Report No. 670 I-cr

Sri LankaIssues in Macro-Ecootnic andInduJ.strial D(e;velopnment PolicyApril 20, 1487

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FOR OFFICIAL USE ONLY

Document of the World Bank

I h iof duint lt has 1 ret'ri n distribution ancl may be used by recipientsonly in [he pertorimiarn e of their official dutic-, Its contents may not otherwisebe disJloscd wvithout WNIorld Batik dthtoiroiization.

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CURRENCY EQUIVALENTS(Annual Averages)

Sri Lanka Rupees per US$1.00

1978 - Rs 15.611979 - Rs 15.571980 - Rs 16.531981 - Rs 19.251982 - Rs 20.811983 - Rs 23.531984 - Rs 25.441985 - Rs 27.161986 - Rs 28.02

GLOSSARY AND PRINCIPAL ACRONYMS

BTT - Business Turnover TaxCCPI - Colombo Consumer Price IndexCDS - Committee of Development SecretariesCWE - Cooperative Wholesale EstablishmentEDB - Export Development BoardEDISS - Export Development Investment Support SchemeFCBU - Foreign Currency Banking UnitFIAC - Foreign Investment Advisory CommitteeFTZ - Free Trade ZoneGCEC - Greater Colombo Economic CommissionGOBUs - Government Owned Business UndertakingsIPC - Industrial Policy CommitteeIPZ - Industrial Processing ZoneJEDB - Janatha Estates Development BoardLIAC - Local Investment Advisory CommitteeNPC - National Price CommissionPMEs - Public Manufacturing En erprisesPTC - Presidential Tariff CommissionSPC - State Plantations Corporation

Fiscal Year

January 1 to December 31

VOl OMCM1 US ONLY

TITLE SRI LANKA - ISSUES IN MACROECONOMIC AND INDUSTRIALDEVELOPMENT POLICY

COUNTRY s SRI LANKA

REGION s SOUTH ASIA

SECTOR : COUNTRY ECONOMIC

REPORT TYPE CLASSIF MN/YY LANGUAGES

6701-CE CEM Restricted 04 87 English

PUBDATE : 8704

ABSTRACT The Government of Sri Lanka is now confronted with themost difficult problems it has had to face since ittook office in 1977. Growth is slowing, unemploymentis rising, the fiscal situation is precarious, and abalance of payments crisis is not unlikely. The reasonsfor the deterioration of the economy are complex. Theyare related to insufficient adjustments in macroeconomicpolicies, adverse external developments and a complexpolitical situation. The report notes that delayingthe corrective measures that are needed would increasetheir cost and may dis.zpt Sri Lanka's developmentprocess. The analysis of the corrective measures-a change in the exchange rate policy; a reductionin public expenditures accompanied by an improvementin their quality; and a change in industrial policiesfocussing on tariff reform, export promotion measuresand efficiency improvement of public manufacturingenterprises--constitutes the main theme of the report.

This document has a stricted distribution and may be used by reipients only in the perfornanceof their offici duties. Its contents may not otherwise be disclosed without World Bak authoiation.

SRI LANA - ISSUES IN MACRO-ECONOMIC AND INDUSTRIAL DEVELOPMENT POLICY

Table of Contents

Page llo.

Country Data

EECUTIVE SUmmARY i

PART I: ECONOMIC DEVELWPMENTS AND PROSPECTS ..................... 1

1. The 1977 Liberalization *........o..,,..,.o.oeoo.o 1

A. The Background to Liberalization in 1977 .............. 1B. Liberalization in 1977. The Changes in the

Incentive Structure ........... 5C. The Impact of Liberalization. Growth, Exports,

and Employment .........00 , 6

II. The Weaknesses in Macro-Economic Management ... ........... 10

A. An Overview .......................................... 10B. Public Expenditures ................................... 15C Government Tax Revenues .....0.0............**.00oo* .. 21D. Balance of Payments e 25

III. The Need for Adjustment *...000.................0.0.0... 0 28

A. The 1987-89 Stabilization Prografi ....... .............. 28B. Balance of Payments Projections ....................... 34

PART II - INDU-STRIAL DEVELOPMENT ISSUES ........................... 39

I. Introduction . *00000000000009000****060 ............. o* 39

II. Tariff Policies .................... .. .******** 43

Ao Goals of Tariff Policies *0.. ......................... 43

B. The Tariff Schedule ................ .*......*. 44

C. Non-Tariff Protection 0.0.00...... 00040000 ..... e.o00 47

D. Assessment of Statutary Protection .................... e 47E. Agenda for Future Reforms ............................. 49

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III. Export Promotion Measures .......................... 51

A* Background ........... 51B. Export Promotion Schemes and Recommendations 51

IV. Role of Public Manufacturing Enterprises .o....*..o....... 55

A .Ba4kground aao 4 0 # I 0*0 5 5B. PME's Business Practices ....*......................... 57C. Agenda for Future Reforms o.*o..oo.*. o****.*.... *..*.*. 60

V. Business Climate ................ . 61

A. Impact of Past Policies 61B. Other Factors Affecting the Business Climate .......... 63

Annex It The Public Investment Program and the Balance of Payments 70Annex IIS Fiscal Impact of Alternative Tariff Systemstems....o..o.. 73

STATISTICAL APPENDIX ..17...... 77

MAP

This report is based on the findings of an economic mission whichvisited Sri Lanka during November/December 1986. The economic mission consistedof Mr. R. Zagha (hief of Mission), Mmes. K. Uchimura (Industrial DevelopmentIssues) and P. Aizenman (Public Investment Program and Macroeconomicprojections). The report benefitted from the contributions of the industrialsector mission which visited Sri Lanka at the same time. The industrial sectormission consisted of Mr. D. Groves (Chief of Mission), Messrs. T. Maxwell, D.Kochav, D. Vittas, and Ms. Candoy-Sekse. Mr. D. Jayantha of the ResidentMission contributed to the industrial sector part of the report.

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TEXT TABLES

Page No.

Table 1: Indicators of Sri Lanka's Growth Performancesince Independence *..0000 ..... *.*.oo a .0.... 000000 4

Table 2: Key Economic Variables, 1977-86 *..O..........*... ¢... 7Table 3: Growth kates of GDP in Selected Sectors *.................. 9Table 4: Macroeconomic Balances, 1978-86 .......................... 12Table 5: Nonfinancial Public Enterprises .......................... 14Table 6: Central Government Expenditures, 1978-86 ................. 17Table 7: Financirg of the Government Deficit .......*... ........... 20Table 8: Sectoral Breakdown of Disbursement of Government

and Government Guaranteed Medium and Long TermLoans, 1970-77 and 1978-85 o..eo.oO......ooeo....o.o 21

Table 9: Tax/GNP Ratios (Z) for some Selected Countries ........... 22Table 10: Tax Revenues from Rice, Sugar, Wheat and Oil in 1985 ...... 23Table 11: Tax Revenues - Selected Features, 1970-86 *.....* ..... 24Table 12: Debt Indicators, 1978-86 ............................... 26Table 13: Balance of Payments Data, 1978-36 O 27Table 14: Government Expenditures, 1986-89 ........................ 29Table 15: Sri Lanka's Real Exchange Rate, 1978-86 .................. 30Table 16: Tree Crops Profitability, 1978-86 ........................ 33Table 17: Balance of Payments Projections, 1987-90 ................. 35Table 18: Aid Flows, 1984-89 ..... e..o....* ....... .......@ 37Table 19: Private and Public Sectors' Relative Shares in

Gross Manufacturing Output, 1985 ..... ................... 40Table 20: Manufacturing Exports and Imported Inputs in 1980 .*.... 41Table 21: International Comparison of Nominal Tariff Rates Mean

and Standard Deviation of Tariffs by Country, 1985 ...... 48Table 22: Before-Tax Profit ..................... .... o 56Table 23: Budgetary Transfers to Industrial Public Corporation o.... 57Table 24: Average Rupee Earnings on a Management Level

and Sector Basis Per Month *eeaa**o***o**aoo**. -*-o 59Table 25: International Wage Rate Comparisons ....... .a 67Table 26: Wage Rate Indices (December 1978=100) .......... 0.......... 68

Pop 1 of 2 pape

SRI LAIA - C0i T DATA

FARE POUAUI DWESITT65.607 sq km 16.1 million (mid-1986) 246 per sq km (1986)

Rate of Growth: 1.62 (from 1976 to 1986) 763 per sq km of agricultural land (1979)

POPUtATION CMARACTRISTICS (1983) bI HULTH (1984) k/Crude Birth Rate (pet '000): 26.2 Population per physicians 8.969Crude Death Rate (per '000): 6.I Population per Bospital Bed: 350Infant Mortality (pet '000 live births): 30.0 c/

INCOME DISTRIBUTION (1978) DISTRIIUTIQO OF LAND lilNRSHIPS of national income. higest quintilet 54 S owned by top 105 of ebneras -

lowest quintilet 4 Z owned by smallest 102 of wneres -

ACCESS TO PIMD *THR (1981) ACCESS TO ELBCTRICITY (1971)2 of population - urban: 47 2 of duellinge - total: 9

rural: 10 rurals 3

NUTRITIGI (1977) NUOCATIGN (1981)Calorie intake as Z of requitremnts: 97 Adult litertacy rate: 8tXPer capita protein intake (gtaes per day): 43 Prisary school enrollment: 9li

GNP PER CAPITA IN 1984: $360 d/

UTPUT IN 1986BY 1SECTOR NUAL MATE OF GROMII (M. constant rices)

Value Added$ million J 1970-77 1977-86

Agriculture 1,525 26 2.3 3.9Industry S/ 1.475 25 1.7 5.2Services ,_ 8l 49 3.7 6.8

Total tI 5.879 100 3.1 5.6

GROSS DMSIC PRODUCT IN 1986USS Million S

GDP at Market Prices 6.547 100Investmet 1.542 24Gross National swings 985 15Current Account Deficit 595 9hports of Goods and NS 1,513 23Imports of CoodS and NIS 2,263 35

GOVEINMltE FI?UPCBCentral Govermefnt

(Re million) 2 of GDP at arket Prices191|6 1975 1984 1986

Revenues S/ 37,231 17.2 22.1 20.3Current Expenditures k/ 37,588 18..; 17.2 20.5Current Surplus -357 -1.1 4.9 0.2Capital xpenditures i/ 20,762 7.3 13.6 11.6External Assistance 10,382 3.2 6.4 5.7

a/ laitrar Generael' Departrent.b/ Ptov%sional.c/ 1981.d/ World tafk Atlas estimte.I/ manufacturing. mining. and construction.f/ GDP at factor cost.£, Includes cajital revenue.h/ Includes advence accounts.j/ Includes net-lending.

South Asia Programs DepartmentApril 17. 1987

Pae 2 of 2 Page

SRI LANKA - COUNTRY DATA

tlNE. CRMDIT, AD PRICES 1979 1980 1981 1982 1983 1984 1985 1986(end of period) (Rs million)

money and quasi Money 14,957 19,709 24,287 30.249 36,818 43.015 48,099 49.691Bank Credit to Public Sector 2,962 9,100 12,889 17.236 17,639 14.605 20,486 22,175Bank Credit to Private Sector 11,082 16,308 20,763 24,934 31,345 34,979 38,201 40,885

(Percentages or Indes Numbers)

Money and Quasi Money as 2 of GDP 20.6 29.6 28.6 30.5 30.3 28.0 30.0 27.7General Price Index (1970-100) 110.8 139.7 164.8 182.6 208.2 242.9 246.4 265.6

Annual Percentage Changes insGeneral Price Index +10.8 +26.1 +18.0 +10.8 +14.0 +16.7 +1.4 +7.8Bank Credit to Public Secetr +56.8 +207.2 +41.6 +33.7 +2.3 -17.2 +40.3 +8.2Bank Credit to Private Sector +25.8 +46.3 +28.1 +20.1 +25.7 +11.6 +9.2 +7.0

BALANCE OF PAY)Q4TS MERCHANDISE EXPORTS (1986)

1984 1985 1986 $ Million X(USS Million)

Tea 330 27.4Exports of Goods, NV$ 1.743 1.555 1.513 Rubber 94 7.8Imports of Goods, MNF 2,142 2,296 2,263 Coconut Products S7 4.8Resource Gap (deficit a _) -399 -741 -750 All Other Cemuodities 723 60.0

Net factor Income -133 -127 -138 T(TAL 1,204 100.0Net Transfers & Remittances 277 266 293Balance on Current Account -255 -602 -595

EXTERNAL DEBT (S Million) a/Direct Foreign Investment 33 26 29Net M1LT Loans 311 277 324 December December

Disbursements 410 395 502 1985 1986Amortisation 99 118 178

Capital Grants 203 178 177 Total Outstanding 4,456 5,189Other Capital (net) - 8 -22Change in Reserves (+ = increase) +292 -113 -87 Total Outstanding

and Disbursed 2.953 3.508Gross Reserves (end-year) 511 451 353Net Reserves (end-year) 106 63 n.a.

Crude Oil and Petroleum Products DEBT SUlTICE RATIO b/ (2) 22.5 27.7Imports 420 391 231Exports 129 139 84

IBRD/IDA LENDING. end 1986 (US8 Million)RATE OF EXCHANGE

IBRD IDAEnd 1981 End 1984US$i.03 Re 20.55 US1.00 = Rs 26.28 Outstanding and Disbursed 61 473Rs 1.00 z US$ 0.05 Rs 1.00 = US8 0.04 Undisbursed 64 248

End 1982 End 1985 Outstanding, includingUS$1.00 = Rs 21.32 US$1.00 = Ra 27.41 Undisbursed 125 721Re 1.00 3 US$ 0.05 Re 1.00 = USS 0.04

End 1983 End 1986US$1.00 = Re 25.00 US$1.00 = Re 28 52Rs 1.00 a US$ 0.04 Re 1.00 a U3$ 0.04

I/ Repayable in foreign currencies and with an original maturity over one year, including private non-guaranteed debt.Excludes obligations to the IMF.

b/ Ratio of debt service to exports of goods and services. Debt service includes service on M&W.T debt.including IMF charges and repurchases, and interest payments on short-tert debt.

South Asia Programs DepartmentApril 17. 1987

EXECUTIVE SUMMARY

i. Since liberalization in 1977, Sri Lanka has experienced an unprece-dented economic growth of 5.6% per year. Per capita GDP is now 40Z higher, inreal terms, and the rate of unemployment is much lower than a decade ago.Albeit at a lover rate than the average, the population below the poverty linehas also benefitted from the expansion in ecotlomic activity. There are,however, clear indications of a reversal in economic performance and that theGovernment is now confronted with the most ditiicult gconomic problems it hashad to face since it took office in 1977. Growth 's slowing, unemployment isrising, the fiscal situation is precarious, and a balance of payments crisisis not unlikely. The reasons for the deterioration of the economy arecomplex. They can be related to adverse external developments; to adjustmentsin economic policies that were insufficient to correct the large macroeconomicimbalances that emerged in the early 1980's; and to the outbreak of the ethnicconflict in 1983. The latter, in addition to its effects on investment andoutput and the burden which it has put on the budget and cn the balance ofpayments, has weakened the Government's capacity to respond vigorously to adeteriorating ece.aomic environment.

ii. On the external front, the prices of Sri Lanka's traditional exports,tea, rubber and coconuts, are at their lowest level since World War II. Thedeterioration in Sri Lanka's terms of trade (about 30X since 1978); the quotasset by developed countries on Sri Lanka's exports of garments, and, morerecently, the decline in the price of oil which brought a consequent stagna-tion in workers' remittances, has weakened further the country's balance ofpayments position. Moreover, the ethnic conflict has, at the same time,reduced the flow of tourists, thus depriving the country of another importantsource of foreign exchange, and, because of higher expenditures related tonational security, has increased the import bill.

iii. Adjustments in economic policies have been insufficient iu threeimportant areas. First, the domestic resource mobilization effort has notbeen commensurate with the level of fiscal expenditures since 1978 (35% ofGDP, on the average, during 1978-86). The public sector deficits (15X of GDP,on the average, during 1978-86) and the current account deficits in thebalance of payments (11% of GDP, on the average, duriag 1978-86) have beenunsustainably large as a consequence. While these imbalances can beattributed in part to the absorption of the large inflows of foreign aid thatwere made available to the country, they were also the result of consumptionand investment growth that were excessive. Second, partly reflectingurioreseen international commodity price developments, partly reflecting theinsufficient selectiveness in the choice of investments, certain large capitalexpenditures undertaken since 1977, such as the Accelerated Mahaweli Programand the State Fertilizer Corporation, have not provided to the economybenefits commensurate with the resources that they have absorbed. Finally,the real exchange rate ap'reciated continuously from 1978 until mid-1985.This resulted from a deliberate policy and was consistent with theGovernment's objective of keeping down inflationary pressures while expandingpublic expenditures, but it aggravated external imbalances in the short run,

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discouraged potentially efficient import substitution activities, and retardedthe diversification and development of the export sector--which is now emerg-ing as the main structural constraint to Sri Lanka's sustained economicgrowth. A first attempt at correcting macroeconomic policies began in theearly 1980's but, with the outbreak of the ethnic conflict in 1983, the effortcould not be sustained.

iv. The consequences of insufficient adjustments in economic policies werenot felt, until recently, because of the large volume of aid available since1978 (91 of CDP, on the average, during 1978-86), the easy access to commer-cial borrowing until 1984 (some US$900 million, i.e. about 201 of total loancommitments, has been contracted on commercial terms since 1978), and thebuoyant prices of tea in 1984 and part of 1985. Poor export prospects in themedium term, the bunching of the maturities of the loans contracted on commer-cial terms in the early 1980's and substantial losses of reserves in the lasttwo years, however, make an economic adjustment difficult to postpone further.

v. The need for an increasingly urgent economic adjustment comes at avery unfavorable moment as, in addition to the serious deterioration in theterms of trade, the Government's capacity to make difficult decisions isweakened by the ethnic conflict and the upcoming elections in 1989. Moreover,the flexibility to reduce fiscal expenditures, a crucial element of anyadjustment program, is less than what it would have been in normal times withmilitary expenditures, about 1% of CDP in the early 1980's, having reached3.5% of GDP in 1985/86 and expected to be at least 51 of GDP in 1987.

vi. In summary, the economy must adjust to consumption and investmentlevels that are compatible with the reduced domestic and foreign resourcesthat are now available. It is unclear whether this adjustment can be madewithout disrupting the growth process and plunging the economy into recession.Because of this uncertainty regarding the cost of adjustment in a pre-electoral period, the Government seems to have opted for a policy of gradualpolicy changes. The real exchange rate was depreciated in 1986 in relation tothe SDR by maintaining the rate of the Sri Lankan rupee vis-a-vis the declin-ing US dollar. The fiscal situation has benefited from the Government'sdecision not to Dass on to consumers the decline in the prices of importedcommodities, particularly oil. Neither measure has, however, been sufficientto correct the previous imbalances.

vii. The Government presented to Parliament, at the time of the 1987budget, a program for 1987-89 aimed at reducing the macroeconomic imbalancesand at allowing sustainable economic growth. The essence of the economicadjustment program consists of (a) a gradual reduction in public spending from32.5% of GDP in 1986 to 28.5% of GDP by 1989. Current expenditures would godown to 181 of GDP and remain at that level throughout the program; capitalexpenditures would decline from 11.6% of GDP in 1986 to 10.51 of GDP in 1989;(b) the maintenance of Government revenues at 20% of GDP, and (c) the main-tenance of a flexible and realistic exchange rate policy. The program intendsto redress Sri Lanka's most serious imbalances and requ.ires specific policyreforms.

