The Sri Lankan economy has achieved substantial progress

in almost all macro-fundamentals over the past 8 years

Unit
Real GDP Growth
(Avg. for 5 years ending)
GDP

2000

2005

2013

2014 (Proj)

Remarks
Substantially higher growth
trajectory

5.0

4.0

6.7

7.8

US$ bn

16.6

24.4

67.2

77.0

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

% 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

0.2
1.0

0.3
2.7

1.4
7.5

1.9
8.3

1.7

3.7

5.0

5.2

Exchange Rate (Average)

US$ bn
US$ bn
Months of
Imports
Rs./US$

75.8

100.5

129.1

130.2*

Budget Deficit

% of GDP

9.5

7.0

5.9

5.2

Public Debt

% of GDP

96.9

90.6

78.3

74.3

Broad Money Growth (M2b)

12.9

19.1

16.7

14.0

All Share Price Index (ASPI)

No.

448

1,922

5,913

6,814*

Stock Market Capitalisation

Rs. bn

88.8

584.0

2,459.9

2,857*

000

400

549

1,275

1,593

Current Account Deficit

Gross Official Reserves

Tourist Arrivals

176% increase in 8 years!

Steady growth

Consistent improvement and

steady progress
Stable levels maintained
Important progress towards fiscal
consolidation
Moving steadily towards greater
sustainability
Close to projected levels
Reflects strong corporate sector
performance
Reflects peace dividend and
corporate sector vibrancy
Remarkable increase after the
conflict

* As at end July 2014

The past 4 years were the only HIGH GROWTH + LOW

INFLATION years in the post-1977 period

indicates year
Source: Road Map, 2014

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
Movements of Headline Inflation (Y-o-Y)

30

(4th August 2014)

Average inflation
over past 65
months 5.9 %

25
20
15
%

(1st August 2014)

10

5
0
Mar-14

Apr-13

May-12

Jun-11

Jul-10

Aug-09

Oct-07

Sep-08

Nov-06

Jan-05

Dec-05

Feb-04

Apr-02

Mar-03

May-01

Jul-99

Jun-00

Aug-98

Oct-96

Sep-97

Nov-95

Jan-94

Dec-94

-5

In the past, any inflation figure that

was less than 10% would have been
hailed as a major achievement!
4

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-oftime 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
5

The decades-old vicious cycle has now been replaced

with the present day virtuous cycle
Sri Lanka was trapped in a vicious
cycle for more than 5 decades

Sri Lanka is currently experiencing a

virtuous cycle
Low
inflation

High
inflation
High
fiscal
deficit

High
interest
rates

Low
investor
confidence

High debt
levels

Low
Growth

Sluggish
investment

Real
interest
rates

Low fiscal
deficits

Enhanced
savings

Low debt
levels

Sustained
growth

Regular
pipeline of
investments

Sri Lankas per capita income would surpass US$ 4,000 by

2015 while the GDP would reach US$ 100 bn in 2016

$4,240
(Projected)

$3,280
$2,836

$981

2011

GDP US$ 59.2 bn

2016
2015

2013

2003
GDP US$ 18.9 bn

$4,825
(Projected)

GDP US$ 67.2 bn

GDP

GDP

$ 88.7 bn

$ 101.8 bn

On that solid platform,

what will

look like?

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

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

10

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
11

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%)

Sectoral Share of GDP - Actual and Projected

70

(2013: US$ 38.1 bn)

60.0

58.0

58.1

33.3

32.0

31.1

29.7

6.7

10

10.0

10.8

20

40.6
30.7
28.7

30

12.7

A more broad-based and

dynamic Services sector
of US$ 90 bn (60.0%)

35.9

40

(2013: US$ 21.8 bn)

Services

19.1

Per cent

50

45.0

60

(2013: US$ 7.2 bn)

A more innovative and

advanced Industry sector
of US$ 50 bn (33.3%)

Industry
57.6

Agriculture

0
1950

1977

2009

2013

12

2016 (Proj) 2020 (Proj)

Sri Lanka: 2020 macroeconomic framework would reflect

several new drivers in the GDP computation tables
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

13

Sri Lanka: 2020 would have delivered several new National

Mileposts and Targets
National Mileposts
Poverty:
Unemployment:
Acute Malnutrition amongst
children under 5 years:
Electricity coverage:
Literacy:
Computer Literacy:
Life Expectancy:
New Highways:
Mono rails:
Entire road network:
Public investment:
National Savings/investment gap:

Less than 1%
Less than 3%
Less than 3%
100%
100%
90%
Above 80 yrs. for both male and female
Additional 311 km
To be initiated in 2015
All weather roads with 100% rural accessibility
8% of GDP
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
14

Sri Lanka: 2020 would have a greater bias towards

export of services
External Account Targets & Projections for 2016 and 2020
(Per Annum Value, US$ bn)

Tourism services
IT/BPO services
Aviation services
Maritime services
Knowledge economy services

40
35
30
25
20
15
10
5
0

35
30
25
20
15
10
5
0
2011

2012

2013

2014
(Proj)

2016
(Proj)

2020
(Proj.)

