and consumers hunkering down to wait out “summer” parliamentary elections. There would be some suspense created since a change in administrations often means new economic policies that can create new classes of winners and losers.
"Basically the Central Bank has given us statistics and painted a very rosy picture in the minds of general public"
According to Central Bank, the growth momentum of the Sri Lankan economy continued in 2014 under MR administration, while inflation declined further to low single digit levels during the year. The economy grew by 7.4 per cent in real terms compared to the growth of 7.2 per cent in the previous year, while the unemployment rate remained low at 4.3 per cent during the year compared to 4.4 percent in the previous year. (Amidst uneven developments in the global economy, adverse weather conditions dampened the performance of the agriculture sector during the year)
With the considerable improvement in exports as well as increased workers’ remittances, the current account deficit narrowed to US dollars 2 billion in 2014 from the deficit of US dollars 2.5 billion in the previous year. As a percentage of GDP, the current account deficit was 2.7 per cent, a notable improvement from 3.8 per cent of GDP in 2013.
Only negative side is, in the fiscal sector, the overall budget deficit increased to 6.0 per cent of GDP from 5.9 per cent of GDP in the previous year. Nevertheless, public debt as a percentage of GDP declined to 75.5 per cent by end 2014 from 78.3 per cent by end 2013. The Foreign reserves were at a healthy US $ 7.0 billion sufficient to cover four months imports.
Sri Lanka’s social indicators continued to improve, enabling the country to maintain its foremost position in terms of social developments amongst emerging markets and regional peers. Sri Lanka, the only country in South Asia in the ‘high human development’ category, reported an increase in the Human Development Index (HDI) to 0.750 in 2013 from 0.745 in 2012, thus raising its position to 73 in 2013 from 75 in the previous year.
FCID vs. FDIs
It seems that the present government is concentrating more on the progress of the Financial Crime Investigation Division activities (FCID) and not necessarily on exploring foreign investments (FDIs).
By the way, the Supreme Court last week granted leave to proceed and also some interim relief on former Defense Secretary’s FR application challenging the operations of the FCID.
The Supreme Court last week delivered yet another landmark judgment and suspended the gazette notification issued recently by President, Maithripala Sirisena releasing state land to the people in Sampur in Trincomalee.
Mahinda Rajapaksa government has previously released this land through BOI to a company styled Sri Lanka Gateway Industries LTD (SLGI). Trincomalee offers the largest natural harbor in Asia and the fifth largest in the world.
The petitioner, SLGI stated that it had entered in to an investment agreement with the BOI in 2012 which was a landmark investment agreement to invest US$4 billion, which is the highest foreign direct investment in Sri Lanka’s history.
The master plan of the project includes the development of the deep water jetty, power generation plants, sugar, fertilizer industries, transshipping coal and thermal coal, oil and petrochemical industries, car manufacturing/assembling plants etc. The said project was estimated to generate more than 5,000 direct employment and 20,000 indirect employment opportunities.
Earlier at the BOI, SLGI strongly supported the vision of the previous government by providing improved local community standards of living through responsible development in an era of peaceful cooperation.
The petitioner, SLGI complained that it has incurred considerable amounts of money and has entered into several investment agreements. This if released to people again would cause irreparable damage and loss not only to the petitioner but also to the country as no investor would invest under these circumstances.
The previous Cabinet, having analyzed the project proposal and the potential opportunities that would be created, approved the project proposed by SLGI under Strategic Development Project within the meaning of the Strategic Development Projects Act, No 14 of 2008. The Supreme court, having heard the petition filed by SLGI, granted interim relief restraining the state taking any step to evict the company SLGI, petitioner, and interfering with the peaceful possession of the said land leased out to them.
As reported in Central Bank report, key infrastructure projects, several small scale rural development programmes and city beautification projects continued during the year 2014. Basically the Central Bank has given us statistics and painted a very rosy picture in the minds of general public. To be fair by CB and the new government, they have justified their opinion by way of presenting a number of chapters supported by facts, statistical tables graphs etc.
Central Bank officials have not commented anything stating that the figures to end 2014 have been doctored as claimed by few economists and those members in the present government when they were in opposition camp.
China’s deepening ties
As for Sri Lankan economy up to 2014, it was evident that the private sector investments were on the rise in addition to funding obtained by Government from other multilateral institutions such as World Bank, ADB, Japanese Bank etc.