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viii. Because further delays in these reforms would substantially increasetheir costs, this report recommends that the Government consider theirimplementation as a matter of urgency. The first priority of such policyreforms is to achieve a more favorable balance of payments position.Secondly, as indicated in the budget speech, the policy reforms should aim atreducing the high public sector deficits, thus eliminating a major source ofmacroeconomic imbalances. Ensuring that public expenditures are being usedefficiently is an essential part of such an exercise. Finally, while in mostsectors of the economy the Governmen.. has undone the complex pre-1977 systemof regulation and restrictions on private entrepreneurship, the industrialsector still suffers from the large presence of inefficient public manufactur-ing enterprises and the legacy of the import-substitution bias that guidedpolicies before 1977. This holds true in spite of the substantial industrialpolicy reforms that have been introduced since then. A change in industrialpolicies aimed at improving the efficiency of the manufacturing sector and atincreasing its export orientation is thus the third priority of policy. Sucha three-pronged program of economic reforms is consistent with Governmentobjectives, would allow the correction of existing macroeconomic imbalances, amajor deterrent to future economic growth, would provide thA supply incentivesnecessary for sustained growth, and could :reate, in the medium term, theemployment opportunities necessary to reduce the currently high rate ofunemployment. The policy reforms that would be needed to carry out such aprogram are the main theme of this report. The implementation of new adjust-ment policies, however, requires a strengthening of the civil service, themorale and efficiency of which have suffered both from the gradual erosion ofincentives provided to civil servants as well as the proliferation of minis-tries and agencies. Corrective measures in this area are essential as thesefactors would slow down the future development of the country by weakeningfinancial descipline and inhibiting vigorous planning and execution of adjust-ment policies and projects.

ix. Exchange Rate. In the medium and long term, the expansion of SriLanka's export base is the only solution to the country's balance of paymentsproblems which also allows for sustained growth. For that objective to beachieved, it is crucial that the exchesnge rate be kept at a level consistentwith the volume of foreign exchange that the country needs to generate. Thedepreciation of the rupee in 1986, about 15% in relation to the SDR, hasbrought the trade-weighted real exchange rate close to its 1978 level, i.e.,the lowest since the Government decided for a managed float in late 1977.There is a question, however, as to whether bringing the exchange rate to its1978 level is sufficient. First, the terms of trade have deteriorated sharplysince 1978, and there are clear indications that this is a secular, not atransitory, phenomenon. At the current world prices and exchange rate, thetraditional exporting sector has suffered from a loss of profitability of suchan extent that its future performance may be jeopardized. Second, Sri Lanka'sdebt service is now much higher than it was in 1978 as a result of both thesize of the debt and the large portion of the debt that has been contracted oncommercial terms. The country has to generate or save a substantially larger

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volume of foreign exchange than before to service the debt and the price ofthe foreign exchange has yet to reflect this increased scarcity. Third, SriLanka's competitors have depreciated their currency at much higher rates thanSri Lanka. Unless this situation is corrected, Sri Lanka's share in interna-tional markets may contract, when, if anything, it should be expanding. Theview of this report is that a realistic exchange rate policy, supported byconsistent fiscal policies, should be an essential aspect of Sri Lanka'sdevelopment policy.

xX Public Expenditures: Rationalization of public expenditures isanother priority. Central Government total expenditures have been at a thirdor more of GDP since 1978 and the total size of the Government would be evenhigher if the activities of public sector enterprises outside the budget wereincluded. The volume of resources absorbed by the Government is simply toolarge for an economy where the Government intends the private sector to takethe lead in the development process. Moreover, there are very serious ques-tions regarding benefits to the economy of some public expenditures.Available data suggest that the returns on some massive capital expenditurescarried out since 1978 have been modest, and that, by increasing Sri Lanka'sdebt without increasing the country's capacity to service it, they have con-tributed to the balance of payments problems the country is now experiencing.

xi. Central Government expenditures in 1986 were maintained at about their1985 level, i.e., at 32.5% of GDP. This was achieved in spite of the rela-tively large expenditures on defense, and supplementary budgetary provisionsequivalent to some 3.4% of GDP approved in the course of the year. There is,however, a very serious problem with the unselective approach used to containexpenditures. Current expenditures were cut 5% across the board in 1986 whiletransfers to support inefficient public sector enterprises or uneconomicalprojects have continued at a fairly high level. Capital transfers to thechronically loss-making national airline (Air Lanka) for example, amounted toRS 1.2 billion in 1986, 0.7% of GDP9 while the Sri Lanka Sugar Corporationcontinued to receive support, Rs 150 million in 1986, to produce a commoditythat could be imported at half the domestic production cost. The latter is aresult of the Government policy, discontinued only recently, of increasing thedomestic production of sugar to substitute for imports. The Sri Lanka CentralTransport Board received Rs 300 million to cover its operating losses and afurther Rs 350 million were used to reimburse the losses of several publiccorporations. Meanwhile the quality of the services provided by theGovernment has deteriorated visibly as they suffer from indiscriminate cuts.While it is easy to identify clearly inefficient public expenditures, it isnot always obvious where public expenditures should be reduced. A reassess-ment of Government's investment priorities is one of the most urgent tasks nowfacing the Government.

xii. Industrial Policy Reform. The report of the Industrial PolicyCommittee (IPC) that was approved by the Cabinet in February is a major steptowards introducing policies that would allow Sri Lanka's industry andindustrial exports to develop more vigorously. For the first time sinceliberalization, the Government has made explicit, in a comprehensive fashion,

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what were its industrial pclicy objectives and what strategies it shouldpursue regarding the trade regime, public sector manufacturing enterprisereforms (PMEs)v and other areas of industrial policy. The IPC makes explicitrecommendations to change the tariff system within a four-year period toincrease competition and provide incentives for manufacturing enterprises tobe more export-oriented. The IPC report also recognizes the vital importanceof an adequate management of the exchange rate for successful industrialpolicies. Finally, the IPC has recognized that the lack of an adequate supplyof credit to the export sector, particularly of short term credit for workingcapital, is a major bottleneck in the development of exports and that theresolution of this financing problem should be one of the top concerns ofexport policies. In summary, the IPC report is a substantial document, thespirit and the recommendations of which, if implemented, could mean a majorcontribution to Sri Lanka's industrial development and to the resolution--overtime--of its balance of payments problems.

xiii. The IPC could have been more explicit regarding the implementation ofcertain policies. For example, its report does not state the position theGovernment should adopt regarding PMEs that have survived only because ofbudgetary and/or other privileges, and will not be able to face the increasein competition that is recommended by the IPC. The IPC also suggests changeswhich could produce effects that are undesirable. For example, the proposedfiscal incentives for exports can be countervailed under GATT, have a fiscalcost that should be avoided, particularly in the current fiscal context, andwould be unnecessary if the exchange rate policy was more realistic.

xivo Tariff Reform. The IPC stated the Government's intention to introducca tariff sy3tem that would first, provide a fairly moderate low level ofeffective protection of around 53 percent and, second, would reduce the dis-persion of effective protection rates across sectors. These twin policyobjectives should encourage a considerably more efficient industrial sector inSri Lanka. However, this objective could be achieved more easily by a flatnominal tariff rather than by fine tuning nominal tariffs to bring about atargetted effective rate of protection. First, while the concept of effectiveprotection is useful for measuring the amount of protection afforded by atariff system, it is difficult to estimate and it is generally difficult toobtain up-to-date measures of effective protection since there is often a lagof many years before the necessary studies are completed. Second, to makevery specific changes to nominal tariffs to achieve a targeted effective rateof protection can give rise to a wide dispersion in tariff rates if theindustrial structure is reasonably diversified. Third, as rates of effectiveprotection change over time with changes in relative prices, consistentapplication of this approach would require constant changes in nominal tariffrates, thus creating uncertainty. Finally, a flat nominal tariff ensures thatno activity, already established or to be established, will have a negativerate of effective protection. The latter is a very desirable feature of atariff system in a country where industrialization is still at an early stageand where there is a wide range of possible industrial activities that haveyet to unfold. A non-flat tariff system opens endless possibilities forprecluding emerging industrial activities.

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xV. The f'at tariff may be a goal that can only be achieved in the longerterm, however. This report would then endorse the IPC recommendation ofintroducing a four-banded tariff system. For this system to be successful inreducing the dispersion of effective rates of protection, it is essential thatthe dispersion of nominal rates around the four basic tariffs be minimal. Anexample of such a system, a simple four-tiered system of graduated nominaltariffs with rates between 10% and 40%, where the duty escalates with thedegree of fabrication is discussed in this report. It is shown that it shouldbe possible to introduce such a system without a loss in fiscal revenues.

xvi. Export Promotion Measures. Since liberalization, Sri Lanka hasdeveloped a wide range of export incentives aiming at allowing exporters tohave access to tradable inputs at international prices and at providing fiscalincentives, including direct cash payments to exporters. Fiscal incentiveshave been considered necessary as a compensation for the disadvantages facedby Sri Lankan exporters vis-a-vis protected import-competing industries. TheIPC recognizes the need for export incentive schemes and proposes their expan-sion in two directions. First, it recommends that the access to tradableinputs at international prices provided by schemes such as the tax rebate onimported inputs be extended to indirect exporters, and second, it proposes anincrease in fiscal incentives to exporters. This report strongly supports theIPC recommendations of extending access to tradable inputs for indirectexporters but has strong reservations on increasing fiscal incentives. First,the already existing fiscal incentives have an unequal incidence and encouragecertain exports more than others for reasons that bear little relationship toeconomic efficiency considerations. Second, the total cost of these measuresto the treasury has not been determined and no estimates are available of theextent to which those measures have stimulated export growth. Finally, theyare potentially subject to countervailing duties under GATT and areadministratively costly and difficult to implement and monitor. Because thenew fiscal incentives would share some of these features, this report recom-mends that new fiscal incentives not be introduced and recommends that exist-ing ones be phased out over time and for EDB functions to be redirected fromthe administration of these fiscal schemes towards new efforts at developingexport markets for Sri Lanikan products.

xvii. Public Manufacturing Enterprises. Because of the non-economiccriteria according to which they are managed, the PHEs have been the sourceof a large number of distortions and have had a negative impact on Sri Lanka'sindustrial development. The IPC report recognizes this problem and proposesfundamental changes that would allow PMEs to operate with less Governmentintervention but that would also expose PMEs to more market competition.Achieving these objectives would improve the country's industrial performancein a major way but for that to happen, however, these objectives should betranslated into policy actions and the IPC report is not sufficiently expliciton this subject. This report considers it urgent to change PMEs businesspractices, to give PMEs managers more freedom to manage, and to remove theprivileges given to PMEs through higher than average tariff and non-tariffprotection. it would be also necessary to revive the Cabinet initiative

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announced in August 1985 according to which PHEs should be sold to the privatesector unless they had to remain public for security reasons or had to closedown because they could not be salvaged when exposed to a more competitiveenvironment.

xviii. Business Climate, The IPC report recommends a series of actions inthe areas of domestic and foreign investment approval procedures and economicregulations that could improve the business climate in Sri Lanka. In additionto the IPC report recommendations, there are other concrete Government initia-tives that could improve the business climate. Providing to domestic inves-tors the same guarantees that are provided to foreign ones is one example.

xix. Aid Requirements. Because of the gloomy price prospects for tea,rubber and coconut, and the lack of diversification of Sri Lanka's exportsector, the impact of the program outlined above on increasing exports wouldbe felt only in the medium term, Even with the reduced GDP growth rateexpected in the near future and the consequent reduced growth rate of imports,the country will need a volume of capital inflows amounting to US$730 millionper year, on the average, during 1987-89. Disbursements of about US$590million per year, on the average, could be expected from project financing andcommodity aid during 1987-89 if donors were to (i) maintain constant, in realterms, the 1984-86 level of commitments. This would mean commitments ofUS$670 million per year, on the average, during 1987-89 (commitments wereUS$630 million in 1986); and (ii) maintain the 1984-86 pace of disbursementsof the amounts that are committed. Maintaining the 1984-86 pace of disburse-ments may, however, prove difficult since the reduction in the public invest-ment program envisaged by the Government will automatically slow the executionof projects and, consequently, slow aid disbursements associated with publicinvestments. To maintain the 1984-86 pace of disbursements would thus requiredonors to increase commodity and non-project assistance from US$100 million in1986 to US$180 million per year, on the average, during 1987-89.Correspondingly, project aid commitments would decrease by US$80 million ayear; because of the limitations on total investment expenditures, Sri Lankais unlikely to be able to effectively utilize project aid commitments inexcess of about US$410 million annually.

xxs In summary, if donors were willing to commit the average volume ofaid, in real terms, that they have provided to Sri Lanka in the last threeyears and to increase the volume of commodity aid and/or non-project lendingto compensate for the expected decline in disbursements associated with thereduction in the government investment program, only US$415 million wouldremain to be financed, This should be manageable and could be obtained frommultilateral agencies if the Government succeeds in implementing a satisfac-tory adjustment program. This report recommends that donors provide theincreased volume of assistance that will be necessary in the next few yearsto assist the government efforts to adopt and effectively implement an adjust-ment program along the lines outlined above. On the other hand, increasedexternal inflows without an effective adjustment program would make the sub-sequent adjustment process even more difficult and costly.

Part I: ECONOMIC DEVELOPMENT AND PROSPECTS

I. The 1977 Liberalization

A. The Background to Liberalization in 1977

1. At the time of independence in 1948, Sri Lanka was one of the mostaffluent developing countries in Asia. The life expectancy of a Sri Lankan atbirth (54 years) was close to that of a Japanese (57.5 years) and higher thanthat of an Indian in 1981 (51 years), The school enroilment ratio (primaryand secondary school enrollment as a percent of the population between 5 and19 years of age) was 54%, one of the highest in the developing world, whilethe infant mortality rate (82 per 1,000 births) was one of the lowest. Incomeindicators were equally impressive. At the end of World War II, Sri Lankaranked third in per capita income for South and East Asia following Japan andPhilippines. This advance in income per capita was maintained well afterindependence. In 1960, Sri Lankan per capita income was equivalent to that ofKorea, ani 60% higher than that of Thailand.

2. The basis for Sri Lanka's relatively high standards of living was ahighly productive export sector based on plantations of tea, rubber andcoconuts, coupled with food distribution programs and social services designedto reach even the poorest segments of society. The liberal economic environ-ment that prevailed at that time, in which trade restrictions, foreignexchange controls, and government interventions in the economy were virtuallyabsent, encouraged an economic structure in line with Sri Lanka's comparativeadvantages, and the prevailing structure of world trade. Sri Lanka was thus aclassical case of an open export economy. Imports accounted for close to halfof GDP, while tea, rubber, and coconut, at various stages of processing,provided all of Sri Lanka's export earnings. Most of the country's foodrequirements and its demand for consumer goods were met by imports.Manufacturing, consisting mainly of light consumer goods, accounted fox only4% of GDP.

3. The need to increase employment in line with the surge in populationgrowth that followed the eradication of malaria in the 1950's, thi lack ofland suited for substantial expansion of tea, rubber or coconut plantations,the gradual but persistent deterioration in the terms of trade that began withthe end of the Korean war, and, perhaps, the desire to create an economicstructure that could be differentiated from that which prevailed duringcolonial times, led policy makers to give preference to domestic productionover imports. Food self-sufficiency and industrialization became recurrentthemes of any economic program or planning exercise while nationalization offoreign capital, a stated objective of some parties since the 1930's, becamean important theme of the political debate.

