Sri Lanka Readies for Momentous Post-War Era

By Philip Fernando in Los Angeles for Sri Lanka Guardian

(January 28, Los Angeles, Sri Lanka Guardian) Sri Lanka is getting ready for the post war era in earnest. As the expenditure on the war begins to decline, the need to divert attention to development of the north and east ensues. The main two access roads to Jaffna, i.e. A9 and A32, have been cleared and their rehabilitation activities are already afoot. This is the trigger that should set in some momentous action during the next 12 months. The Central Bank expressed the view recently that the benefits of this momentum will spill over to the rest of the country as well, particularly with enhanced economic activities from the Northern tip of the country, Point Pedro to the Southern tip, Dewundera.

The program, Uthuru Wasanthaya (Northerly Spring), is now in its early stages to rebuild and develop Northern Province, which will cover the construction of the rail track and highways connecting the North and the South, while schools, hospitals and government offices will also be renovated and modernized. Governor of the Central Bank Ajith Nivard Cabraal stated recently that the initial financing to implement these projects have already been allocated in Budget of 2009. They will be financed through concessional foreign loans, grants and domestic resources. Jaffna itself may see some rapid economic activity.

All that would depend on how well Sri Lanka weathers the impact of the international financial weathers crisis now affecting many countries. The situation has to be watched with immense care. A substantial decline in oil prices to the level prevailing now will help in reducing the import bill. But the fall in tea and rubber, and export earnings would be a serious blow. Oil imports last year constituted about a fourth of the import bill. Therefore, if oil prices decline, the trade deficit is likely to be much less than in 2008, even with depressed tea and rubber prices. This is about the best hope for keeping our heads above water and keeping the balance of trade within control in 2009. If oil and commodity prices decline, then there would be a significant decrease in the trade deficit. If this scenario does not work out, then the trade deficit would be a severe strain on the country’s reserves.

One other factor that needs to be watched is whether the remittances received by Sri Lanka would show a decline. Central bank is now studying this matter seriously. The expected downturn in the economies of many countries and the automatic decrease in economic activity and less employment opportunities may cause a drop in the remittances. Sri Lankan worker remittances financed about 40 percent of the trade deficit last year. Other capital inflows also may decline. Portfolio investments are difficult to predict and it my take some time for things get back to normal. Foreign commercial borrowing is likely to be difficult and costly. Foreign aid has already dwindled.

Rapid consumerism in the north is what many are hoping will bring a sense of normalcy to that area. Three decades of suppressed economic activity kept investment to the lowest. But that can be reversed as the flow of goods and services begin and trade and business activity open up new avenues of employment. Even basic consumer goods like furniture, shoes, school books and building materials like cement could provide the spur for investment flow to the north. The end of the long war itself would be a major stimulus. Some even predict that thousands who left the shores amidst the throes of the ongoing conflict will now begin to come back. - Sri Lanka Guardian