Service Receipts (US$ bn)

Merchandise Exports (US$ bn)

% of GDP

US$ bn

Projected Receipts from the Export of Goods and

Services

Item

2013

2016

Merchandise Exports
of which
Tea
Rubber
Textiles & Garments
Rubber products
Gems, Diamonds & Jewellery

10.4

15.9

21.4

1.5
0.1
4.5
0.8
0.4

2.2
0.2
5.6
1.2
1.0

2.5
0.3
8.0
1.5
1.5

Services Exports
of which
Earnings from tourism
Port and Airport related services
IT/BPO services
Oil and Gas

4.7

9.3

12.3

1.7
1.0
0.6
-

4.1
1.5
1.0
0.5

6.0
2.0
2.0
3.0

Workers remittances
Foreign Direct Investment
Long term loan inflows
Government
Private sector

6.4
1.4

8.3
2.8

10.5
4.3

1.6
0.7

2.2
1.0

2.7
1.2

Total Receipts from the Export of Goods and Services (% of GDP)

15

2020

Sri Lanka: 2020 targets would obviously

be challenging, and many stiff hurdles
would need to be surmounted...

What needs
to be done?
16

Sound macro-economic fundamentals and trends would

need to be maintained, even if the global environment is
tough
Actual
Projections
Indicator

Unit

2009

2014

2016

2020

3.5

7.8

8.3

8.0

2,057

3,719

4,825

7,500

Real Sector
GDP Growth
Per Capita GDP at Market Prices

%
US$

Inflation (GDP Deflator)

5.9

6.0

5.0

4.5

Unemployment

5.8

4.0

4.0

3.0

% of GDP

24.4

31.0

33.1

36.5

% 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

% of GDP

-0.5

-2.1

0.1

0.5

US$ bn

2.7

1.7

2.9

3.0

Budget Deficit

% of GDP

9.9

5.2

3.8

3.0

Government Debt

% of GDP

86.2

74.3

65.0

50.0

Gross Investment
External Sector
Trade Gap

Current Account Balance

Overall Balance
Fiscal Sector

17

The Economic Diversification Programme would need to

continue, based on the 5 Hubs ++ concept
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

Second international airport at

Mattala

Colombo Container mega hub

Hambantota Free port, Service

and Industrial port declared as a
Free Port

Galle Leisure Port

Upgrading of domestic
airports

Trincomalee Port-related
industries and Port City

Colombo as a regional
logistics and services hub

Oluvil Commercial and

fisheries

Kankasanthurei and Point Pedro

Regional ports

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

Modernisation and the 2nd

Runway at BIA

Arrivals target of 4.5 mn by 2020

Earnings from Tourism
to increase to US$ 6.0 bn by 2020

18

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

19

Doing Business Indicators improvements and investment

grade sovereign rating upgrades would need to be focused
upon
2012

2013

2014
129

2020
122

116 120

136 133

132 131 134

132 130

108

89 83 85

20

World Bank Groups

Doing Business
Survey

Sri Lanka(B+/B1/BB-)

2011

Indonesia(BB+/Baa3/BBB-) Bangladesh(BB-/Ba3/-)

2012

2013

India(BBB-/Baa3/BBB-)

2020
130 130 132

107

116 115
97

Philippines(BB/Ba3/BB)

124 123 119

108

115

107

97

81

30

The Index of
Economic
Freedom

Sri Lanka(B+/B1/BB-)

Indonesia(BB+/Baa3/BBB-) Bangladesh (BB-/Ba3/-)

India(BBB-/Baa3/BBB-)

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

Philippines(BB/Ba3/BB)

Targets for Improvements in Sovereign Ratings

BBB-

BBB

BB-

BB

2014

2016

2018

2020

Fitch

BBB-

BBB

B+

BB

2014

2016

2018

2020

S&P

Ba2

Baa3

Baa2

B1
2014

2016

2018

2020

Moodys
20

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
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

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
21

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

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

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

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

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

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

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

28

And, most importantly, continuous political stability

and policy consistency would need to be ensured
The positive political environment since 2006 helped to effectively steer the
economy out of global crises and turbulent times in the recent past
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

This

To-Do List
is a
formidable one,

but if all stakeholders,

private and public,
approach

the challenges diligently,

it could be
comfortably delivered

30

Sri Lanka: 2020 is surely taking shape as reflected

in Colombos new and emerging skyline

Source: Report by Ernst & Young, 2013

31

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: Now
US$ 3,280

Sri Lanka: 2020

Sri Lanka: 2040

Middle Income

Lower
Middle
Income
4,085
1,035

Low
Income

Congo,
Dem. Rep.
(230) India Philippines
(1,580) (2,500)

Thailand
(5,210)

Upper Middle
Income

High Income

12,615

South
Africa
(7,610)

Malaysia
(9,820)

Chile
(14,310)

Rep. of
Korea
(22,670)

Switzerland Bermuda
(104,590)
(80,970)Norway
(98,860)

World Bank Categorisation:

2012 GNI per capita, calculated based on World Bank Atlas method

As proposed by the CCC Chairman at the 175th Anniversary Celebration, that vision must also now enter
the board rooms of Chamber members
32