4. The end of the liberal economy began in 1956 when a socialist-orientedGovernment took over. The opening statement of policies announced the intentto nationalize the foreign owned plantations, transport, insurance, and bank-

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ing sectors. It defined areas of public investment and areas to be left tothe private sector. Basic heavy industries such as iron and steel, chemicals,cement, fertilizer, textiles, and sugar were reserved for the Government andlight consumer goods manufacturing was left to private enterprise. Between1957 and 1959, new public corporations were set up, and some existing corpora-tions were expanded, to produce shoes and leather goods, caustic soda,chlorine, cotton yarn, sugar, bricks, tiles and hardboard,

5. From that point on, and until 1977, government interventions andcontrols mushroomed. The foreign oil and insurance companies were national-ized in the early 1960's and the tree crops plantations, both domestic andforeign owned, in the 1970's. Two state corporations - Janatha EstateDevelopment Board (JEDB) and State Plantations Corporation (SPC) were giventhe management of the new state-owned plantations. The Government thus becamethe country's largest exporter, with iome two-thirds of the tea production anda third of the rubber being produced by JEDB and SPC. the Government alsobecame the largest industrial entrepreneur. The process of state-sponsoredimport substitution in manufacturing that had begun in the late 1950's, con-tinued well into the 1960's and 1970's, when new public manufacturingenterprises were created. Furthermore, in 1971, a wave of new nationaliza-tions took place under the Government Business Acquisition Act. Under thisAct, the Government was entitled to take over any private business if judgedby the Government to be in the country's interest. Over a hundred privatebusinesses, mostly small and medium enterprises in manufacturing and services,ranging from textile industries to newspapers, came under government'scontrol.

6. By 1977, the role of the private sector and of market forces inresource allocation had become negligible. In rural areas, the activities ofprivate traders were restricted, and the bulk of the trade related to agricul-tural products was carried out by state trading agencies. All imports weresubjected to licences/quotas; there was a dual exchange rate system, with bothrates grossly overvalued. Over 6,000 articles were under price controls.Prices, interest rates, credit and foreign exchange allocations, were all setwith limited attention to economic efficiency considerations. In thiscontext, there was a high premium on knowing how to deal with the governmentbureaucracy. Getting an allocation of foreign exchange to import rawmaterials or spare parts at the official exchange rate had a far strongerimpact on business profitability than efforts aimed at improving the qualityof the final goods or at increasing efficiency. A whole generation ofentrepreneurs grew to be more knowledgeable in the intricacies of theGovernment bureaucracy than of markets and consumer preferences. In the1970's, a land reform aimed at eliminating all large-scale agricultural hold-ings was implemented and limits were set on the area of land and the numberof houses an individual could own. The process of inhibiting private economicactivities reached its peak when it was decided to introduce limits onindividual incomes, in the form of a compulsory savings scheme.

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7. Because Sri Lanka's economy (7 million inhabitants at independence,14 million in 1977) was so small, the costs of an overextended public sectorwere bound to be large and the gains from industrialization based on importsubstitution, limited. Sri Lanka's prosperity had been derived from itsintegration to the world economy and liberal economic environment. The fearof nationalization of the plantations after independence and the actualnationalization in the 1970's meant that, for over three decades, there wasvirtually no investment in the sector. Investment was further discouraged byheavy taxation of tree crops exports both directly through export taxes, andindirectly, through the overvaluation of the currency. Production began todecline and Sri Lanka's share in world markets of tea, rubber and coconut wassubstantially reduced. Moreover, while production for export was beingdiscouraged, the newly created industrial sector, by then accounting for 20%of CDP, was heavily dependent on imported equipment, spare parts, and inputs.After two decades of industrialization, the country had achieved very littlein reducing its vulnerability to shifts in terms of trade, and balance ofpayments crises became a chronic feature of the 1970's. In summary, theinward-looking policies, the often unwisely extended presence of theGovernment throughout the economy, the drastic reduction in the role of theprivate sector and of market forces, all meant that, by the mid-1970's, SriLanka had lost the sources of dynamism in its economy. GDP growth rates inthe 1970's were among the lowest since independence. Unemployment, at over202 of the labor force in 1977, was at an all time high. In spite of theGovernment's objective of achieving self-sufficiency in food, per capita riceproduction increased at an average annual rate of less than 1% between theearly 1960's and 1977. By the late 1970's, Sri Lanka had lost most of itsadvance in relation to other developing countries. The school enrollmentratio (74%) had fallen behind that of KQrea (94%) and had failed to keep pacewith that of the Philippines (85%). Per capita GDP grew at one of theslowest rates in Southeast Asia. By 1980 per capita GDP had fallen wellbehind that of Korea and Taiwan and lost the advance it had in relation toThailand (Table 1).

8. The welfare and social services programs, which had been put intoplace when the economy was thriving, were expanded and thus became an enormousfiscal burden in the context of a sluggish economy. In 1976, for example,direct food subsidies alone accounted for 4% of GDP and 17% of governmentexpenditures. The question has been raised as to whether the Government'scommitment to equity had not been excessive and as to whether policies moreoriented towards growth and less towards equity might have been more success-ful in raising living standards in Sri Lanka. Whether the commitment toequity was excessive or not is a question that has been the subject of con-siderable debate which is still unresolved. 1/ It is far from clear that thetwo objectives were incompatible. What is however clear, is that the massive

1/ Bhalla, S.S., and Glewwe, P. op.cit. Sen, A.K. Sri Lanka's Achievements:How and When. Unpublished Paper, January 1986.

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Table 1: INDICATORS OF SRI LANKA'S GROWTH PERFORMANCE SINCE INDEPENDENCE

A. Cross-Country Comparison

1960 1978CDP GDP Implied Growth Rate

Country Per Capita a/ Rank Per Capita Rank (Z per year)

Sri Lanka 152 3 226 4 1.9

Burma 59 8 75 8 1.1India 73 7 96 7 1.3Korea 153 2 488 2 5.7Pakistan 81 6 134 6 2.4Philippines 254 1 409 3 2.3Taiwan 149 4 505 1 6.0Thailand 95 5 219 5 4.1

a/ In 1960 prices and exchange rates.

Source: Bhalla, S.S., Clewwe, P., Growth and Equity in Developing Countries.re-interpretation of Sri Lanka's Experience, World Bank informal workingpaper, June 1986.

B. Major Features of Economic Policies, 1948-86Average GDP

Period Economic Policies Growth Rate

1948-55 The economy remains open. No import restrictions or 4.5foreign exchange controls.

1956-60 Opening statement of policies indicates nationalization 2.0of foreign owned plantations, transport, insurance andbanking sectors. Nationalization of bus services. Thepublic sector takes the lead in industrialization byestalishing a wide range of public manufacturing enterprises.

1961-65 Nationalization of oil companies, insurance and banks. 4.0Imports and exchange controls.

1966-70 Partial trade liberalization and devaluation. 5.4

1971-77 Land Reform. Nationalization of the Plantation estates. 2.9State control on wholesale trade. Import and exchange controls.

19?8-86 Trade Liberalization. Removal of most important foreign 5.6exchange controls. Emphasis on market mechanisms to allocateresources. Encouragement of private sector activities.

Sources: Jayasundera, P.B: Factors in the Economic Growth of Sri Lanka, BostonUniversity, Background Paper; Cuberthson, A.G. and Athukorola, P.,The Timing and Sequencing of Trade Liberalization Policy - Sri Lanka.The World Bank. Unpublished Paper, 1986.

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Government interference in the management of economic resources which startedin 1956, well after the social programs were in place, led to a growth perfor-mance that was insufficient to maintain the living standards oft and extendthe existing social programs to a growing population.

B. Liberalization in 1977

The Changes in the Incentive Structure

9. A drastic reversal in policies took place in 1977 when the newGovernment changed the philosophy of economic management that had dominateddecision making for two decades. The new Government's policy was to limit therole of the state in the economy, increase that of the private sector and,more generally, to expand the role of market forces in the allocation ofresources. Sweeping deregulations affected all sectors of the economy. Pricecontrols were eliminated, most barriers to entry in industry were removed,foreign investment was encouraged, domestic trade was opened to the privatesector and financial markets were liberalized. Deregulation of foreign tradewas particularly noteworthy. Quota restrictions were replaced by tariffs, themultiple exchange rate system was replaced by a managed float, the newexchange rate was set at a realistic level, and controls on foreign exchangetransactions were eased considerably.

10. The most dramatic liberalization measures, i.e., the devaluation ofthe rupee and the elimination of the dual exchange rate system, the elimina-tion of quotas and their replacement by tariffs, the easing of exchange_ontrols, the decontrol of prices and the re:ourse to interest rates forallocating credit, were introduced at once in November 1977 when the budgetwas presented to the Parliament. Other liberalization measures were takenmore gradually, but had equally far reaching effects in all sectors of theeconomy. Private traders were allowed to operate again in agriculturalmarkets in 1978. Agricultural prices were liberalized and a minimum producerprice scheme was introduced to shelter farmers from excess price fluctuations.In this new environment, farmers have been willing to take greater risks andto shift to more modern techniques.

11. On the trade side, the elimination of import quotas in 1977 was fol-lowed by other reforms. There were several structural changes in the tariffsystem between 1979 and 1984 (see Part II, paras 65-69 for more details),aimed at eliminating negative effective protection and at reducing the disper-sion in effective protection rates. The last ban on imports, that ontextiles, was eliminated in 1985. To encourage non-traditional exports, theExport Development Board (EDB) was created in 1979 to manage the export incen-tives that have been introduced since then. A duty rebate scheme and a bond-ing scheme - whereby imported inputs for exporters are exempted of tariffs--were put into place in 1980.

12. Another measure aimed at encouraging non-traditional exports was thecreation of a Free Trade Zone (FTZ) near Colombo in 1979. Foreign export-

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oriented enterprises were attracted to this zone by the availability ofskilled labor at relatively low cost, the free access to imported inputs, andgenerous tax incentives. A new agency, the Greater Colombo EconomicCommission (GCEC), was created to manage these incentives and given authorityto approve investments in the FTZ. Another agency, the Foreign InvestmentAdvisory Committee (FIAC), under the Ministry of Finance and Planning wasgiven the role of promoting foreign investments outside of the FTZ. Thestrict rules and regulations on private domestic investment approvals enforcedby the Local Investment Advisory Committees (LIACs), became, at least inprinciple, a putre formality. To encourage traditional exports, export taxeson tea, rubber, and coconuts were reduced substantially, from levels in therange of 40-50% in 1978, to 10-20% in! 1985 (Table 2).

'3. The financial sector has also benefited from the liberal orientationof economic policies since 1977 and has been one of the fastest growing sec-tors in the economy. New foreign banks were allowed to enter the market after1979 bringing the number of foreign banks in Colombo, then at 4, to more than20. Foreign Currency Banking Units (FCBUs), which are subsidiaries of commer-cial banks, have been allowed to operate since 1979 and to transact in foreigncurrency with non-resident enterprises, such as those established in the FTZ,and to take foreign currency deposits from non-residents, mainly Sri Lankansworking abroad. Two equipment leasing companies were created between 1980-82,and the insurance market will be opened to domestic private companies inmid-1987.

C. The Impact of Liberalization

Growth, Exports and Employment

14. With the 1977 reforms, Sri Lanka regained an important part of theliberal business environment it had once lost. This should enable the economyto take a more dynamic and sustainable course and, in the long run, to recoversome of the advance it used to have in relation to other developing countries.The new policies have already brought about remarkable improvemernts ineconomic performance. Growth is higher, unemployment is lower, and exportsare more diversified than a decade ago.

15. The growth-leading sectors have been rice, private manufacturing,construction and services. The production of rice increased both as a resultof the increase in area (16% between 1977 and 1985) and yields (42% between1975-77 and 1983-85). Farmers' willingness to shift to more modern techniquesmaking more intensive use of fertilizer (the use of fertilizer in rice produc-tion increased by 85% between 1975-77 and 1983-85) and improved seeds inresponse to better incentives, is the main factor explaining the increase inyields. Rice production grew at a yearly rate of 5%, on the average, in1978-86, bringing rice imports from over 30X of rice consumption during

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Table 2: KEY ICOMONIC VARIABLES, 3977-86

1978 1979 1980 1981 1982 1983 1984 1985 1986

Incentive Indicators

1. Real Interest late (1)

1.1 National SavingsBank Deposits 0.6 -6.3 -5.2 -7.1 1.9 -2.3 -4.3 10.1 5.6 a/

1.2 Commercial Banks 9.5/ 2.0/ -7.8/ -1.2/ 3.7/ -3.1/ -3.4/ 11.1/ 13.7/Unsecured Lending b/ 11.3 4.6 10*0 9.5 20.1 13.4 13.7 30.8 22.7 a/

2. Index of Minimum RealWages (1978'100)

2.1 Private Sector 100 113 111 97 101 96 97 104 n.a.2.2 Public Sector 100 106 92 89 103 104 102 115 n.a.

3. Tree Crop Taxation (Z) c/

3.1 Tea 52 48 33 31 25 27 32 19 133.2 Rubber 49 50 53 50 32 30 31 14 173.3 Coconuts 42 56 41 30 19 17 19 13 16

4. Ratio of Domestic Producer Pricesto International Prices (2)

4.1 Coffee n.a. 76 77 67 73 70 67 81 n.a.4.2 Rice 87 79 92 104 111 114 120 123 1414.3 Sugar 173 161 127 141 182 179 215 223 240

External Trade Indicators

5. Volume Index of MajorExports (1977-100)

5.1 Tea 104 101 100 98 97 85 110 107 1085.2 Rubber 102 94 89 98 98 92 93 88 885.3 Coconuts 182 187 90 144 203 208 118 328 364

Memo Item: Sri Lanka'sShare in World Exports of:

1969/71 1979/81 1984 1985 d/ 1986 d/

Tea 33.3 24.1 24.1 21.9 23.1Rubber 5.0 3.9 3.5 3.4 3.6Coconuts 5.6 3.0 2.7 2.8 2.7

a/ Up to September 1986 d/ Estimted.b/ Highest and lowest rates.c/ Taxes as share of exports, including the ad valorem in the case of tea.

Sources: Central Bank of Sri Lanka and Bank staff estimates

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1970-77 to some 5% in 1984-86. The country thus became virtually self-sufficient in Tice in a relatively short period of time. Growth in the tradi-tional tree crops sector suffered from the three previous decades of neglectand the conaequent old age of the trees. In the case of tea, for example,half of the trees were over seventy years of age, well beyond their normaleconomic life, gererally estimated to be about fifty years. Increases in treecrops production also suffered from the inherently long lag with which treecrops production respond to improved incentives. It takes over 4-5 years tobring a tea tree to bear, and 7-8 years for rubber and coconut trees. Coconutproduction responds to more intense use of fertilizer with a three-year lag,while in the case of tea, the use of fertilizer is determined by technicalrelationships and, within a certain range, does not vary in response to chang-ing prices of tea. However, it is important to note that none of the planta-tions nationalized before 1977 returned to the hands of the private sector.The tree crops sector :-as remained largely in the hands of the public sectorand it is an open question if better results could not have been achieved withmore private participation.

Table 3: GROWTH RATES OF GDP IN SELECTED SECTORS, 1978-86

1970-77 a/ 1978-86 a/

iAriculture 2.3 3.9

Paddy 2.1 5.0Tea -0.1 0.5Rubber -0.7 -1.8Coconut -2.4 7.9

Manufacturing 1.7 5.2

Public Sector n.a. 1.0

Construction -0.3 7.1

Services 3.6 6.5

GDP 3.1 5.6

a/ Annual averages.

Source: Central Bank of Sri Lanka and Ministry of Financeand Planning

16. Growth in manufacturing was slightly below that of overall CDP becauseof the poor performance of the public enterprises that account for more thanhalf of total manufacturing production (Table 3). On the other hand, inresponse to the more liberal environment, the private industrial sector has

-9-

expanded at rates well over 10Z a year, on the average, since 1977.Construction was fueled by the large public investments in infrastructure andhousing while growth in services was propped up by utilities in response tothe large investments in power and the expansion in f4nancial services.

17. Liberalization also led to a diversification of the sources of SriLanka's foreign exchange earnings. Tourism, encouraged by generous taxincentives, boomed. Tourist arrivals increased from 150,000 in 1977 to400,000 in 1982; a 20% annual growth rate. However, due to the ethnic distur-bances that began in 1983, arrivals have declined to 320,000 in 1983/84 and250,000 in 1985/86. A second new source of foreign exchange was exports ofgarments which increased from a negligible amount prior to 1977, to someUS$330 million in 1986, out of total exports of US$1.3 billion. Workersremittances, at some US$20 million in 1977, have grown to some US$300 millionin 1986 in response to the increased number of Sri Lankans working abroad andthe more attractive level of the exchange and domestic interest rate.

18. Higher growth and overseas employment of Sri Lankans allowed a drasticreduction in the rate of unemployment. From the high of 22X prevailing beforeliberalization, the unemployment rate 1/ declined to 12% in the early 1980's.This was a considerable achievement for the Government which had announced itspriorities as "employment first, employment second and employment third".Unemployment had been a chronic problem in Sri Lanka and one wich considerablepolitical significance since 1971 when, because the high level of unemploymentamong the young and educated, riots of an unprecedented violence paralyzed thecountry for several weeks. This initial success in reducing unemployment has,however, not been sustained after the outbreak of the ethnic conflict in 1983,the gradual deterioration in the economic climate and the completion of somelarge public investment projects such as Mahaweli.

II. The Weaknesses in Macro-Economic Management

A. An Overview

19. While the achievements of the reforms since 1977 have been substan-tial, there are clear indications of a reversal in economic performance.CDP growth has been slowing, to some 4% in 1986, and unemployment is estimatedto have risen to 16% of the labor force. The balance of payments is now a

1/ The most comprehensive e iimates of unemployment are done by theConsumer Finance Survey of the Central Bank. The last one was carried outin 1981/82. Unemployed are defined in the survey as all those who areabove 14 years and had no employment during the week of the survey butwere actively seeking work. Employed are those who worked at least oneday with a minimum of three hours during that week. There can be,therefore, a substantial amount of underemployment that is not reflectedin the unemployment rate.

