ajith nivard cabraal governor-cbsl- aru - 5
TRANSCRIPT
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Unit 2000 2005 2013 2014 (Proj) Remarks Real GDP Growth (Avg. for 5 years ending)
% 5.0 4.0 6.7 7.8 Substantially higher growth
trajectory
GDP US$ bn 16.6 24.4 67.2 77.0 176% increase in 8 years!
Unemployment % 7.6 7.2 4.4 4.0 Steady progress
Inflation (Annual Average) % 6.2 11.0 6.9 5.0 More than 5 years at single digit
levels
Current Account Deficit % of GDP 6.4 2.7 3.9 2.1 Satisfactory progress being made
Remittances US$ bn 1.2 2.0 6.4 7.0 Steady y-o-y growth, & 237%
increase in 8 years
FDI Inflows US$ bn 0.2 0.3 1.4 1.9 Steady growth
Gross Official Reserves
US$ bn 1.0 2.7 7.5 8.3 Consistent improvement and
steady progress Months of
Imports 1.7 3.7 5.0 5.2
Exchange Rate (Average) Rs./US$ 75.8 100.5 129.1 130.2* Stable levels maintained
Budget Deficit % of GDP 9.5 7.0 5.9 5.2 Important progress towards fiscal
consolidation
Public Debt % of GDP 96.9 90.6 78.3 74.3 Moving steadily towards greater
sustainability
Broad Money Growth (M2b) % 12.9 19.1 16.7 14.0 Close to projected levels
All Share Price Index (ASPI) No. 448 1,922 5,913 6,814* Reflects strong corporate sector
performance
Stock Market Capitalisation Rs. bn 88.8 584.0 2,459.9 2,857* Reflects peace dividend and
corporate sector vibrancy
Tourist Arrivals 000 400 549 1,275 1,593 Remarkable increase after the
conflict
The Sri Lankan economy has achieved substantial progress in almost all macro-fundamentals over the past 8 years
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* As at end July 2014
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3
The past 4 years were the only HIGH GROWTH + LOW INFLATION years in the post-1977 period
Source: Road Map, 2014
indicates year
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Recent headlines indicate the new benign inflation expectations
Recent headlines highlighted that inflation accelerated to 3.6% from 2.8% in July 2014
It shows that perceptions have changed dramatically
Average inflation over past 65
months 5.9 %
4
In the past, any inflation figure that was less than 10% would have been hailed as a major achievement!
-5
0
5
10
15
20
25
30
Jan
-94
Dec
-94
No
v-9
5
Oct
-96
Sep
-97
Au
g-9
8
Jul-
99
Jun
-00
May
-01
Ap
r-0
2
Mar
-03
Feb
-04
Jan
-05
Dec
-05
No
v-0
6
Oct
-07
Sep
-08
Au
g-0
9
Jul-
10
Jun
-11
May
-12
Ap
r-1
3
Mar
-14
%
Movements of Headline Inflation (Y-o-Y)
(1st August 2014)
(4th August 2014)
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Unlike in the past, international organisations such as the IMF have commended Sri Lankas economic management, requiring critics to dig up micro issues
Executive Directors of the IMF Board approved the Article IV Staff Report for 2014, on a Lapse-of-time basis for the first time in its known history!
Executive Directors agreed to approve the report without meeting as Sri Lankas macroeconomic fundamentals continued to remain strong
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The decades-old vicious cycle has now been replaced with the present day virtuous cycle
Low inflation
Real interest
rates
Enhanced savings
Regular pipeline of investments
Sustained growth
Low debt levels
Low fiscal deficits
Sri Lanka is currently experiencing a virtuous cycle
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High inflation
High interest
rates
Low investor
confidence
Sluggish investment
Low Growth
High debt levels
High fiscal
deficit
Sri Lanka was trapped in a vicious cycle for more than 5 decades
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Sri Lankas per capita income would surpass US$ 4,000 by 2015 while the GDP would reach US$ 100 bn in 2016
$981
2003
2011
2013
2015
$2,836
$3,280
$4,240 (Projected)
$4,825 (Projected)
2016
7
GDP US$ 67.2 bn GDP US$ 59.2 bn
GDP US$ 18.9 bn
GDP
$ 88.7 bn
GDP
$ 101.8 bn
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On that solid platform,
what will look like?