In fact, private sector investments were around 23 percent of the GDP out of the total investment ratio of 30 percent for the last three to four years, whereas in 2002, the private sector investment ratio as a % of GDP was only 16.6 percent out of the total investment ratio of only 21 percent.
The new government formed in January 2015 is in the process of reviewing the ongoing and proposed mega infrastructure projects to ensure their financial viability, environmental feasibility, equitability, and their overall contribution to the economy.
As per the projections for the current year, the writer queried from the Governor as to why the projected 2015 GDP growth rate has been substantially reduced from 8.2 percent to 7.0 percent from their own estimates made previously.
In fact, for the year 2014, they have near accurately projected 7.8 percent GDP growth rate previously and ended up in 7.4 percent.
The answer coming from the Deputy Governor was that much needed investments required to maintain that level of growth rate are currently in short supply.
Last week, Russia and China signed a US $25 billion deal to boost Chinese lending to Russian firms and a host of other accords deepening economic cooperation as Moscow’s ties with the West fray over the Ukraine crisis. Russian President Vladimir Putin and Chinese leader Xi Jinping hailed their countries’ improving relationship after Kremlin talks and a signing ceremony on the eve of a military parade marking the end of World War Two in Europe.
“Today China is our strategic and key partner,” Putin said after he and Xi presided over a signing ceremony. It was only last April that China’s President Xi Jinping signed agreements with Sharif to provide a massive investment of $46 billion to Pakistan. The focus of spending is on building a China-Pakistan Economic Corridor (CPEC) - a network of roads, railway and pipelines. The projects will give China direct access to the Indian Ocean and beyond and marks a major advance in China’s plans to boost its influence in not only Central and South Asia, but bigger African nations as well.
world dominated by US
A nation cannot grow unless the people spend, not save. Not just spend, but borrow and spend.
Dr. Jagdish Bhagwati, the famous Indian-born economist in the US, told that Indians wastefully save. Americans spend, save little.
Also United States of America imports more than it exports: Has an annual trade deficit of over US $400 billion. Yet, the American economy is considered strong and trusted to get stronger. But where from do Americans get money to spend? They borrow from Japan, China and even India.
“Ask them to spend, on imported cars and, seriously, even on cosmetics! This will put India on a growth curve. This is one of the reasons for MNC’s coming down to India, seeing the consumer spending.” Bhagwati explained his new theory. “But before you follow this neo economics, get some fools to save so that you can borrow from them and spend!!!”
The US has taken over US $5 trillion from the world. So, as the world saves for the United States, Americans spend freely. According to Dr. Jagdish Bhagwati, Japanese save a lot. They do not spend much. Also Japan exports far more than it imports. Japan’s stakes in US securities is in trillions.Yet Japanese economy is considered weak, even collapsing. India itself keeps its foreign currency assets of over $50 Billion in US securities. China has sunk over $160 billion in US securities.
A Chinese economist asked a neat question. Who has invested more, US in China, or China in US? The US has invested in China less than half of what China has invested in US. The same is the case with India. They have invested in US over US $50 billion. But the US has invested less than US $20 billion in India.
The world is dependent on US consumption for its growth. It’s like a shopkeeper providing the money to a customer so that the customer keeps buying from the shop. If the customer will not buy, the shop won’t have business, unless the shopkeeper funds him. The US is like the lucky customer. And the world is like the helpless shopkeeper financier.
As argued in my previous articles, the United States and the West are concerned that China would emerge as the super- power status economically thus dominating the Indian Ocean region economically as well as a militarily power- base later. The ultimate goal of the United States of America is to regain full control and dominance over “Indian Ocean region”. In order to achieve that they need to ensure that the emerging Asian countries like India, Sri Lanka along with Russia and China would not get together and form “regional strategic alliances”. This can only be done through creating division among those countries. This is a crazy world dominated by US.
Time is opportune to form strategic alliances among the Asian nations. Why not BRICSSL?
(The writer is the Chief Executive Officer of Bogawantalawa Tea Estates PLC.
He is a Fellow Member of the Institute of Chartered Accountants of Sri Lanka and he holds a FMIC Masters of Business Administration from the Post Graduate Institute of Management, University of Sri Jayawardhanapura and can be contacted through [email protected])
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