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serious problem. After a short lived increase during 1984-85p the price oftea has resumed its secular decline, and so did the prices of rubber andcoconuts (Figure 1). In spite of the decline in the price of oil, the termsof trade deteriorated by 18S between 1985 and 1986, and by over 30% since1978. This, and the bunching of maturities of the loans contracted on commer-cial terms during the early 1980's, have brought about a US$200 milliondecline in gross reserves in the last two years. Gross reserves are now atsome two months of imports. The debt service ratio, 282 of exports, was at anall time high in 1986. Moreover, it is expected to continue at such a highlevel for at least the next two years.

20. These developments are the result of a number of factors, some of themoutside of the control of the Government. Quota restrictions in the developedcountries have limited the growth of exports of garments, Sri Lanka's mostdynamic export item. The decline in the price of oil has slowed down theemigration of Sri Lankans to work in the Middle East and current transferreceipts have been stagnant, in real terms, over the last three years. On theinternal side, the ethnic conflict has added pressures on fiscal expendituresand on the balance of payments. Security-related expenditures increased fromabout 1X of CDP in the early 1980's to 3.51 of GDP in 1986 and they areexpected to be well over 5Z of CDP iD 1987. Imports of military equipment areestimated to be at some US$100 million per year. Finally, the ethnic conflicthas reduced the flow of tourists substantially, and has caused the investmentclimate to deteriorate.

21. These problems have aggravated a situation, that was nonetheless boundto be difficult due to insufficient adjustments in the macroeconomic policiesthat have beer pursued since liberalization in 1977. Fueled by a major expan-sion of the public investment program (rising frtm 7.5% of GDP in 1977 to 152of GDP, on average during 1978/85), fiscal expenditures increased substan-tially after 1977 (some 352 of GDP, on the average, during 1978-85) withoutcorresponding increases in the domestic resource mobilization. Budgetarysavings have been negligible since 1977e This weak domestic resource mobi-lization effort was made possible by the large inflows of foreign aid whichfollowed the liberalization in 1977, by an easy access to foreign commercialborrowing until 1984, and by the recourse to domestic borrowing in a largescale. Second, and perhaps more seriously, the large public capital expendi-tures have increased Sri Lanka's debt without a commensurate increase in thecountry's capacity to service it. A third weakness in macroeconomic manage-ment since the initial devaluation in 1977 was the tendency to appreciate theexchange rate, a tendency reversed only partially in mid-1985. The apprecia-tion of the real trade weighted exchange rate between 1977 and 1985 was inline with the Government's objective of keeping inflationary pressures downwhile expanding public expenditures, but it aggravated external imbalances inthe short-run and retarded the long run development of the export sector andefficient import substitution industries. The combination of an appreciatingexchange rate and a more liberal import policy made it difficult, for many

TER COCONUT OIL(1965 CTI6iT , t1) tim c*srm PRICE)

1946-6 FLM 136-200 PflJ=m 1946-85 FLCTRJ 196-2000 FRO.CTW

4 A I I; 1,l ~ ~~~~~~~~~~~~~~~~~~~~ 411

,.~~~~~~~~~~~~ ~ tn.te t,.aw

.. ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~S4I ~~~~~~~~~~ 0

(190S CNTFUT S PRICES}

Source: Bank staff esetastes.@ i ii M W iit 'teia t3ti UiEB -

I~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

By llOUmDmt Wo " t lf t mat awl to=t IgI... M N us o8 0UL-

aim~~. _i _i _. ii'am tm i 16m i ~ ~t@ Ii

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Table 4: MACROECONOMIC BALANCES, 1978-86(2 of GDP)

1978 1979 1980 1981 1982 1983 1984 1985 1986 e/

1. Foreign Savings

Current Account Balance 4.5 11.2 19.8 13.7 15.3 12.4 4.8 9.6 8.9

2. Private Se.-cor(ncl. public corporations)

Gross Domestic Investment a/ 8.7 12.0 16.5 14.5 15.2 15.8 14.4 13.2 12.5National Savings 18.3 15.4 18.8 16.4 17.6 17.1 18.5 15.3 15.4Investment minus Savings -9.6 -3.4 -2.3 -1.9 -2.4 -1.3 -4.1 -2.1 -2.9

3. Central Government

Capital Expenditures b/ 11.3 13.9 17.3 13.3 15.5 13.3 12.1 11.7 11.6National Savings -2.8 -0.7 -4.8 -2.3 -2.2 -0.7 3.2 0.0 -0.2Current Revenues 25.9 22.8 19.6 17.4 16.1 18.9 20.8 21.1 20.7Current Expenditures c/ 28.7 23.5 24.4 19.7 18.3 19.6 17.6 21.1 20.9Investment minus Savings 14.1 14.6 22.1 15.6 17.7 13.7 8.9 11.7 11.8

4. Public and Private

Investment minus Savings d/ 4.7 12.0 22.6 16.1 18.8 15.0 7.2 12.1 11.1

a/ Includes variations in stocks.b/ From Statistical Appendix, Table 5.03.cl Includes Net Lending.d/ Domestic savings.e/ Preliminary estimates.

Source: Central Bank of Sri Lanka and Bank staff estimates.

firms, to penetrate even an expanding local market. The lack of anappropriate exchange rate policy also discouraged, in the short run, longgestation investments in the export sector. The overvalued exchange rateencouraged growth rates in domestic consumption incompatible with the highinvestment levels that have prevailed since 1978, and accommodated unsus-tainably large current account deficits (llZ of GDP, on the average, during1978-86).

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22. Large public sector expenditures have been partly a cause, partly aconsequence, of the role that the public sector still plays in the economy andthe efficiency with which this role is performed. The legacy of the yearsthat preceded 1977 is still present in the overextended role of the publicsector. The state is still the largest individual landholder (it owns 5% ofall agricultural land), the largest employer (it employs a fourth of the laborforce), the largest exporter (about a fourth of merchandise exports), thelargest industrial entrepreneur (about half of total industrial production),it dominates the financial market, and is present in all the other sectors ofthe economy through over 130 non-financial public sector enterprises. Thelist in Table 5 is incomplete, however. It does not include thoseenterprises' subsidiaries, which are relatively numerous, nor does it includeenterprises of which so called units of Central Government, such as the EDB,are shareholders. The bulk of the enterprises in Table 5 were created beforeliberalization in 1977 although some, such as Air Lanka and the StateFertilizer Manufacturing Corporation, began operations afterwards. While someof these enterprises are run efficiently, most of them are run based on non-economic considerations and survive because they get budget support, areprotected by tariffs, are monopolies and/or have other privileges. Moreover,the importance of public enterprise control over productive resources con-tributes substantially to a chronic savings-investment imbalance in theeconomy because the investment decisions in this sector are not motivated byeconomic profitability and the supply of funds for these investments is notconstrained by the ability of the investor to generate their own funds orservice their debt.

23. The need to redress the macroeconomic imbalances in the economy hasbeen felt since the early 1980's. As is clear from the annual budgetspeeches, the Ministry of Finance and Planning has been fully aware of theproblem and a first attempt at stabilizing the economy was made in 1981/82,when an Extended Fund Facility was negotiated with the IMF. However, with theoutbreak of the ethnic conflict in mid-1983, the Ministry of Finance has foundit increasingly difficult to translate its views into policy actions. In theSri Lankan political system where power is distributed among about 40 minis-tries and where most important decisions are taken on a consensus basis, theviews of the Ministry of Finance do not always have a strong influence on thedecisions made. Moreover, the implementation of policy reforms has been mademore difficult by both the power of an over-extended bureaucracy and theweakening of the civil service, the efficiency and the morale of which havesuffered from the gradual erosion of incentives provided to civil servants.Strengthening Sri Lanka's decision-making, planning and executive capacitiesin the line, project and district ministries is central to successful formula-tion and implementation of government policies. The multiplicity of publicinstitutions is a major constraint on this effort whatever powerful itspolitical rationale. Similarly, an efficient private sector also requires astrong and development-oriented public service, capable of generating a stablepublic policy and planning framework, and of operating efficient infrastrutureand services.

Table 5: NONFINANCIAL PUBLIC ENTERPRISES

Aore Industrial Corp. Ceylon State Hardware Corp. Noorani Tile WorkA

Air Lanka Ltd. Ceylon Ste.. Corp. Orient Co.. Ltd. (trading)

Airports & Aviation Services La., Ltd. Ceylon Transport Soard Paddy Marketing Board

AlI Ceylon Automobile Crop. Ceylon Tyre Corp. PQlmYr0h Corp. (inCuttr1al development)

Asbestos Cement tndustries Ltd. Colombo Coamereial Co. (Engineers) Ltd Pfranthan Chaeicals Corp.

Asian Hotel Corp. Colomso Comercial Co. (Fertilizer) Ltd. Pharmaceuticals Corp. of Sri Lanka

Associated Nowspapers Ltd. Colombo Commercial Co. (TEAS) Ltd. Posts end Talecom2unicatlons

Automobila Assembly Ma4nufacture. Ltd. Colombo Dockyard Ltd. Railways

Ayurvedic Drug Crop. Colombo Gas and Water Supply Co. Ltd. Rubber manufacturing Corp.

Ayurvedic Medicat Council Consolidated Coannrcial Agencies Ltd. SodauattA Exports Ltd.

Bogala Graphite Ltd. Contact Ltd. (commercial agency) Shaw InCtetries Ltd. (aonufatturing)

Suilding Material Corp. Cooperative Whole Establishment Silk Allied Prodacts Dev. Authority

Building Material Manufacturing Corp. Elephant Lite Corp. Sri Lanka Cashew Corp.

British Ceylon Corp. Ltd. Esseintial Oils (Ceylon) Ltd. Sri Lanks Co-op Marketing Federation

Ceato Project (vehicle spare parts) Heavyquip Ltd. Sri Lanka Fruit Beard

Central Freight Bureau of Sri Lanka Hotel Buhari Sri Lanka Port Authority

Ceylon broadcasting Corp. Hunw Falls Hotels Ltd. Sri Lanka State Plantation Corp.

Ceylon Bulbs and Electrical. Ltd. Independent Tolevision Network Ltd. Sri Lanka State Trading (Consolidated

Ceylon Cement Corp. Jefferjea Brothers Fishing nd. Ltd. Export) Corp.

C-ylon Ceramic Corp. Jafterjae Brothers Textile nd. Ltd. Sri Lanka State Tradine (teneral) Corp.

Ceylon Cycle Industries Ltd. Jute Industries Crop. Sri Lanka State Trading (Tractor) Corp.

Ceylon Electric Board Lanka Layland Industries Sri Lanka Sugar Corp.

Ceylon Extraction Corp. Ltd. (automobile assembly) Sri Lanka Television Corp.

Ceylon Fertilizer Corp. Lanka Pineapple Co. Sri Lanka Tobacco Industries Corp.

Ceylon Fisheries Corp Lank. Porcelain Ltd. Sri Lanka Trading (Textile) Corp

Ceylon Fisheries Harbojr Corp. Lanka Wall Tiles Ltd. State Oevelopment end Construction Corp.

Ceylon Glass Co.. Ltd. Libra Industrieos Ltd. (textiles) State Distilleries Corp.

Ceylon Hotels Corp. National Engineering Research State Engineering Corp.

Ceylon Hotels Services and Development Contre State Fertilizer Manufacturing Corp.

Ceylon Laather Products Corp. National Housing Dovelopment Authority State Film Corp.

Ceylon Manufacturers & Merchants. Ltd. National Institute of Business Managome;t State Gem Corp.

Ceylon Mineral Sands Corp. National Institute of Management State Graophto Corp.

Ceylon Oils and Fats Corp. National Institute of Plantation Mt. State Management Board

Ceylon Oxygen Ltd. National Livestock Development Board State Printing Corp.

Ceylon Petroleum Corp. National Lotteries Beoard State T1ioer Corp.

Ceylon Plywood Corp. National Milk Board Taos Ltd. (boats)

Ceylon Shipping Corp. National Pper Corp. Tea Smell Holdings Dev. Authority

Ceylon Shipping Lines "ational Salt Corp. United Motore Ltd.

Ceylon Silks Ltd. National Small Industries Crop. Urban Devolopment AuthorityNational Textile Corp. Weaving Supplies Corp.

National Water Supply & Drainage Board Wijys Tiles Ltd.

Memo Iteos197 1979 1960 1961 192 1983 1VB4 1985

Employment in GovernmentInstitutions (" 00) 446 470 476 481 485 489 495 502

Employamnt in Semi--Govt.Institutions ( 000) 717 749 769 778 782 786 765 747

Source: IMF. Government Finance Statistics Yearbook. Vol IX. 1985 and Statistical Appendix Table 1.02.

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24. The need for an increasingly urgent economic adjustment comes at avery unfavorable moment when the Government's capacity to make difficultdecisions is weakened by the ethnic conflict and the upcoming elections in1989. The Government has stepped up its military effort while maintainingdevelopment expenditures at a relatively high level. Moreover, with theincrease in military expenditures, the flexibili:y to reduce fiscalexpenditures, a crucial element of any adjustment program, is less than whatit would have beten in normal times.

25. In sumlairy, the economy has to adjust to consumption and investmentlevels that are compatible with the reduced domestic and foreign resourcesthat are now available. It is unclear whether this adjustment can be madewithout disrupting the growth process and plunging the economy into recession.Because of this uncertainty regarding the cost of adjusting in a pre-electoralperiod, the Go'vernment seems to have opted for a policy of gradual, butclearly insufficient, policy changes. The exchange rate was devalued in 1986in relation to the SDR by maintaining the rate of the Sri Lankan rupee vis-a-vis the US dollar. The fiscal situation has benefited from the Government'sdecision not to pass on to consumers the decline in the prices of importedcommodities, particularly oil. Neither measure has been sufficient to correctthe previous imobalances.

B. Public Expenditures

26. Imbalances and excess in Government spending had been the refrain ofcriticisms by aid donors in the 1970's when public expenditures were absorbing30X of GDP. Biecause of the Government's commitment to provide a wide range ofsocial services and consumption subsidies to the population, only a fourth ofthat amount wats allocated to investment. One of the most difficult tasks, andone of main achievements of the current Government, has been the reduction inconsumption subsidies. They fell from a high 8% of GDP in 1978 (Table 6), toalmost 2% of GDP from 1984 onwards after a National Food Stamp Program aimedat providing food subsidies only to the poorest segments of society replacedthe across-the-board food subsidy. The reduction in consumption subsidiesis the most important reason for the decline in current expenditures as ashare of GDP from 1978 to 1984. There are two others. The first is thereduction of current transfers to public enterprises. They declined from some2.5Z of GDP in 1978-80 to close to 1.5% of GDP in 1984-86, as a result of morerealistic petroleum prices and tariffs for public utilities and services. Thesecond is the decline in the wage bill for Government employees, a trend thatwas reversed in 1986. These three factors, together, are at the root of thesubstantial decline in Government's current expenditures. While this reduc-tion had some drawbacks, such as a serious decline in the competitiveness ofsalaries paid by the Central Government and a lowering of civil servants'morale, the achievement is nonetheless impressive. The reduction in currentexpenditures, however, was not sustained as the outbreak of the ethnic con-flict in 1983 required increased defence expenditures.

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27. While the Government was highly successful in curbing current expendi-tures until the outbreak of the ethnic conflict, the public investment programexpanded substantially without a compensating increase in Government savings.Domestic borrowing has been at 7Z of GDP, on the average, during 1978-86(Table 7)e More importantly, the Government did not ensure that public capi-tal expenditures were being used efficiently. It is extremely difficult tomake an assessment of the economic rate of return of the overall publicinvestment since 1978, but available information suggests that the returns tothe economy have been low. A number of factors account for this outcome.Between 1978 and 1984, the Mahaweli Program absorbed about half of all publiccapital expenditures. Both because it was carried out on a crash basis andbecause cost escalations tend to be high in large projects, by 1985, the 1977estimate of Rs 11-12 billion 1/ for a full tahaweli Program had become Rs 40billion, for a reduced prograi irrigating less than half of the 120,000 ha ofland that were originally planned. Rapid inflation explains a third of thisincrease in costs, while the other two-thirds refer to real cost increasesabove the initial estimates that took place in spite of the reduction in thescope of the program. The acceleration of the Mahaweli program was only madepoasible by heavy use of foreign personnel, machinery, and other inputs, someof which could have been supplied domestically, at a lower cost, had theprogram been phased over a longer period. A longer implementation periodwould also have put less pressure on domestic markets. An indication of thepressure that was created by the accelerated pace of the Mahaweli Program isgiven by the increase of the construction cost index (as measured by thesectoral deflator); it increased by 500% between 1978 and 1984 while theColombo Consumer Price Index increased by 1701 in the same period. On thebenefits side, as mentioned earlier,the area irrigated under the project wasless than foreseen. In addition, the world price of rice has declined by 251in real terms since 1975/77 (Figure 2). With these developments the rate ofreturn for Mahaweli, as a whole, that was estimated at 11% before it started,ended up probably being substantially lower than anticipated initially.

1/ Levy, B. - Foreign Aid in the Making of Economic Policy in Sri Lanka.Williams College, January 1985, and the World Bank, The World Bankand Sri Lanka. A Review of a Relationship. February 1986.

