CB Annual Report 2016: Economy posted 4.4% growth | Sunday Observer

CB Annual Report 2016: Economy posted 4.4% growth

7 May, 2017

The economy grew by 4.4 percent last year supported by the expanding services and industrial sectors, the ‘State of the Economy as reflected by the Central Bank Annual Report 2016’ released last week showed.

While the services sector recorded a growth of 4.2 percent the industrial sector posted a growth of 6.7 percent in 2016. The resumption of a few large-scale State infrastructure projects and private sector investments has helped economic growth. However, the agricultural sector which contributes a fair share to the GDP had a negative growth due to the adverse weather that prevailed throughout last year resulting in the contraction of the paddy, tea and rubber sectors. Although the contraction in the agriculture sector is highlighted in State of the Economy, the report does not present remedial solutions to support the sector.

Similarly, the high unemployment rate among youth between the age of 15-24 has not been adequately addressed in presenting proposals for improvement in the report.

The unemployment rate among youth (15-24) reached 21.6 percent in 2016 compared to 20.8 percent in the previous year.

The gender gap continued to remain in favour of the male labour force. The female labour force participation rate was 35.9 percent while male participation was 75.1 percent.

Central Bank Director of Economic Research, Dr. Yuthika Indraratna presenting the report, said the high unemployment among youth, females and educationally qualified persons continues to be a severe concern for the country’s labour market.

However, according to the report, labour productivity improved during the first three quarters of last year

Labour productivity as measured by Gross Value Added (in 2010 prices) per hour worked increased marginally by 0.2 percent to Rs. 463.20 per hour in the first three quarters of 2016 from Rs. 462.09 per hour in the same period of the previous year.

Labour productivity is the highest in the services sector and the lowest in the agriculture sector due to conventional methods of cultivation, lack of credit facilities and less access to technology. The external sector continued to be under pressure last year as well with earnings from exports contracting for the second consecutive year. Earnings from exports declined by 2.2 percent in 2016 to USD 10.3 billion.

Agricultural exports declined by 6.3 percent and industrial exports by 1.3 percent. While spices recorded the worst decline in the agriculture sector equipment recorded worst decline in the industrial sector.

However, expenditure on imports increased by 2.5 percent to USD 19.4 billion due to the increase in investment and intermediate goods. Intermediate goods increased by 2.4 percent and investment goods by 13.8 percent.

As all is not bad the service sector continued to grow in 2016.The key driver for trade in services was tourism sector which crossed two million mark in arrivals and earnings surpassing USD 3 billion. Transportation and telecommunications, computers and information services too recorded satisfactory performance in export earnings.

Worker remittances reversed the declining trend and continued to support the foreign exchange earning. Remittances from workers grew by 3.7 percent to USD 7,242 million recovering from a marginal decline in 2015.

The Balance of Payments recorded a deficit in 2016 resulting in the decline in gross official reserves during the year. The overall deficit in the BOP was USD 500 million and the gross reserves asset position was USD 6.0 billion as at end 2016. The report stated that the growing imbalance in the external sector exerted pressure on the Sri Lankan rupee. The rupee depreciated by 3.83 percent against the USD compared to 9.03 percent in the previous year. 

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