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Sri Lanka: 2020 would have a GDP around US$ 150 bn, a US$ 7,000+ per capita income, and sound macroeconomic fundamentals
Economic growth averaging around 8% from 2015 onwards
Inflation at the lower end of mid-single digits
Poverty at very low levels, with abject poverty having been eradicated
Unemployment limited to standard unemployment levels
A debt to GDP level around 50%
Current account at surplus with foreign reserves growing faster
A Sri Lankan rupee that has appreciated gently over the years, from 2015 to 2020
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Sri Lanka: 2020 business outlook would have improved significantly
Doing Business ranking among the first 20 countries
Sovereign being rated at investment grade with positive outlook
Disparities among lagging districts reduced significantly with considerable contribution from all provinces to economic growth
Economic growth spurred by modern infrastructure
Sri Lankan ports and airports among the more popular and busy international ports and airports in the region
Productivity levels improved to higher levels with better skilled labour force
Advanced technology used in industry, supported by an intelligent work force
Strong work ethic being practiced by a large segment of the work force
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Sri Lanka: 2020 real economy too, would have undergone a paradigm shift
Economy would be more balanced, with foreign exchange earnings greater than expenditure
The 5 Hubs ++ would have progressed quite well, and each hub as well as existing drivers of the economy would be operating at enhanced levels
Tourism sector would be catering to about 4.5 million tourists
Worker remittances would be mainly from a skilled and semi-skilled labour force, treated with greater care, dignity and respect
Financial sector would be stable and would be having a presence in the region, providing services in Asia
Sri Lankan business conglomerates would be enjoying serious business relationships with key Asian, European and US counterparts
The Colombo and major city skylines would have undergone incredible changes
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Sri Lanka: 2020 sector composition would have undergone a gentle change
A more modern and high yielding Agriculture sector of US$ 10 bn (6.7%)
(2013: US$ 7.2 bn)
A more innovative and advanced Industry sector of US$ 50 bn (33.3%)
(2013: US$ 21.8 bn)
A more broad-based and dynamic Services sector of US$ 90 bn (60.0%)
(2013: US$ 38.1 bn)
45
.0
30
.7
12
.7
10
.8
10
.0
6.7
19
.1
28
.7
29
.7
31
.1
32
.0
33
.3
35
.9 4
0.6
57
.6
58
.1
58
.0
60
.0
0
10
20
30
40
50
60
70
1950 1977 2009 2013 2016 (Proj) 2020 (Proj)
Pe
r ce
nt
Sectoral Share of GDP - Actual and Projected
Agriculture Industry Services
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2020 GDP
2013 GDP
Agriculture
Agriculture
Fishing
Forestry
Livestock
Industry
Mining and Quarrying
Apparel
Other Manufacturing
Electricity, Gas and Water
Oil and Gas Exploration
Marine and Aquatic Resources
Technology and Innovation
Construction
Services
Wholesale and Retail Trade
Hotels and Restaurants
Transport
Banking
Communication and IT
Insurance
Real Estate
Healthcare
Entertainment
Education Services
Ownership of Dwellings
Government Services
Private Services
Sri Lanka: 2020 macroeconomic framework would reflect several new drivers in the GDP computation tables
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Sri Lanka: 2020 would have delivered several new National Mileposts and Targets
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National Mileposts Poverty: Less than 1% Unemployment: Less than 3% Acute Malnutrition amongst children under 5 years: Less than 3% Electricity coverage: 100% Literacy: 100% Computer Literacy: 90% Life Expectancy: Above 80 yrs. for both male and female New Highways: Additional 311 km Mono rails: To be initiated in 2015 Entire road network: All weather roads with 100% rural accessibility Public investment: 8% of GDP National Savings/investment gap: 0.5% of GDP
Market based Targets Value
Stock Market Capitalisation: US$ 150 billion Corporate bond market: US$ 30 billion Bank assets: Rs. 18 trillion
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Sri Lanka: 2020 would have a greater bias towards export of services
0
5
10
15
20
25
30
35
0
5
10
15
20
25
30
35
40
2011 2012 2013 2014(Proj)
2016(Proj)
2020(Proj.)
% o
f G
DP
US$
bn
Projected Receipts from the Export of Goods and Services
Service Receipts (US$ bn)
Merchandise Exports (US$ bn)
Total Receipts from the Export of Goods and Services (% of GDP)
Tourism services
IT/BPO services
Aviation services
Maritime services
Knowledge economy services
Item 2013 2016 2020
Merchandise Exports 10.4 15.9 21.4
of which
Tea 1.5 2.2 2.5
Rubber 0.1 0.2 0.3
Textiles & Garments 4.5 5.6 8.0
Rubber products 0.8 1.2 1.5
Gems, Diamonds & Jewellery 0.4 1.0 1.5
Services Exports 4.7 9.3 12.3
of which
Earnings from tourism 1.7 4.1 6.0
Port and Airport related services 1.0 1.5 2.0
IT/BPO services 0.6 1.0 2.0
Oil and Gas - 0.5 3.0
Workers remittances 6.4 8.3 10.5
Foreign Direct Investment 1.4 2.8 4.3
Long term loan inflows
Government 1.6 2.2 2.7
Private sector 0.7 1.0 1.2
External Account Targets & Projections for 2016 and 2020
(Per Annum Value, US$ bn)
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Sri Lanka: 2020 targets would obviously be challenging, and many stiff hurdles would need to be surmounted...