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Table 6s CENTRAL GOVERNMENT EXPENDITURES - 1978-86(As X of GDP)

1978 1979 1980 1981 1982 1983 1984 1985 1986

Current Expenditures 23.1 20.1 18.5 17.2 18.7 18.1 15.5 19.5 20.4

Operating Expenditures 7.9 8.0 7.2 6.5 6.8 6.5 6.0 9.2 9.6Wages and Salaries 5.4 5.6 5.0 4.2 4.4 3.9 3.5 3.9 5.1Other Goods and Services 2.4 2.5 2.2 2.3 2.5 2.6 2.5 5.2 4.4

Interest Payments 3.2 3.2 3.4 4.4 5.1 5.4 4.0 4.6 4.9Domestic 2.5 2.5 2.7 3.6 4.2 4.4 3.0 3.4 3.7Foreign 0.7 0.7 0.6 0.8 0.9 1.0 1.1 1.2 1.3

Subsidies and Current Transfers 12.0 9.5 8.0 6.3 6.7 6.1 5.4 5.7 5.9To Public Enterprises 2.7 2.0 2.6 1.7 2.0 1.9 1.5 1.1 1.8 a/To Other Levels of Government 0.3 0.3 0.2 0.2 0.3 0.3 0.3 0.3 0.4To Households 9.0 7.1 5.1 4.4 4.4 3.9 3.6 4.3 3.7Food and Other Subsidies 7.9 6.0 4.1 3.3 2.9 2.4 2.2 2.6 2.0Pensions 1.1 1.1 1.1 1.1 1.4 1.5 1.4 1.7 1.6

Unclassified - - - - - - - 1.1 1.1

Less Provision for Under-Expenditure - - - - - - - - 2.0

Capital Expenditures 11.3 13.9 17.3 13.3 15.5 13.0 12.1 11.8 11.6

Net Lending 5.6 2.8 5.9 2.5 -0.3 1.5 2.1 0.7 1.4

TOTAL 40.0 37.4 41.8 33.0 34.0 32.6 29.7 33.1 32.5

Memo Item

Public Order, Safety andDefence Expenditures(% of GDP) 1.3 1.5 1.5 1.2 1.1 1.5 1.6 3.5 3.5

a/ Includes the Food Coamissioner.

Source: Central Bank of Sri Lanka and Ministry of Finance and Planning.

-18-Figure 2: LONG TERM TRENDS OF RICE AND SUGAR PRICES, 1945-2000

RICEova= 8 FRIM

t A

.~~~~i- ar IM- RC

* 'I

AI

&uu MO Duf a so uats

_* 1 t -*- ............ . .- .

_ N3

S &

e. tV SI l 6b wt

_ " tX WtY weUGAR,,,,,1ED"w,,ti cwism ..... ~

.Et:~~~~04- NCUM 1UattC PRO.Xt

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28. From the outset the Government knew that the Accelerated MahaweliProgram was a risky proposition, and so did the donors. From the Government'spoint of view, there were, however, several reasons to proceed. First,several Governments had tried, in the past, to remove ,he food subsidy andfailed and/or fell, in the midst of clear popular discontent and turmoil. Thenew Government considered that it would be too risky politically to eliminatethe food subsidy, without compensating such a measure with increasingemployment, and, except for Mahaweli, there were no large employment gener-ating projects ready for implementation. Second, after two decades of inwardlooking economic policies and low growth, the Government felt it needed aproject that could mobilize the country's energy and stand as the landmark ofthe change in the economy that its new policies aimed at achieving. Finally,?4ahaweli built on old and popular themes; self-sufficiency in rice, and therevival of irrigation schemes that had been built two thousand years ago. Onthe donors side, there was a great eagerness to support the Government's neweconomic policies, and since there were limited alternatives to channel thevolume of aid that the donors were willing to commit, Mahaweli seemed anatural choice. While all these reasons are very powerful, a large volume ofresources has been allocated to a scheme that may now have limited economicreturns.

29. Some other important projects carried out during the period, made onlya modest contribution to strengthening the country's productive base. TheParliamentary Complex in Kotte and the housing program absorbed large volumesof resources without adding much to production. The State FertilizerManufacturing Corporation required from the Government US$110 million incapital expenditures and US$82 millior. in currenc transfers to support itsoperations before the Government decided to cut its losses and closed thefactory down in 1985. Air Lanka needed US$200 million of budgetary supportduring 1979/86 to cover its operating losses and/or repay its debts. US$40million were transferred to the Sri Lanka Sugar Corporation out of theGovernment capital budget to produce sugar at twice the international price.Production of sugar is also being encouraged through contracts with privateenterprises, in which the Government guarantees a minimum rate of return oncapital channelled to sugar production. This stimulated major investment inthe sector. About US$60 million, financed by private non-guaranteed loans,were thus invested in sugar refineries in the last three years. This is aresult of the Government policy, discontinued only recently, of increasing thedomestic production of sugar to substitute for imports. While it is easy toidentify clearly inefficient past public expenditures, it is not alwaysobvious where the public investment program should be reduced. For example,it is unclear whether investments in power should be as high as they areplanned to be in the 1986/90 Public Investment Program. A reassessment ofGovernment's investment priorities and projects is one of the most urgenttasks now facing the Government.

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Table 7: FINANCING OF THE GOVERNMENT DEFICIT, 1978-86

As % of CDP

Central Government Deficit 14.5Less Foreign Grants 2.5

Deficit after Grants 12.0Foreign Borrowing 5.0Domestirc Borrowing 7.0

Source: Central Bank of Sri Lanka.

30. About half of Sri Lanka's public investment was financed from foreignsources, a third through grants and two thirds through borrowing (Table 7).About US$ 3 billion were disbursed out of Government and Government-guaranteedloans during 1978-85, of this some US$900 million were contracted on commer-cial terms. The sectoral composition of loan disbursements (Table 8) suggeststhat a large part of these foreign resources were allocated to the non-tradedgoods sector, which cannot directly generate the resources to repay the debt.A fifth of disbursements were channelled to the transpozt sector, about 50% ofwhich went to Air Lanka, which has consistently lost money. Abiut another15% of disbursements financed investments in power that had a positive effecton the balance of payments, in terms of the foreign exchange saved fromreduced oil imports, but these savings--because of the unexpected drop in oilprices-- amounted to only US$15 million in 1986. 1/ While it is not necessarythat a country limit its external borrowing to projects that earn or saveenough foreign exchange to service the additional debt, insofar as this is notthe case it is highly important that the Government's resource mobilizationand export promotion policies permit it to capture a reasonable share of theeconomic benefits and transfer them abroad to service the debt. Sri Lanka'sperformance has been weak in both of these areas.

1/ This figure was calculated as follows. Hydro generation of electricityincreased from 369 GWh in 1982 to 679 G'ih in 1985, i.e., a 310 GWhincrease. The fuel cost of producing one KWh, in thermal powerstations was Rs 2.56 in 1983, when the price of oil was US$27.9/bb andthe exchange rate was at Rs 23.53/US$. Adjusting the cost per KWh forthe variation in the price of oil and exchange rate, and assuming thatthe increase in production would have come from thermal power stationgives the US$15 million figure.

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31. The prudent monetary policies that have been followed sinceliberalization have limited the inflatior,ary impact of the large public sectordeficits. Except for 1977-81, when domestic bank-financing of the puolicsector deficit was at 5.5% of GDP, on the average, most of the domesticfinancing of the Government deficit has relied on long term governmentsecurities. This policy has contained monetary expansion but has led torelatively high interest rates in real terms, particularly in the last twoyears.

Table 8: SECTORAL BREAKDOWN OF DISBURSEMENTS OF GOVERNMENT AND GOVERNMENTGUARANTEED MEDIUM AND LONG TERMS LOANS 1970-77 AND 1978-85

1970-77 % 1978-85 z(US$ Million) (us$ Million)

Sectors

Agricutture 40 4 237 9Transprt and Communications 56 6 579 21of which Air Transport 1 - 280 10Manufacturing 148 15 210 8Power 30 3 384 14Social Services 1 - 206 8Hotels and Restaurants 4 - 13 -Balance of Payments Support 512 53 763 28Non-allocable and Others 176 18 347 13

TOTAL 967 100 2,738 100

Source: Bank staff estimates (Debt Reporting System).

C. Government Tax Revenues

32. Sri Lanka developed its tax base much earlier than other developingcountries partly because, earlier than others, Sri Lanka had developed a widerange of Government services that needed financing. After liberalization in1977, Government revenues continued at about 20% of GDP, but the sales tax,the Business Turnover Tax (BTT), was expanded substantially and it now taxespractically all goods and services, be they for local consumption, forexports, or imported goods, at rates between 5% and 20%. In the last fewyears, the BTT has generated about 40% of Government tax revenues. Anotherchange brought about by liberalization is that taxes on trade have had a more

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important role in generating revenues. After the devaluation of the Rupee in1977, and the replacement of quotas by tariffs, and before the reduction oftaxes on exports of tea, rubber, and coconuts, revenue from taxes on tradesoared to some 15% of CDP. They declined to about half that amount in morerecent years as a result of both the Government goal of increasing incentivesfor traditional exports and the decline in international prices.

Table 9: TAX/GNP RATIOS (%) FOR SOME SELECTED COUNTRIES

1953-55 1966-68 1975-77 1978-81

India 6.3 11.6 10.4 10.7Korea 5.7 11.8 15.7 16.9Pakistan 6.2 8.2 12.9 11.8Thailand 10.8 12.8 11.7 12.5Indonesia 6.2 7.5 18.1 21.9Sri Lanka 16.0 15.7 18.1 20.2

Source: Government Finance Statistics. Quoted in P.S. Jayasundera,op.cit. Note that in the case of Indonesia, the increasein the tax effort reflects in large measure the increasein petroleum prices and production.

The Increase in the Narrowness of the Tax Base

33. The fall in world food prices that has taken place since the early1980's has not been passed on to Sri Lankan consumers, this difference beingcaptured in additional tax revenues. Likewise, the decline in the price ofoil since late 1985 has also not been passed on to consumers creating anothersource of additional revenues. While these measures have compensated thedecline in export tax revenues, they have nonetheless made the tax baseprecariously narrow. Based on 1985 data, taxes on rice, sugar and wheataccounted for 1.5% of CDP, (Table 10), and 7% of total Government revenueswhile taxes on oil account for another 1.4% of GDP. With the drastic declinein oil prices in 1986, taxes on oil are now estimated to be close to 3Z ofGDP. In summary, over a fifth of Government revenues, some 4.5% of GDP,originates from taxes on only four commodities. Sucb a dependence on taxes ona few essential commodities is worrisome on two counts. First, it adds to thealready substantial taxation (through the BTT and import duties) of itemswidely consumed among the lowest income group. Taxes on food, beverages andtobacco have steadily increased from 1% of GDP in 1977 to 3% of GDP in 1986(Table 11). The increase in taxation of food items is probably even higherthan indicated by these figures since they do not include the BTT on imports,for which no breakdown of coliections is available. This trend introduces apotentially large source of regressivity in tax collections.

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Table 10: TAX REVENUES FROM RICE9 SUcAR, WHEAT, AND OIL IN 1985(Re Million and X of GDP)

Import Duties a/ BTT on Imports bi Other Taxes Total

Rice 205 0.2 27 - - 232 0.1Wheat 271 0.2 298 0.2 - - 569 0.4Sugar 1,480 0.9 163 0.1 - - 1,643 1.0Oil 572 0.3 760 0.5 850 0.5 2,182 1.4

Total 2,528 1.6 1,248 0.8 850 0.5 4,626 2.9

Sources & a/ Prom Customs data and Ceylon Petroleum Corporation (CPC).Notes:

b/ Estimated for rice, wheat and sugar by dividing import dutiescollected by the duty rate (251 for rice, 5% for wheat, 100lfor sugar), increasing the result by 10, and applying the BTTrate (31 for rice, 5X for wheat, and 101 for sugar). BTT on riceand sugar produced domestically was ignored. These estimates thusunderestimate the total tax burden on rice and sugar. Taxes onoil were obtained directly from CPC.

34. Second, the reliance of an important proportion of tax revenues onfew internationally traded commodities makes the Government fiscal positionextremely vulnerable to fluctuations in international commodity prices,aggravating an already important dependence. If commodity prices, par-ticularly oil prices, increase in the near future, it will be politicallydifficult to maintain the current high levels of taxation and it will benecessary to find new s-urces of tax revenues quickly. All these considera-tions suggest that there may be a need to revise the existing tax system. Themost promising sources of alternative tax revenues that should be examined areselective increases in sales taxes and a reduction in the exemptions grantedto income tax payers.

The Increase in Protection

35. Not allowing the declines in the price of rice and sugar to bereflected on domestic prices has widened the already large gap between domes-tic producer prices and border prices that has existed since 1978 in the caseof sugar, and since 1982 in the case of rice (Table 2). At the prevailingexchange rates, the domestic producer price of rice is now about 25% higher

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Table II: TAX REVENUES - SELECTED FRATURES, 1970-86(As 2 of CDP)

1970/77 1978 1979 1980 1981 1982 1983 1984 1985 1986 1978/86

Taxes on Trade 7.3 15.5 13.6 10.2 8.5 6.8 8.4 11.7 9.7 8.6 10.3

Exports 2.6 11.3 9.2 5.8 4.6 2.7 2.9 4.3 1.9 0.9 4.7Imports a/ 4.7 4.2 4.4 4.4 3.9 4.1 5.5 7.4 7.8 7.7 5.7

Taxes on Food Beveragesand Tobacco: b7

including sales taxon liquor and tobacco 3.2 4.8 4.4 4.5 4.1 4.3 4.4 4.4 5.3 5.2 4.6

excluding sales taxon liquor and tobacci 0.9 1.7 1.9 1.9 1.9 2.1 2.5 2.7 3.4 2.9 2.3

Taxes on Income

On Capital c/ 1.4 1.3 0.7 1.3 1.1 1.6 1.1 1.2 1.1 1.1 1.2On Labor 1.0 0.9 0.6 0.6 0.6 0.7 0.7 1.1 1.0 0.6 0.8

Memo Items:

Indirect Taxes 13.2 20.9 18.7 15.7 14.3 12.6 13.4 15.8 15.4 14.5 15.7Direct Taxes 4/ 3.0 2.6 2.6 3.1 2.4 2.9 2.8 3.6 3.5 2.6 2.9

Total GovernmentRevenues 18.9 26.2 23.1 19.9 18.0 16.6 18.8 22.1 21.1 20.4 20.7

a/ It includes the BTT on imports

b/ It includes BTT on food, beverages, and tobacco; and the import tax on vegetableproducts and prepared foodstuffs, spirit, vinegar and tobacco, but it excludesBTT on imports of such commodities.

c/ Excludes taxes on income of public sector corporations.

d/ Includes taxes on income of sector corporations, the wealth tax and property tax.

Source: Ministry of Finance and Planning.

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than the border price, and the price of sugar is 100% higher. These appear tobe significant levels of protection that jeopardize the Government goal - asexpressed in the National Agriculture, Food and Nutrition strategy - of diver-sifying Sri Lanka's agriculture cropping pattern. The increase in protectionhas to be qualified in the case of rice since a more realistic exchange ratewould probably bring protection to a negligible level. This is not so in thecase of sugar, however. The large tax.tion in sugar makes a wide range ofdomestic resource based industries less competitive in both domestic andforeign markets. For example, production of condensated milk, jams, cannedfruits, and other preparations that use sugar as an input are now beingheavily penalized.

D. Balance of Payments

36. The balance of payments was an area of great concern to policy makersprior to liberalization in 1977 and the difficulties in its management were acompelling reason for the heavy trade restrictions and foreign exchange co..-trols that were imposed at that time. There are clear indications, however,that because of the cumulation of large current account deficits in thebalance of payments since 1978, the foreign debt incurred as a consequence,and the low returns on foreign financed investments, balance of paymentsdifficulties will reoccur unless corrective measures are taken soon. Thevolume of exports, transfers and capital inflows that are anticipated for thenext few years may well be insufficient to satisfy the foreign exchangerequirements for imports and foreign debt service. The situation is all themore worrisome in that the short term supply response of exports to improveincentives is likely to be rather small.

37. Sri Lanka's export base consists of (i) traditional exports of tea,rubber, and coconuts; (ii) minor agricultural crops (spices, coffee, fruits,and vegetables); (iii) petroleum products; (iv) garments; and (v) otherindustrial exports. Traditional exports (40% of exports in 1986) have stag-nated in the last decade, except for coconuts, but these were only 5% of totalexports in 1986. Increasing production requires long term investments whichwill take time to bear fruit. Exports of minor agricultural crops (spices,coffee, tropical fruits, vegetables) are thought to have a large potential,but their performance has been erratic so far. They accounted for less than4% of exports in 1985/86. Exports of petroleum products are re-exports ofsurplus products of the domestic refinery. They cannot grow faster than crudeoil imports and thus generate only small net foreign earnings. The onlydynamic items among Sri Lanka's merchandise exports, therefore, are garmentsand "other" exports that include a wide variety of goods that range fromfrozen shrimps to ice-skating boots, leather, wood, and ceramic products.Increases in exports of garments are restricted by quotas in developedcountries while other industrial products grew very rapidly in recent years,(except in 1984 and 1985 when they were hit by the increased overvaluation ofthe rupee) but, starting from a low base, still account for only 6% of mer-chandise exports by 1985/86. These structural features are aggravated byadverse circumstances. Workers' remittances have increased only modestly in

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the last few years tue to the decline in the price of oil. The ethnic con-flict has reduced the flow of tourists, thus depriving the country of anotherimportant source of foreign exchange.

