Annual Report 2008 - Ministry of Finance and Planning

1. Macro Economic Perspectives
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These developments created a trade deficit of US $ 5,871
million in 2008 from US $ 3,656 million in 2007. In relation
to GDP it was 14 percent. The cost of petroleum imports
contributed to 57 percent of the trade deficit.
Chart 1.10
Economic Highlights
Sustained Economic Growth Amidst Challenges
Demonstrating the resilience to external and domestic
shocks the economy witnessed a growth of 6 percent in
2008. This is the fourth consecutive year that the economy
recorded a growth of 6 percent or over. This performance
should be viewed in the backdrop of the impact of global
economic melt-down which in particular affected the Sri
Lankan economy from September 2008. During the first nine
months, then economy grew at a rate of 6.5 percent, and
declined to 4.5 percent in the last quarter.
Towards Strengthening National Security
After the liberation of the entire Eastern Province from
the grips of terror, the liberation of the Northern Province
commenced in 2008. The security of the rest of the
country was also strengthened to avert any terrorist
related incidents. These developments necessitated new
recruitments especially to protect the areas newly liberated
from terrorists. Extra resources were needed to meet wages
and other needs of the security forces, replenishment and
for procurement of equipment. Government expenditure
on security, including public order and safety amounted to
Rs. 181 billion largely reflecting increased expenditure on
manpower related outlays of the security forces.
Twofold Growth in Agriculture
In 2008, the agricultural sector grew by 7.5 percent compared
to the 3.4 percent in 2007, with all subsectors registering
relatively high growth rates. High international prices
for agricultural commodities in the first three quarters,
increased paddy production reflecting benefits of the grant
of the fertilizer subsidy and other incentives granted by the
Government, increase in the extent of land under cultivation
particularly in the Eastern Province, positive results of the
food production drive under “Api Wawamu - Rata Nagamu”
program, were the main contributors to the upturn
experienced in the agricultural sector. Taking advantage
of the favourable weather conditions that prevailed in the
first half of 2008, high international prices for agricultural
commodities, good agricultural practices adopted such as
timely pruning and the fertilizer subsidy extended to the
small holder plantation sector , boosted the tea production
in the first half of the year by over 19 percent, which was
the highest performance registered in any first half of a year
in the history of our country. However, it decelerated to 4.1
percent by end 2008 mainly due to the contraction in the
external demand. The drought that prevailed in the latter
part of the year, also contributed to slowdown production.
The tea prices recorded a significant increases in the first
and second quarters of the year boosting export earnings
from tea. However, by September, the prices dipped from Rs.
323 per kg to Rs.215 per kg consequent to lower demand.
Opening of A-9 Road
The rubber production at 129 million kg recorded a 10 percent
increase in 2008, despite unfavorable weather conditions
Ministry of Finance and Planning Sri Lanka
Annual Report 2008