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What needs to be done?
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Sound macro-economic fundamentals and trends would need to be maintained, even if the global environment is tough
Actual 2009 2014 2016 2020
Real Sector
GDP Growth % 3.5 7.8 8.3 8.0
Per Capita GDP at Market Prices US$ 2,057 3,719 4,825 7,500
Inflation (GDP Deflator) % 5.9 6.0 5.0 4.5
Unemployment % 5.8 4.0 4.0 3.0
Gross Investment % of GDP 24.4 31.0 33.1 36.5
External Sector
Trade Gap % of GDP -7.4 -9.5 -7.2 -4.5
Exports of Goods and Services US$ bn 9.0 17.6 25.2 33.6
Imports of Goods and Services US$ bn 11.7 23.2 29.5 37.3
Current Account Balance % of GDP -0.5 -2.1 0.1 0.5
Overall Balance US$ bn 2.7 1.7 2.9 3.0
Fiscal Sector
Budget Deficit % of GDP 9.9 5.2 3.8 3.0
Government Debt % of GDP 86.2 74.3 65.0 50.0
ProjectionsIndicator Unit
17
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18
Colombo Container mega hub
Hambantota Free port, Service
and Industrial port declared as a
Free Port
Galle Leisure Port
Trincomalee Port-related
industries and Port City
Oluvil Commercial and
fisheries
Kankasanthurei and Point Pedro
Regional ports
Second international airport at Mattala
Modernisation and the 2nd Runway at BIA
Upgrading of domestic airports
Colombo as a regional logistics and services hub
IT literacy and internet access for all
Creation of knowledge-based jobs
Promotion of research and innovation
Sri Lanka as an education destination Accredited foreign universities in Sri Lanka
Develop renewable energy sources
Oil exploration and production
(Mannar, Cauvery, Southern waters)
Develop oil trade related ancilliary services
including gas
Sri Lanka as a top centre in the region for
commercial services
Growth of ports and tourism will catalyse the
development of Sri Lankas commercial sector
Arrivals target of 4.5 mn by 2020
Earnings from Tourism
to increase to US$ 6.0 bn by 2020
The Economic Diversification Programme would need to continue, based on the 5 Hubs ++ concept
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Country-wide infrastructure development would need to provide the necessary impetus for investments
Significant improvements to the macro economy are expected through infrastructure development
Rapid advancement in physical infrastructure is expected to support the growth momentum in the medium term
New growth sectors would need to be based around newly developed transport, port, aviation and commercial hubs
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World Bank Groups
Doing Business Survey
Doing Business Indicators improvements and investment grade sovereign rating upgrades would need to be focused upon
The Index of
Economic Freedom
For 2020, Sri Lanka would strive to be among the first 20 countries in the Doing Business Ranking and would strive to have an investment grade sovereign rating with a positive outlook
20
89
129 122 132 136
83
116 132 131 133
85
120 130 134
108
20
Sri Lanka(B+/B1/BB-) Indonesia(BB+/Baa3/BBB-) Bangladesh(BB-/Ba3/-) India(BBB-/Baa3/BBB-) Philippines(BB/Ba3/BB)
2012 2013 2014 2020
107 116
130 124 115
97
115 130
123
107
81
108
132 119
97
30
Sri Lanka(B+/B1/BB-) Indonesia(BB+/Baa3/BBB-) Bangladesh (BB-/Ba3/-) India(BBB-/Baa3/BBB-) Philippines(BB/Ba3/BB)
2011 2012 2013 2020
BB- BB BBB- BBB
2014 2016 2018 2020
Fitch
B+ BB BBB- BBB
2014 2016 2018 2020
S&P
B1 Ba2 Baa3 Baa2
2014 2016 2018 2020
Moodys
Targets for Improvements in Sovereign Ratings
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The financial sector would need to be developed and sustained in order to become deeper and more liquid
The ongoing consolidation process would result in Sri Lankan financial institutions transforming towards being stable, large scale, globally competitive financial institutions
Capital would need to be more competitive, and Sri Lanka would need to offer a safe environment with reasonable returns
Public debt issuance would need to be streamlined with new issuances, also focused on developing the capital markets and supporting investment requirements of superannuation funds of the country
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2016 Targets 2020 Targets
At least 5 banks to have an asset base in excess of Rs. 1 tn At least 3 banks to have an asset base in excess of Rs. 2 tn
Large state banks to have a regional and /or global presence At least five banks to have a regional or global presence
Few specialized banks to finance regional development activities
Well established off-shore banking operation centre under the commercial hub
Smallest bank to have an asset base of over Rs. 100 bn Well established arbitration centre in Colombo for financial sector dispute resolutions
Finance companies limited at 20 and the smallest company to have an asset base of Rs. 20 bn
Strong NBFI sector backed by the banking system
Local banks playing a key role in social security products
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The labour force would need to be developed with a special focus on productivity, and the inculcating of a strong work ethic
Overcome aging labour force challenge