Table 12: DEBT INDICATORS, 1978-86

1978 1979 1980 1981 1982 1983 1984 1985 1986

Total External Debt

As a X of Ezports 144 137 148 181 220 223 177 227 270As a X of GDP 50 46 48 55 60 59 51 60 64

Memo Items:Debt Service (US$ million) 131 149 229 266 300 341 317 368 457Amortization 73 62 128 80 122 117 114 133 184Interest 25 38 43 96 104 139 148 171 176IMP Repurchases 28 40 45 67 55 47 23 36 69IMP Interest 5 9 13 23 19 38 22 28 28

Total Debt (US$ Billion) 1.4 1.6 1.9 2.4 2.9 3.0 3.1 3.5 4.1Public and Publicly Guaranteed 1.0 1.1 13 1.6 1.9 2.2 2.4 2.8 3.4Private Non-Guaranteed - - - - - - 0.1 0.1 0.1Use of IMF Credit 0.2 0.3 0.3 0.4 0.4 0.3 0.3 0.3 0.3Short-term Debt 0.1 0.1 0.3 0.4 0.5 0.4 0.3 0.3 0.3Debt Service Ratio (X) 13.5 12.7 17.0 19.3 21.9 24.2 17.6 22.5 27.6

Source: Central Bank of Sri Lanka and Bank staff estimates

38. In this context, the burden of the adjustment in the balance of pay-ments will have to fall on imports, at least in the short run, until anappropriate incentives framework has the desired effect on developing andstrengthening of the export base. Imports have remained at about US$2,200million since 1982 (Table 13) because, with the completion of some largeimport-intensive public investment projects, imports of investment goodsdeclined by US$210 million (from US$560 million in 1982 to US$350 million in1986) and, with the decline in oil prices, imports of oil declined by US$330million (from US$590 million in 1982 to US$260 million in 1986). These twosizeable reductions allowed the increase in imports of food, other consumersand intermediate goods and military equipment (some US$100 million in 1985 and1986) to be accommodated without an increase in the overall import bill. Asdiscussed in more detail in the next section, it will not be possible tomaintain this level of imports in the next few years. Already in 1986, thedecline in the price of oil was not sufficient to compensate for the declinein the price of Sri Lanka's export prices and gross reserves declined by a

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Table 13s BALANCE OF PAYMENTS DATA, 1978-86(Us$ million)

1980 1981 1982 1983 1984 198 d 1986 /4

Exports (C+NFS) 1,297 1,346 1,305 1,360 1,743 1,555 1,514(Merchandise fob) (1,065) (t,066) (1,014) (1,064) (1,464) (1,315) (1,229)Imports (G°NFS) 2,205 2,055 2,205 2,141 2,142 2,296 2,234(Merchandise cif) (2,031) (1,877) (19990) (1,918) (1,928) (2,00) (1,948)Net Factor Income -26 -97 -94 -136 -133 -127 -155(M&LT Interest Payments) (-33) (-50) (-69) (-92) (-103) (-108) (-98)Net Current Transfers a/ 136 203 264 274 277 266 296

CURRENT ACCOUNT -798 -603 -730 -643 -255 -602 -579Net Direct Investment 46 52 I66 39 -37 26 _193Official Grants 138 162 162 171 203 178 126Bilateral and Multi-lateral Loans (net) 151 154 170 246 260 281 291

Disbursements (190) (186) (204) (289) (309) (337) (365)Amortization (39) (32) (34) (43) (49) (56) (74)

Private Loans (net) b/ 84 182 222 66 51 -4 -60Disbursements (96) (194) (263) (98) (101) (58) (38)Amortization (12) (12) (39) (32) (50) (62) (98)

Other Capital c/ 159 20 89 121 -4 8 84Change in Net Reserves- indicates increase) 220 33 21 -1 -292 113 119

(as X of CDP)

Current Account -19.8 -13.7 -15.3 -12.4 -4.8 -10.3 -9.0Official Grants 3.4 3.7 3.4 3.3 2.6 3.0 2.0Bilateral & MultilateralLoans (net) 3.8 3.5 3.5 4.6 4.3 4.8 4.5

Private Loans (net) 2.1 4.1 4.8 1.1 0.8 -0.1 -0.9Net Current Transfers 3.4 4.6 5.5 5.3 4.7 4.5 4.6

Memo Items:Export Price Index (1978.100) 120.3 111.0 97.0 115.3 144.0 108.0 82.0Import Price Index (1978.100) 158.5 159.6 144.6 137.4 134.4 132.0 120.9Terms of Trade (1978-100) 75.9 69.5 67.1 83.9 107.5 82.4 67.8

a/ Mainly private remittances.bi/ With Government guarantee. Includes suppliers' credits.c/ Includes short-term capital, Government non-guaranteed M&LT capital,

SDR allocations, and errors and omissions.d/ Revised figures for 1985. Estimates for 1986.

Sources: Central Bank of Sri Lanka; and Bank staff estimates.

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large amount for the second year in a row. Gross reserves were at only US$350million at the end of 1986.

III. The Need for Adjustment

A. The 1987-89 Stabilization Program

39. The urgent need for macroeconomic adjustment emerges very clearly bothfrom the large decline in reserves that has taken place in the last two yearsand from the high level of the deficit on current account that is anticipatedin the near future. In response to these developments, the Government hasprepared a program that aims at reducing the macroeconomic imbalances and atallowing sustainable economic growth. The essence of the stabili2ationprogram for 1987-89, as described in the budget for 1987 that was presented toParliament in November last year consists of (i) a gradual reduction in publicspending to 28.5% of GDP by 1989. Current expenditures would go down to 18%of GDP and remain at that level throughout the program and capital expendi-tures would decline from 11.6% of GDP in 1986 to 10.5% of GDP in 1989; (ii)the maintenance of Government revenues at 20% of GDP, and (iii) the main-tenance of a flexible and realistic exchange rate policy without, however,specified targets for the exchange rate. The program intends to redress SriLanka's most serious imbalances. It requires, however, specific measures thathave yet to be announced and carried out. All indications are that thesemeasures will have to be substantial and there is a serious question as towhether the political will to carry them out can be mustered in the currentconditions.

Adjusting Expenditure

40. First, containing current expenditures at 18% of GDP in the currentcontext of increasing military expenditures will not be easy. Table 14 indi-cates that, with a GDP growth rate of 2.5% in 1987-89, expenditures on goodsand services (including military expenditures) will have to decline from 4.4%of GDP in 1986 to 2.5% of GDP, i.e. a 40% decline in real terms in the firstyear of the program (1987) if wages and salaries, pensions and food subsidiesare to be maintained constant in real terms and transfers to publicenterprises and local authorities constant in nominal terms. This conclusionhas to be qualified, however, since, based on the preliminary fiscal data for1986, current expenditures for 1986 are estimated to be overstated by 2% ofGDP. The assumptions made in constructing Table 16 are that current revenuesremain at 20% of GDP and that the ensuing fiscal deficit is financed by domes-tic borrowing, on which the Government would pay an interest rate of 3% inreal terms (the average real rate that has prevailed in the last three years),and grants and foreign borrowings, on which the Government would also pay 3%,the average interest rate of the foreign loans contracted in the last decade.

41. Central Government expenditures in 1986 were maintained at about their1985 level, i.e. 32.5% of GDP. This was achieved in spite of the large expen-ditures on defense and supplementary budgetary provisions equivalent to some

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Table 14: GOVERNMENT EXPENDITURES, 1986-89(% of GDP)

1986 1987 1988 1989(Actual) --- Projected------

Current Expenditures 20.4 18.0 18,0 18.0Operating Expenditures 9.6 7.5 7.8 8.0

Wages and Salaries 5.1 5.0 4.9 4.8Other Goods ai:d Services 4.4 2.5 2.8 3.2

Interest Payments 4.9 4.9 4.9 4.8

Domestic 3.7 3.6 3.6 3.5Foreign 1.3 1.2 1.3 1.3

Subsidies and Transfers 5.9 5.6 5.4 5.1

Food and other Subsidies 2.0 2.0 1.9 1.8Pensions 1.6 1.6 1.6 1.5To Public Enterprises 1.8 1.7 1.5 1.4To Other Levels of Government 0.4 0.3 0.3 0.3

Capital Expenditures 11.6 11.2 10.8 10.5Net Lending 1.4 0.0 0.0 0.0

Source: Appendix Table 5.04 and Bank staff estimates.

3.4% of GDP. There is, however, a very serious problem with the unselectivemeasures used to contain expenditures. Current expenditures were cut 5%across-the-board in 1986, while transfers to support inefficient public sectorenterprises have continued at a fairly high level. Capital transfers to AirLanka for example, amounted to Rs 1.2 billion in 1986, 0.7% of GDP. AnotherRs 150 million was allocated to the Sri Lanka Sugar Corporation to produce acommodity that could be imported at half the domestic production cost. TheSri Lanka Central Transport Board received Rs 300 million to cover its operat-ing losses and a further US$350 million was used to reimburse the losses ofseveral public corporations. No change in this pattern can be detected in the1987 budget. It continues to support inefficient public sector enterprises,and uneconomical projects. For Air Lanka alone, the budget allocates Rs 1.1billion for 1987, i.e. 0.6% of the GDP projected for 1987. Because of thefailure to reduce transfers to public enterprises, other expenditure programs,perhaps of substantially more value to the economy will suffer.

Table 15: SRI LANKA's REAL EXCHANGE RATE, 1978-86(1978=100)

1979 1980 1981 1982 1983 1984 198S 1986Ql g2 03 Q4

Real Exchange Rates

Import Weighted 97.6 90.2 91.3 86.6 86.3 78.8 81.o 87.1 88.8Export Weighted 100.1 94.6 94.8 91.6 90.9 83.0 87.5 92.8 94.1Trade Weighted 98.4 91.6 92.5 88.5 88.2 80.5 83.9 89.1 90.6

Relative Competitiveness Indices Share inSri Lanka's

Sri Lanka's Main Markets Exports (%)

United States 103.0 95.7 104.3 108.0 110.6 10L.9 116.5 114.0 112.9 113.6 113.1 16.1United Kingdom 112.8 122.9 117.4 108.1 97.3 83.1 89.5 98.7 104.0 102.7 98.8 6.2Germany 102.8 91.9 77.6 74.2 72.3 61.6 64.0 77.6 80.2 85.S 88.0 S.5Japan 89.7 78.6 83.7 74.3 78.8 74.7 79.8 98.3 108.1 117.3 112.8 4.6Saudi Arabia 92.7 81.8 81.5 78.1 76.4 68.6 67.9 63.9 62.3 60.3 3.3Pakistan 97.5 91.9 101.4 87.6 83.3 78.9 75.5 74.0 71.3 71.0 70.1 3.4Netherlands 101.3 91.6 78.9 74.2 70.8 60.3 62.7 75.9 79.1 84.1 87.1 2.9Singapore 97.9 90.3 98.3 98.3 100.0 94.2 98.6 95.1 90.8 92.0 90.5 2.3Italy 105.6 104.5 91.5 87.4 88.5 78.6 83.1 99.9 104.1 112.0 1.8India 96.6 93.6 91.8 91.4 91.9 84.7 86.5 87.2 87.6 89.7 87.8 1.8Canada 95.7 88.9 96.2 101.1 106.2 97.8 101.4 97.6 99.1 100.1 100.1 1.6France 105.S 101.6 88.4 79.8 74.8 65.0 70.3 85.8 86.6 91.7 94.2 1.5

Sri Lanka'sSri Lanka's Main Competitors Main Competitors in

India 96.6 93.6 94.8 91.4 91.9 84.7 86.5 87.2 87.6 89.7 87.8 Tea OIndonesia 77.1 76.4 84.0 85.7 69.1 62.7 63.8 62.5 62.7 58.1 45.0 RubberKenya 100.6 97.0 87.8 85.5 77.6 73.2 76.4 76.6 75.8 77.3 77.5 TeaMalawi 103.2 104.0 104.1 94.8 95.7 88.5 79.7 86.3 87.5 TeaMalaysia 98.8 89.2 91.2 92.9 96.1 91.7 91.4 88.6 83.6 83.2 RubberPhilippines 105.7 103.3 109.6 109.0 91.4 84.8 98.6 90.1 85.8 85.4 85.2 CoconutThailand 98.6 99.0 103.3 100.7 103.6 94.2 88.4 88.1 88.6 89.7 89.0 RubberKorea 106.5 91.9 98.1 95.7 92.S 84.4 84.3 81.2 80.9 81.6 81.8 ) Garments L otherSingapore 97.9 90.8 98.3 98.3 100.0 94.2 96.6 95.1 90.8 92.0 90.S ) non-traditional

) exports

Notes: (a) The real exchange rate index is the weighted average of the exchange rates, of a set of counties, via-a-visa common currency. deflated by a price index in each of such countries. The lower the index. the higher theappreciation of the currency.

(b) The competitiveness index measures the rati3 of PI(t)/EI(t) to PSL(t)/ESL(t) where PI(t) is the ConsumerPrice Index (CPI) in country I in period t. EI(t)S is the exchange rate in country I in relation to USS;PSL(t) is the CPI in Sri Lanka in period t. and E (t) is the exchange rate in relation to USS. Thechoice of the USS as the currency uf reference does not alter the results. The lower the index. thehigher the loss in competitiveness.

Source: Bank staff estimates based on IFS data.

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?aintaininR Revenues

42. Second, on the revenue side, it is unclear how the target of maintain-ing Government current revenues at 20% of GDP will be achieved without sub-stantial revision of the tax system. As discussed earlier, the level ofindirect taxation is already high and the revenue levels achieved in 1986 areunlikely to be sustained as they hinge on continued low prices for oil and afew imported food items. The 1987 budget did not introduce any change intaxation that would broaden the basis of Government tax revenues and make themmore predictable and less vulnerable to external factors.

The Exchange Rate

43. Third, to maintain ever. a substantially reduced growth rate, whilecontaining the current account deficit at manageable levels, would require achange in the exchange rate policy. In the medium and long term, the expan-sion of Sri Lanka's export base is the only solution to the country's balanceof payments constraints which also allows for sustained growth. For thatobjective to be achieved, it is crucial that the exchange rate be kept at alevel consistent with the volume of foreign exchange that the country needs togenerate. The depreciation of the rupee in 1986, about 15% in relation to theSDR, has brought the trade-weighted real exchange rate close to its 1978level, i.e., the lowest since the Government decided for a managed float inlate 1977 (Table 15). There is a question, however, as to whether bringingthe exchange rate to its 1978 level is sufficient. First, the terms of tradehave deteriorated sharply since 1978, and there are clear indications thatthis is a secular, not a transitory, phenomenon (Figure 1). Second, SriLanka's debt service is now much higher than it was in 1978 as a result ofboth the size of the debt and the terms under which the debt was contracted(Table 12). The country has to generate a substantially larger volume offoreign exchange than before to service the debt and the price of the foreignexchange has yet to reflect this increased scarcity. Third, Sri Lanka'scompetitors have depreciated their currency at much higher rates than SriLanka (Table 15). Unless this divergence is corrected, Sri Lanka's share ininternational markets may contract, when, if anything, it should be expanding.Finally, even at the current depreciated exchange rate, the traditionalexporting sector has suffered from a loss of profitability of such an extent(Table 16) that its future performance may be jeopardized.

44. Unless there is a change in the exchange rate policy, it may not bepossible for the economy to grow in the medium term while keeping the currentaccount deficit at manageable levels. This change in policy should also takeplace to increase the relative size of the export sector in the economy, todiversify the export base and thereby make export revenues less vulnerable tovariations of a few key prices. This would help to avoid chronic balance ofpayments difficulties, and to absorb the growing number of entrants to thelabor force. The change in the exchange rate policy should, at least, put SriLankan exporters on equal terms with their competitors in foreign markets who

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have benefited from much more aggressive exchange rate policies since the late1970's (Table 15). Moreover, a strong class of export-oriented entrepreneurshas yet to develop in Sri Lanka. Most of the country's non-traditionalexports of industrial origin are produced by a handful of firms, probably lessthan 200. Entrepreneurs need to be attracted to the export sector andexporters need to be encouraged to undertake the long term investment that arenecessary to open markets abroad and develop new product lines. For thin tohappen, exporters should be convinced that an exchange rate policy aiming atthe development of the export sector is a permanent policy feature and thatthe exchange rate will not be appreciated in response to short term increaserin availability of foreign exchange, as was the case in the early 1980's.

45. The resistance to adopting a more realistic exchange rate policy is,however, very strong in Sri Lanka. A more realistic policy has been resistedon four grounds. It is argued that (i) it would increase food prices and thushave negative income distributional effects; (ii) the price elasticity ofexports is low, particularly in the short run; (iii) imports are seen as beingmore sensitive to changes in aggregate demand than to changes in prices; andfinally (iv) wages in Sri Lanka are among the lowest in Asia and that shouldbe a sufficiently strong incentive to exporters. In this context, policymakers have tended to avoid using real exchange rate movements for adjustment,relying rather on fiscal and monetary policies--more particularly expenditurecuts--to contain imports, (as for example in the stabilization programs of theearly 1980's when the burden of the adjustment fell, almost exclusively, onexpenditure cuts) and on export incentives to promote those exports that arethought to be price elastic (about 25% of total exports).

