Annual Report 2010 - Ministry of Finance and Planning

Ministry of Finance and Planning Sri Lanka > Annual Report 2010exports widened the trade deficit,it was offset to a certain extent bythe earnings from the tourism andincreased inflow of worker remittances.These two sources have generatedUSD 4,691 million in 2010 incomparison to USD 3,679 millionin 2009. Hence, the deficit in thecurrent account was limited to 2.9percent of GDP. Furthermore, theenhanced inflows to the capital andfinancial account helped the balanceof payments (BOP) to record a highsurplus of USD 921 million in 2010.With this, the country’s gross officialreserves (excluding ACU receipts) werestrengthened further to USD 6,610million in 2010, an amount equivalentto 5.9 months of the country’s imports.With the enhanced foreign exchangeinflows, the rupee appreciatedgradually by 3.09 percent to Rs. 110.95per US dollar during 2010.Financial System StabilityThe financial sector of the country alsoshowed an improved performance in2010, leading to further strengtheningof the financial system stability therebyenhancing public confidence. Duringthe year, various concerns and stressesthat had arisen in 2008 and 2009 as aresult of certain domestic and externalshocks were resolved. The increasein financial transactions to facilitatethe growing economy was displayedby the bank as well as the non-bankfinancial institutions. Moreover, allthe leading indicators of financialinstitutions, markets, payment systemsas well as safety nets reflected theimproved performance in the financialsector.New EmploymentOpportunitiesThe unemployment rate declined to4.9 percent in 2010 from 5.8 percentin 2009. The enhanced employmentopportunities due to the growth in allsectors in the economy following thepost-conflict investor confidence andgrowing opportunities in the economyas well as the increase in overseas employmentopportunities for Sri Lankanswere the major factors attributable tothis improvement.Improved Fiscal SectorThe fiscal sector indicated a strongrecovery in 2010. The overall budgetdeficit was reduced to 8.0 percent ofGDP from the high deficit of9.9 percent in 2009 reflecting theefforts made by the Government tostrengthen the fiscal consolidation. Thiswas also supported by the recoveryof domestic economic activities inthe extremely peaceful environmentin the country, which reduceddefence expenditure/GDP ratio to 3.4percent from 3.9 percent in 2009, theimproved macroeconomic conditionswhich reduced interest payments/GDP ratio to 6.3 percent, the strongrecovery in imports that increased toUSD 13,512 million in 2010 from USD10,207 million in the previous year andthe continuation in global economicrecovery. During the year, a number ofmeasures were introduced aiming atrationalizing the tax system, supportingthe domestic economic activity andhelping to keep domestic pricesstable. These included the loweringof the tariff structure to a four bandsystem, exemption of customs duty onimport of plant and machinery and rawmaterials, reduction of tax on certainraw materials, removal of surcharge of15 percent on customs duty payable onimported goods, reduction of exciseduty on motor vehicles by about50 percent, granting of excise dutyconcessions on certain items, revision ofCess rates applicable on certain items,revision of Special Commodity Levy(SCL) considering the improvementin domestic supply of certain itemsto support the domestic agriculture,and removal of excise duty on LP gasand import duty on diesel to mitigatethe impact of rising internal prices.Sri Lankasuccessfullyconcludedits thirdinternationalsovereignbond issue ofUSD 1,000million in2010 witha maturityperiod on tenyears...27