Focus on increasing labour productivity
Ensure engagement of female labour force participation in the work force
Minimise underemployment and labour market misalignment
Introduce flexi-hours at the work place
Consider restructuring the payment cycle, including the payroll system, in line with those followed by advanced economies, to increase and smoothen consumption levels of the work force
22
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The private sector would need to be continuously facilitated to become even more vibrant and enthusiastic
A dynamic private sector that does not hesitate to engage in new ventures and investments is the way forward to 2020
Transparent mechanisms with proper administration and due process
Strong legal frameworks that provide swift recourse at times of remedial action
Fundamentally sound public and private sector institutions, and strong regulatory authorities
Vibrant payments and settlement systems with suitable infusion of new technologies
23
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A continued flow of capital investment along with a substantial improvement in productivity would be required over the next several years...
A steady improvement in investment to GDP ratio reaching 36.5% by 2020 is required
Investments need to be attracted from both local and foreign sources during the next few years
Areas in which foreign funds could be introduced:
FDI
Capital inflows: portfolio and government securities
Commercial borrowings
Bilateral funding opportunities
Investment treaties and investments with counterpart governments
24
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The Investment transmission channels would need to be maintained at optimum levels for the smooth flow of funds The channels for investment need to be robust in order to
ensure smooth transmission and flow of funds into and out of Sri Lanka
Financial intermediaries need to provide a reasonable low transaction cost regime among
Payment gateways need to be secure and ensure the unhindered flow of funds
Counterparty and legal risks need to be at minimum levels
25
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The capital flow system would need to be well managed
Proper capital management would provide for sustained flow of funds
Capital flows must be in both directions, so that Sri Lankan entrepreneurs too could reap the benefit from global investment opportunities
A gradual and cautious capital account liberalisation process could facilitate the flow of capital, as well as ensuring sustained growth
26
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The notorious middle-income trap would need to be avoided
Increased wage pressures may present a challenge to maintaining price stability
Possibility of wider disparity among income classes, as may be reflected by a widening of the Gini coefficient would need to be addressed
Declining labour productivity levels as faced by certain middle income countries would need to be responded to
27
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The issue of changing demographics would need to be addressed...
Aging population and high retirement costs
Increased expenditure on healthcare
Ensuring adequate female labour force participation
Loss of healthy and experienced persons to the workforce due to current retirement practices
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And, most importantly, continuous political stability and policy consistency would need to be ensured
In the future too, implementation of progressive economic policies would require political support at times of challenges
Investors would also need to be assured of policy consistency so that they are able to commit themselves to long-term, large-scale investments
29
The positive political environment since 2006 helped to effectively steer the economy out of global crises and turbulent times in the recent past
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This
To-Do List
is a
formidable one,
but if all stakeholders,
private and public,
approach
the challenges diligently,
it could be
comfortably delivered
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Sri Lanka: 2020 is surely taking shape as reflected in Colombos new and emerging skyline
Source: Report by Ernst & Young, 2013
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Sri Lanka: 2020
While focusing on Sri Lanka: 2020, a longer term vision, whereby Sri Lanka moves to the High Income category by 2040, must also now enter the planning horizon
Sri Lanka: 2040
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Sri Lanka: Now US$ 3,280
As proposed by the CCC Chairman at the 175th Anniversary Celebration, that vision must also now enter the board rooms of Chamber members
Low
Income
Lower
Middle
Income
Upper Middle
Income High Income
World Bank Categorisation:
2012 GNI per capita, calculated based on World Bank Atlas method
1,035 4,085 12,615
Middle Income
Congo, Dem. Rep.
(230) India (1,580)
Thailand (5,210)
Malaysia (9,820)
Bermuda (104,590)
Philippines (2,500)
Norway (98,860)
Switzerland(80,970)
South Africa (7,610)
Chile (14,310)
Rep. of Korea
(22,670)