46. The arguments against a more realistic exchange rate policy have somemerit. It should be highlighted, however, that, as mentioned before, recentdevelopments, in which basic commodities of widespread use among the lowestincome groups such as wheat, sugar and food items in general have becomeheavily taxed, provide some flexibility to mitigate the negative income dis-tributional effects of a more realistic exchange rate policy, provided areform of the tax system creates new compensatory sources of tax revenues.The price of rice is now substantially above world prices at the presentexchange rate and there would be no need to raise the real price of rice evenif there were a substantial devaluation. Furthermore, and more fundamentally,the stagnation in income and the increase in unemployment that will follow inthe absence of an economic adjustment would have a much higher social cost inthe long run. Regarding the low short term price elasticity of exportsargument, it is not realistic to rely exclusively on export subsidies tocorrect the distortionary effects of an overvalued exchange rate and/or tariffprotection on the portion of exports that is price-elastic. The fiscal costof such measures would be excessive and unsustainable in the long run. It isnot possible to promote a whole export sector of the size that Sri Lanka needsbased on subsidies. The increase in export subsidies required to make up fora 10% overvaluation of the exchange rate, for example, is equivalent to about0.5% of GDP, if traditional exports, and exports of garments and petroleumproducts are excluded. Therefore, the argument that only a small portion of

Table 16: TREE CROPS PROFITABILITY. 197886

Tea Rubber CoconutProduction International Profitability Production International Profitability Production International Profitability RuchangeCost Index Price Index Indicator Cost Index Price Index Indicator Cost Index Price Index Indicator Rate IndexYear (1978=100) (197f=t00)a/ (1978l100)b/ (1978=100) (1978=100)a/ (1978=100)b/ (1978=100) (1978=100)a/ (1978=l00)b/ (1978=100) CPI

1978 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.01979 112.9 94.3 83.3 141.4 128.3 90.4 112.1 150.0 133.4 99.7 110.8

1980 157.4 97.9 65.9 169.1 142.4 89.2 121.2 103.2 90.2 105.9 139.?1981 158.0 94.3 73.6 183.9 116.3 77.9 166.7 85.5 63.3 123.3 164.8

1982 190.7 86.1 60.2 199.2 86.9 58.2 172.7 72.6 56.0 133.3 182.6

1983 221.7 98.9 67.3 204.1 104.4 77.1 181.8 88.7 73.5 150.7 208.21984 285.9 135.6 77.3 248.7 106.5 69.8 190.9 164.5 140.5 163.0 242.9

1985 297.1 84.5 49.5 281.9 82.6 51.0 193.9 83.9 75.2 174.0 246.4

1986 294.1 87.1 53.1 285.4 81.5 51.3 212.1 33.9 28.7 179.5 265.4

Nemo Ite Tea Rubber Coconuts

Sbare of Traded Goods in totalproduction coats during 1980/86 ct 17.9 26.2 42.0

l Baank staff estimates. Price in USS projected for 1986. For coconuts. the internationbal price refers to tbe coconut oil. Production costs are inRupees.

bI The proxy chosen to indicate trends in profitability is the ratio of international price indez for the particular caomodity (P(t)to the index of its coat of production measured in dollars (C(t)/E(t)). Thus for tea in 1986. the computation is: 53.1=87.1/(294.1/179.5).

ci Includes fertilizer, chemicals. replacements of tools and implements, packing materials in the case of tea andrubber. fuel and transport.

Sources: Sri Lanka Tea Board; Rubber Control Department; Coconut Development Autbority.

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exports responds to price incentive implies that a change in policies shouldtake place earlier rather than later as this is the only way to broaden SriLanka's export base. The fact that imports are more sensitive to changes inaggregate demand than in prices reflects, again, the short term rigidities ofthe country's economic structure, that can only be overcome in the future ifan aggressive exchange rate policy is pursued. It is ironic that, whileunemployment is high and rising, the country has to adjust its balance ofpayments by a contraction in aggregate demand. Finally, the argument thatwages are already lo!4 has to be balanced with the fact that a large proportionof the labor force is unemployed. If current trends persist, a fifth of thelabor force would be unemployed in the near future. Allowing the exportsector to develop and easing the constraint that the balance of payments isputting on the economy is the only long term solution to Sri Lanka's unemploy-ment problem. All these considerations highlight that a realistic exchangerate policy, supported by consistent fiscal policies, and its maintenance overtime, should be an essential aspect of Sri Lanka's development policy and thevagueness with which this issue was treated in the budget speech is a cause ofgreat concern.

B. Balance of Payments Projections

47. A stabilization program of the kind outlined in the budget speechaccompanied by a change in the policy that has guided the setting of theexchange rate would have three important effects on the balance of payments.First, the reduction in aggregate demand brought about by the reduction inpublic expenditures will reduce the GDP growth rate and thus the demand forimports. In the projections that follow, the growth rate is assumed todecline to 2.5% in 1987-89, and return to a higher level (4.5%) in 1990.Second, the reductions in public capital expenditures would reduce imports ofcapital equipment, as well as reduce the flow of aid disbursements associatedto the Public Investment Program (PIP). It is estimated that 80% of theprojects included in the PIP for 1986-90 receive foreign aid financing. Itis further estimated that: (i) foreign aid provides for, on the average, 67%of costs of the project it finances and (ii) 65% of these costs consist ofimports. A detailed description of how these figures were arrived at is inAnnex I. Finally, a change in the exchange rate policy would have an impacton both traditional and non-traditional exports. Without an increase in treecrops profitability, the sector would not be able to undertake growth-orientedinvestments and to expand at even a modest rate. With an increase in margins,on the other hand, some growth can be expected, particularly in the longerterm. Non-traditional exports are likely to respond positively to improvedincentives in a relatively short period of time.

Exports

48. With adequate incentives, traditional exports of tea and rubber couldreasonably be expected to grow at 2% annually until 1989, and from 1990onwards at 2.8% for tea and 2.2% for rubber, i.e. at the projected growth rate

-35-Table 17: BALACE OF PAYMITS PROJECTIONS. 1987-90

(US$ Million)

1986 1987 1988 1989 1990(Actual) -- Proi ected------

Merchandise -753 -613 -597 -478 -474Ezports f.o.b. 1204 1319 1493 1616 1696Imports c.i.f. 1957 1931 2090 2093 2169

Services (emcl. Interest& Investment Incol e) -1 20 36 62 69Receipts 309 290 328 355 373Payments 306 270 293 293 304

Investment Income (Net) -15 -16 -17 -18 -19

Interest -122 -156 -176 -194 -190Receipts 68 61 56 54 54Payments (incl. IMF) 190 206 200 194 179Payments on New Debt 0 11 23 35 44Payments on Addl. Requirements 0 0 9 20 21

Private Transfers 292 292 285 271 261Receipts 324 329 317 305 293Payments 32 37 32 34 32

Current Account -595 -473 -470 -356 -352

Official Transfers 177 186 203 215 216

Capital Flows 284 256 293 142 149Private Investment (net) 29 23 21 21 21Amortization 247 324 322 309 268

On Existing Debt 178 239 244 237 192On New Debt 0 0 0 0 0On Additional Requirements 0 0 0 0 37To the IMF 69 85 78 72 39

Disbursements (Loans) 502 373 385 404 316of which: P.I.P. (Loans and Grants) 394 349 323 333 410

Comodity aid (Loans and Grants) 102 172 181 200 111Power (Loans and Grants) 29 38 84 86 11Others (Loans) 154 - - - -

linus Financed by Grants 178 186 203 215 216

Additional equirements 0 184 209 25 80

Errors and Omissions -22 0 0 0 0

CganLe in Gross Reserves 156 31 -26 -1 -13

Memo Items:Current Account (Z of GDP) -9.30 -7.10 -6.50 -4.60 -4.60Gross Reserves (US$ millions) 353 322 348 349 362

In Months of Imports 2.17 2.00 2.00 2.00 2.00Debt ServiceDebt Service Ratio A (G&S) (S 27.6 32.4 29.5 27.5 27.1Debt Service Ratio B

(G&S+Priv. Tran.) (Z) 22.9 27.1 25.3 23.9 23.9

Sourc.e: Central Bank of Sri Lanka and Bank staff estimates.

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of world consumption for tea and rubber. This would enable Sri Lanka toretain its share in the world market for these two commodities. It should benoted that because of the lack of investment in the past, the scope toincrease productivity in the tree crops sector is very large. Exports ofcoconut were made to grow at 5%, which is higher than the 1.7% at which theworld consumption is expected to grow because, with little investment, thereis ample scope to increase substantially productivity in coconut productionwith the more intensive use of fertilizer that higher prices would encourage.Exports of petroleum are projected to increase at the same rate as imports ofcrude oil since, as mentioned before, they consist of the refinery surpluses.Exports of garments are projected to grow at only 2% because of the restric-tions in developed countries. Other exports, mostly made up of non-traditional items of agricultural and industrial origin, gems and miningproducts, can be expected to grow at relatively high rates, about 7% in realterms, if the exchange rate were more attractive. Their performance has beenfairly dynamic in the past and responsive to changes in the exchange rate.Prices are expected to evolve as indicated in Table 3.08 of the StatisticalAppendix.

Imports

49. Imports were divided into five categories: (i) imports of petroleumwere projected assuming a unitary elasticity in relation to GDP growth; thisis higher than the 0.7 that prevailed during 1978-85. But during these yearsthere was a structural change in that thermal power stations were replaced byhydro power generation. A further reduction in the relative use of oil isunlikely to continue in the future; (ii) imports of food products wereprojected by assuming that the domestic production of food in 1986 (defined asthe production of the agricultural sector minus all exports of agriculturalorigin in that year), would increase at a 5% rate, while the consumption offood (defined in 1986 as the domestic production of foods less all imports offood in that year) would increase at the population growth rate plus an incomeeffect that was taken into account by using 0.5 as the income elasticity forthe demand of food. This incomL elasticity is supported by empirical work,while the 5% growth in domestic food production is simply the long-term trend;(iii) imports of consumer and intermediate goods, excluding petroleum, wereprojected assuming a 1.7 elasticity in relation to GDP, i.e., the elasticitythat prevailed in 1978-86. The maintenance of such a relatively high elas-ticity should be a natural consequence of policies--discussed in more detailin Part II of this report--aimed at increasing the degree of openness of theeconomy and the efficiency of the industrial sector; and (iv) investment goodsfor the private sector were assumed to increase at the same rate as privateinvestment starting from their 1986 base, and, finally (v) imports of invest-ment goods for the public investment program were calculated at the projectlevel, by identifying the import content for each one of the projects includedin the investment program, and assuming that these proportions would remainstable over time (Annex I).

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50. With these assumptions, the adjustment program could bring about asubstantial improvement in Sri Lanka's balance of payments (Table 17). Thecurrent account deficit could decline to less than 5% of GDP by 1989, withthe debt service ratio declining to less than 30% of exports. Gross reservesare assumed to decline by US$100 million in 1987, and are kept at two monthsof imports from then on.

Aid Requirements

51e If the Government pursues the policies outlined above, and, therebysucceeds in containing imports and expanding exports as projected, aboutUS$2.2 billion would be required over 1987-89 to finance the current accountdeficit of the balance of payments, service the foreign debt and maintaingross reserves at no less than 2 months of imports. Aid could play an impor-tant role in providing the needed resources. If, in real terms, aid commit-ments were to remain at their average level of the last three years, US$1.8billion of disbursements could be expected from project financing and com-modity aid during 1987-89, provided the disbursements from past commitments

Table 18: AID FLOWS, 1984-89(US$ Million)

1984 1985 1986 1987 1988 1989A---- Actual ------ -----Projected-

Undisbursed Balance Beginning of Year 1,471 1,396 1,431 1,493 1,564 1,650New Commitments 461 532 637 630 674 699New Commitments in constant 1986

US dollars 555 679 637 624 624 624Disbursements from Past Commitments a/ 443 389 403 433 453 479Disbursements from New Commitments a7 93 85 131 126 135 140Total Disbursements 536 474 534 559 588 619

a/ Assuming for 1987-89 that past trends would remain constant, ioe., thatdisbursements from past commitments would be at 29% of the undisbursed balanceat the beginning of the year and that disbursements from new commitments wouldbe 20% of new commitments,

continue to be at about one-third of the undisbursed pipeline and disburse-ments from new commitment continue to remain at about one-fifth of new commit-ments (Table 18). This pace of disbursements may not be possible, however,since the decline in the size of the public investment program will automati-cally slow the execution of projects and, consequently, slow aid disbursementassociated with public investments. To maintain the 1984-86 pace of disburse-ments donors would thus have to increase their commodity and non-projectassistance from US$100 million in 1986, to US$170 million in 1987, US$180million in 1988, and US$200 million in 1989.

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52. If donors were to commit the volumes of aid indicated in Table 18 andwere also to increase the volume of commodity aid and/or non-project lendingto compensate for the expected decline in disbursements associated with thereduction in the government investment program, only US$0.4 billion wouldremain to be financed. This should be manageable and could be obtained frommultilateral agencies if the Government succeeds in implementing a satisfac-tory adjustment program. This report recommends that donors provide theincreased volume of assistance that will be necessary in the next few years toassist the government effort to adopt and effectively implement an adjustmentprogram along the lines outlined in this report. On the other hand, increasedexternal inflows without an effective adjustment program would make the sub-sequent adjustment process even more difficult and costly.

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Part II: INDUSTRIAL DEVELOPMENT ISSUES

I. Introduction

53. Industrializatior. has been an important policy objective of everygovernment in Sri Lanka since independence. About 60% of the labor force wasemployed in agriculture at that time, but there were obvious limits to thecapacity of agriculture to generate employment in the long run. DevelopingSri Lanka's industrial sector was thus considered essential for providingemployment to the growing labor force. Another reason for developing theindustrial sector was the need to broaden the base of the economy from itsnarrow concentration on plantation crops and make it less dependent on termsof trade fluctuations. Until 1977, industrialization was based on policiesemphasizing import-substitution and state interventions. As analyzed inPart I of this report, these policies led to low economic growth and tochronic balance of payments problems.

54. The radical change in policies in 1977 did not alter the importancethat the Government attached to the development of the industrial sector.This time, however, growth and employment were expected to be achieved byexposing Sri Lanka's economy to market forces, by encouraging industries withgood export potential, and by developing a sector that could withstand inter-national, competition. An important element of the new strategy were measuresto attract foreign capital to allow Sri Lanka's industry to have an easieraccess to export markets and to new technology.

55. These objectives were achieved only partially. First, in response tothe new policies, the annual growth rate of industry rose from 2Z during1970-77 to 5% during 1978-86. Employment in the formal sector, defined asincluding industries whose activities are captured in the Central BankStatistics,l/ rose from 108,000 in 1975 to 206,000 in 1985, i.e., a 6% annualgrowth rate. This growth was limited to the private segment of the industrialsectorp however, which is only 60% of the total. (Table 19). There are about40 Public Manufacturing Enterprises (PMEs) in large-scale and more capitalintensive intermediate industries (chemicals, petroleum and basic metal

1/ Manufacturing activity accounts for 16% of GDP and providesemployment to 600,000 people or 13% of the labor force. There were100,000 industrial establishments at the time of the last industrialcensus, carried out in 1983 (with 1982 as the reference year). Over 85%of those establishments were employing fewer than five workers andproducing less than 10% of total output but little is known about thislarge informal small-scale segment of Sri Lanka's industry. 3urveyscarried out by the Department of Census and Statistics and the CentralBank annual survey aim at estimating production. Therefore, theyconcentrate on medium and large scale industries, about 1,300 in number,that account for 80% of total output and about a third of employment.

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products) as well as in consumer goods (ceramics, textiles, leather and woodproducts). Their output grew at an average annual rate of only 1% and theemployment opportunities they provided grew only marginally. Available dataindicate that PMEs utilize more capital intensive methods of production andthat they are less efficient than their private counterparts.

Table 19: PRIVATE AND PUBLIC SECTORS' RELATIVE SHARES INGROSS MANUFACTURING OUTPUT -- 1985

(In % of Total)

Product Category Private Public

Food, beverages & tobacco 91.0 9.0Textiles, wearing apparel & leather 80.6 19.4Wood & wood products 13.4 86.6Paper & paper products, printing &publishing 47.0 53.0

Chemicals, petroleum, coal, rubber& plastics 20.4 79.6

Non-metallic mineral products 41.6 58.4Basic metals 13.2 86.8Fabricated metal products,machinery and equipment 92.8 7.2

Other manufacturing industries 84.8 15.2

TOTAL 59.3 49.7

Source: Department of Census and Statistics

56. Second, while agro-industrial, petroleum and manufacturing exportsgrew dramatically, from 14% of total exports in 1978 to close to 40% in1985-86, export oriented industries have developed very poor linkages with therest of the economy. Garments, for example, have accounted for about 60% ofnon-traditional exports in recent years, but their import con.ent was at about70% of gross output in 1980, the last year for which such informa,.ion isavailable (Table 20). Petroleum products were the second most importantnon-traditional export, (about 25% of total non-traditional exporzs) and sinceSri Lanka produces no crude oil, t.'eir import content was as high as 85% ofgross output in 1980.

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Table 20: NON-TRADITIONAL EXPORTS AND IMPORTED INPUTS IN 1980(As % Gross Output)

ImportedExports Inputs

Food, Beverages & Tobacco 0.8 17.8Textiles, Apparel & Leather Products 42.7 38.9Textiles 6.9 26.7Wearing Apparel 82.9 69.4

Wood & Wood Products 4.4 3.6Paper & Paper Products 0.0 25.9Chemical, Petroleum & Rubber 33.1 76.9Chemicals 4.2 31.4Petroleum Products 36.9 85.9Rubber Products 31.4 20.7Non-Metallic Mineral Products 18.0 19.2Basic Metal Products 2.5 79.8Fabricated Metal Products,Machinery & Transport Equipment 3.0 28.8

Other Manufactures 41.2 31.1

Total Manufactures 23.5 54.7

Source: Athukorala P., op cit.

57. Finally, it is unclear whether the large informal segment of industryhas benefitted or not from the new policies. Liberalization has provided astimulus to all manufacturing activities through easier access to exportmarkets and to cheaper and better quality inputs but it also increasedcompetition. A well known case is that of handlooms. Estimates prepared bythe Ministry of Textile Industries indicate that out of 111,000 handloomsexisting in Sri Lanka at the time of liberalization, about 30,000 had ceasedto function by 1980.1/ The handicraft industry on the other hand, tookadvantage of the better access to international markets and it is believed tohave developed considerably.

58. The inefficiency with which PMEs are managed and the vestiges of thepre-1977 import-substitution bias in policies (as imbedded in the system ofprotection) are the two main reasons for the relatively modest industrialgrowth performance since 1978 (manufacturing growth rates of 10% would not

1/ Athukorala, P. The Impact of the 1977 Policy Reforms on DomesticIndustry. Upanathi, Vol.1. No.l, January 1986.

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be uncommon in early stages of export-oriented industrialization) md the lackof success in increasing the export-orientation of domestic industry. A thirdimportant reason--the cost of which is difficult to quantify--relates thecomplex system of economic rules and regulations on private investment thathas unnecessarily increased the costs of doing business.

59. The consequence of the poor performance of the PMEs on the economyis obvious. Had the PMEs been able to be as efficient and to generate as muchemployment as the private sector, the current unemployment rate would havebeen lower by 2%. A second less obvious consequence is that, while directbudget assistance to PMEs has gradually declined since 1977 (see para 90-91),PMEs have been assisted through other privileges such as higher than averagetariffs for the goods they produce. This has meant higher production costs toprivate industries and a loss in their competitiveness vis-a-vis foreigncompetitors in both domestic and international markets.

60. The trade regime, in addition to the inefficiencies it introducesthrough selected protection, also encourages Sri Lanka's industries to con-centrate their activities on the limited domestic market. This is illustratedclearly by the case of the garments industry. A striking feature of SriLanka's garment industry when compared with that of most other countries isthe lack of reliance on local sources of supply for textiles, thread, andother physical inputs. This has had two drawbacks. First, local garmentsmanufacturers are at a disadvantage compared with their overseas competitors,since significant additional time (often 2-3 months) is required to allow forreceipt of shipment of cloth and other inputs from abroad before an exportorder can be produced. Second, the rest of the economy has benefitted lessthan it would have, had the industry's linkages been more developed. Thissituation has been indulced by the high degree of protection granted to domes-tic textile producers. Until November 1985, there was a ban on import oftextiles, and after that, a tariff of 100%. Local textiles manufacturers havetherefore found it more advantageous and less risky to focus on the domesticmarket where they can earn large unit profits because of the tariffs, ratherthan developing the capability to supply -aterials needed by the export-oriented garments industry were profits would be based on large volumes withhigh quality but relatively low unit profits.

61. The impact of rules and regulations on the costs of doing businessand on private investment takes a variety of forms and is difficult to assess.Local Investment Advisory Committees (LIACs) investment approval procedures,for example, do not appear to have had an adverse effect on privateinvestments, but they have contributed to unnecessarily increasing the uncer-tainty and the administrative costs associated with investment decisions. TheGovernment decision not to repeal the 1971 Government Business Acquisition Actprobably acts as a deterrent to private investment particularly to those withlong gestation periods, but it is not possible to isolate this effect fromother factors. The Great Colombo Economic Commission (GCEC) investmentapproval procedures and incentives seem to have encouraged labor-intensive and

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low-technology industries that provide quick returns to investors at a highcost to the economy (see paras 113-115).

62. The Government concluded that a reorientation in industrial policieswas necessary to achieve a more vigorous industrial development. In December1984, the Cabinet appointed an Industrial Policy Committee (IPC) to report onan appropriate industrial strategy for Sri Lanka. In December 1986, the IPCissued a report that was approved by Cabinet in February 1987. The IPC reportrepresents a major step in formulating policies that would allow Sri Lanka'sindustry and manufacturing exports to develop at a faster pace than they didin the past. For the first time since liberalization, the Government has madeexplicit, in a comprehensive fashion, its industrial policy objectives andwhat strategies it should pursue regarding the trade regime, PMEs, economicrules and regulations, and other industrial policy areas. The report of theIPC has left some open questions, however, regarding the implementation ofcertain policies. For example, the report is silent on the position theGovernment will adopt regarding PMEs that have survived because of budgetaryand/or other privileges, and may not be able to withstand the increase incompetition that is recommended in the IPC report. The IPC report alsoproposes export incentives that have a questionable impact on exports and afiscal cost that should be avoided. On tihe other hand, the report makesexplicit recommendations to change the tariff system within a four-year periodwith a view to increasing competition and providing incentives for manufactur-ing enterprises to depend less on the domestic market. It also recognizes thevital importance of the management of the exchange rate for successfulindustrial policies. In summary, the IPC report is a substantial document,the spirit and recommendations of which, if implemented within a coherentmacroeconomic framework, could make a major contribution to Sri Lanka'sindustrial development and to the resolution of its balance of paymentsproblems.

63. In what follows, this report analyzes the four main areas ofindustrial policies in the context of the IPC report: (i) tariff and non-tariff protection; (ii) export incentives, (iii) PMEs, and (iv) economic rulesand regulations insofar they affect ways of doing business or incentives toinvest. The report analyzes the current stand of policies, reviews the IPCrecommendations and, in general, endorses these recommendations although, insome cases, it suggests the IPC recommendations be reexamined.

II. Tariff Policies

A. Goals of Tariff Policies

64. One of the main goals of liberalization in 1977 was to reduce the costof protecting domestic industries. The elimination of quotas in 1977 andtheir replacement by tariffs was the first step to achieve this objective.The second was the establishment of the Presidential Tariff Commission (PTC)in 1980 to determine a tariff system that would provide a reasonably low level

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of effective protection while minimizing disruptions to establishedindustries. A study of effective protection initiated by the PTC in 1980 1/and a follow-up study in 1983 revealed a wide dispersion of rates. Some firms(usually those with low domestic value added) were found to be highlyprotected while others (often engaged in activities where Sri Lanka would beexpected to have a comparative advantage) received negative protection. Theseresults suggested a two-phased program of tariff reform with the first phaseaimed at eliminating negative protection and at reducing the dispersion ofthe rates and the second phase designed to bring about a uniform effectiveprotection. The first phase was already implemented in late-1984 when a newtariff schedule was put in place. The new tariff schedule was geared towardsproviding to domestic industries effective protection at rates not lower than150% but not higher than 250%. Another study has been initiated in February1987 to determine whether the 1984 changes have, in fact, achieved theirstated goal.

B. The Tariff Schedule

65. The tariff schedule consisted of approximately 2400 entries in 1985,primarily ad-valorem duties (some 330 were specific duties). There is nosystem of exemptions embodied in the tariff code: all imports enter at thepublished rate. There exists, however, a separate system of duty drawbacksand exemptions which is an integral part of the Government's package of exportincentiver (paras 80-81). Figure 3 below shows the frequency of the occur-rence of rates (with the specifics converted to ad valorems using the 1985trade data). As much as 47 percent of entries fall into the 0-10 percentrange with the 50-60 percent and 70-80 percent slabs showing the second andthird highest frequency.

66. While the schedule appears to bear some relationship to a graduatedsystem based on the degree of fabrication, the correspondence is not thatclose. The 0-10 percent slab covers a wide range of items from agrIculturalinputs to some highly processed items. The 50-60 percent slab consists of a.variety of products ranging from agricultural products, through chemicals,plastics, ceramics, ruibber and leather (especially those items produced byPMEs), fabrics and garments to such highly fabricated goods as motor vehicle.The 70-80 percent slab includes a wide mix of agricultural products, garmentsand manufactured metal products. The very high duty rates, i.e., 100 percentor greater, are applicable to such items as alcohol, tobacco, perfumes (inwhich case the tariff is effectively functioning as an excise duty), toagr.cultural products and to some fabrics and certain categories of manufac-tured goods (especially those produced by PMEs). The average rate(unweighted) of nominal protection is 31 percent; the trade-weighted average

1/ Cuthbertson and Khan, "Effective Protection to Manufacturing Industryin Sri Lanka", Colombo, 1981,

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FZIure 3: STATUTORY NOMINAL PROTECTION

50%

45%

40%-

20

l0%

0 25-

1 00 20% 3M 4= 5og SO 70/ SM 9 l10

Tariff Rates

Source: The Customs Ordinance of February 21, 1985 andBank staff estimates.

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Fi 4: SHARE OF TRADE

70% -

40% -

30% /

/,7/A20%$

10% 20% 30% 40% 60% GM 70% a= x I0%oos 10 100%+

Tariff Rates

Source: Custom Data and Bank staff estimates.

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nominal protection is significantly lower at 18%. This is because few importsenter at higher duty rates than at lower rates.

67. A surcharge of 10% is added to all items dutiable in the tariffschedule at rates of 50% or higher. The proceeds of this cess are used tofund the operations of the EDB. Imports by Government departments are exemptfrom paying this surcharge. The net effect on protection is to increase theeffective duty rates at the upper end of the spectrum and thus to increase thedispersion of rates. nominal protection is significantly lower at 18 percent.This is because fewer imports enter at higher duty rates than at lower rates.

C. Non-Tariff Protection

Licensing

68. The reform of 1977 effectively dismantled the elaborate system ofimport licenses that existed before. However, as of October 1986, some 281items still required import licenses. Items under licences cover mostly: (i)goods such as certain chemicals, firearms and explosives that for health andsecurity reasons may not be imported without the Government's approval; (ii)agricultural goods traded by Government agencies, such as onions that areimported by the Cooperative Wholesale Establishment and wheat and rice thatare imported by the Food Commissioner; (iii) consumer goods considered luxuryitems, such as vehicles; and (iv) manufactured goods produced by enterprisesto which the Government wishes to provide additional protection. Most of thegoods under license fall into this category. Milk powder, fabrics and yarnsproduced by both private and Government owned enterprises, certain chemicals,wood products, paper products produced by a PME, are some examples.

Prior Approval for Imports

69. In addition to licensing a number of items require the prior approvalof LIACs. They include machinery for cleaning or drying bottles or othercontainers (except household dishwashers), any consignment of weaving machinesexceeding the cif value of Rs 700,000, machinery (other than sewing machines)for preparing, tanning or working hides, skins or leather, and machines andmechanical appliances for rubber or artificial plastic material industries.The primary purpose of this list is also to provide very specific protectionto designated PMEs and some private textile companies by creating barriers toentry.

D. Assessment of Statutory Protection

70. There are three conclusions that can be derived from the analysis ofboth the statutory and the trade-weighted protection. The first conclusion isthat the system opens the possibility for high effective protection in sontemanufacturing industries, especially in those that are known to have lowdomestic value added. A good indication is the large differential betweenrates on inputs and outputs. A second indication of the potential for high

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rates of effective protection is the large dispersion of rates within a tariffcode chapter. For example, taking Chapter 28 (inorganic chemicals), all 75entries are admitted free of duty with the exception of chlorine (100 percent)and oxygen (35 percent), both of which are produced by PMEs. Other examplesare found in Chapter 39 (artificial resins and plastic materials) where ratesrange between 5 to 100 percent and Chapter 73 (iron and steel and articlesthereof) with dispersion of 5 to 60 percent, mostly within very narrow productcategories. This provides reasonable grounds for suspecting that the tariffschedule has been fine-tuned to provide higher than average levels of effec-tive protection for specific enterprises. Available information suggests thatthese enterprises are mostly PMEs. These issues will be addressed moredefinitively in the upcoming update of the effective protection study men-tioned earlier.

71. Second, the system does not yield excessively high levels of protec-tion across the entire economy. (Table 21). This emerges very clearly from acomparison of Sri Lanka's average nominal tariffs with those of other Southand East Asian countries. It is interesting to note that, when compared toThailand, the Sri Lanka's system provides the approximately the same level ofprotection, but its dispersion is much higher. Third, agriculture receiveshigh protection; partly because the tariff system is used as an anti-dumpinginstrument, partly because of the deliberate Government policy of expandingthe domestic production of food and reducing imports.

Table 21: INTERNATIONAL COMPARISON OF NOMINAL TARIFF RATESMEAN AND STANDARD DEVIATION OF TARIFFS BY COUNTRY 1985

(% ad valorem)

Intermediate Capital Consumer ManufacturingGoods Goods Goods Goods

Mean Std.Dev Mean Std.Dev Mean Std Dev Mean Std.Dev

Bangladesh 97.9 60.0 80.5 18.1 116.1 82.0 100.8 67.3

India 146.4 55.6 107.3 48.1 140.9 38.4 137.7 52.8

Sri Lanka 20.2 27.0 24.0 28.1 55.7 39.0 33.0 35.4

Thailand 27.8 20.4 24.8 16.2 48.5 38.7 33.5 ^..6

Source: Bank staff estimates (SINTIAT).

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E. Agenda for Future Reforms

72. As noted earlier, the Government has decided to minimize the costs ofprotecting domestic industries by first reducing the dispersion in the effec-tive rates of protection among industries and second by bringing about auniform effective protection across the sector at a reasonably low level.This goal is lautdable, but no easy mechanism exists for achieving it. Whilethe concept of effective protection is useful for measuring the amount ofprotection afforded by a tariff system, it is difficult to estimate and it isgenerally difficult tu obtain up-to-date measures of effective protectionsince there is often a lag of many years before the necessary studies arecompleted.

73. The process followed by the PTC in implementing the first phase of thetariff reform entailed using detailed information on cost structures ofindividual firms in order to make specific and often highly disaggregatedchanges to the tariff code. The aim of these changes was to bring aboutuniformity of effective protection rates on a firm-by-firm basis. Thisapproach suffers from a number of drawbacks. First, if the industrial struc-ture is reasonably developed and varied, it can give rise to a wide dispersionin nominal tariff rates. Second, as rates of effective protection change overtime in response to, e.g., changes in relative prices, a consistent applica-tion of this approach would require periodic changes in nominal tariff rates,thus creating uncertainty. Third, by working at a highly disaggregated level,it encourages pleas by specific firms for special treatment, thereby openingup potential for greater distortions. Finally, a wide dispersion of rates onsimilar goods creates problems of classification and thereby greater incen-tives for cheating. The Government by adopting this method has had a fairmeasure of success, achieving the initial goal of reducing the dispersion ofeffective rates and embedding the concept of effective protection in thelexicon of policy makers. It is questionable, however, that this approachstill be the optimal one for implementing the second phase of tariff reform.

74. The Government objective of increasing the industrial sectorefficiency may be more eas 1y achieved by a flat tariff rather than by finetuning nominal tariffs to bring about a targetted effective rate ofprotection. However, in spite of its overwhelming advantages of simplicityand predictability, this system has not yet gained widespread internationalacceptance. This may be because in certain industrial structures, the flattariff rates could yield non-uniform rates of effective protection. The ideaof flat tariff rates may also be unpalatable because some policy niakersbelieve that more advanced manufacturing techlL±ques confer greater socialbenefits than other manufacturing activities and for that reason deserve moreprotection. Or it may simply represent too great a change from the estab-lished norm to be politically acceptable. Notwithstanding, the systemprovides considerable gains in terms of transparency and predictability andis a much more practical one. Moreover, a flat tariff ensures that noactivity, already established or to be established, will have a negative rate

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of effective protection. The latter is a very desirable feature of a tariffsystem in a country where industrialization is still at an early stage andwhere there is a wide range of possible industrial activities that have yetto unfold.

75. The flat tariff may be a goal that can only be achieved in the longerterm, however, The recommendation in the IPC report of introducing a four-banded system is quite appropriate as a short term goal. While it does nothave all the advantages of a flat tariff system, it would represent a sig-nificant igiprovement over the present one. The key choice that has to be madein adopting such a system (other than deciding the rates of each band) is theprinciple whereby each commodity is assigned to a band or slab. One methodwould be to assign the goods to slabs on the basis of effective protection. Asimple and feasible approach would involve assigning the duty rates based onthe degree of fabrication of the goods in question.

76. In view of the projected fiscal position of the Government, any revi-sion to the tariff schedule must generate approximately the same amount ofrevenue as the present system. An analysis of the revenue implications ofmoving to a simple four-tiered tariff system in which the duty rates vary withthe stage of fabrication of the product to which they apply is in Annex II.It is shown in that analysis that it is possible to move to a four-tieredtariff system ("four-band high", see Annex II) without a loss in fiscalrevenues. The lowest rate (10%) would be for raw materials and crude agricul-tural products while the highest rate (40%) would be for transport and motiveequipment and finished goods, both for production or industrial purposes andfor household consumption. A 20% rate would apply to processed food andagricultural products and a 25% rate would apply to the rest. The four-tieredtariff system proposed in Annex II would bring about two important changesto the existing one. First, tariffs on processed food and agriculturalproducts would be at less than half of their current trade-weighted rate whiletariffs on transport and motive equipment and finished goods for production orindustrial purposes would increase from their current trade-weighted rate of23-26% to 40%. Such a proposed four-tiered tariff system would generate thesame amount of fiscal revenues as the existing tariff system while, from anincome distribution point of view, it would be a more desirable one. Thehigher taxation of capital goods would have a detrimental impact onentrepreneurs' willingness to invest, however. In the longer term, this wouldhave an inhibiting effect on growth and employment generation which couldoffset any gains in equity achieved through lower food prices. This is afurther reason suggesting that, in the longer term, a flat tariff ispreferable to a system that differentiates among commodities.

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III. Export Promotion Measures

A. Background

77. Sri Lankan exports have long been characterized by a reliance ontraditional products, namely, tea, rubber and coconuts. In the fifties andearly sixties, it would have been difficult to identify export growth as amajor policy concern. Indeed, the heavy dependence on export taxes as asource of government revenue resulted in a policy environment which had a biasagainst exports. It was not until the reforms of 1977 that a comprehensiveset of policy instruments was developed with the express intention ofencouraging the growth of non-traditional exports, mainly manufactured goods.

78. From that point on, a large number of policy measures were rapidlyannounced and implemented. GCEC was established in 1978 with wide rangingpowers including the establishment of an Industrial Processing Zone, laterexpanded to become the Free Trade Zone (FTZ). An Export Development Council,chaired by the President, and advised by EDB was established in 1979. The EDBintroduced new export promotion schemes and substantially revamped others. In1980, the then existing duty drawback scheme was significantly revised andplaced under EDB management. The number of products receiving drawbacksexpanded rapidly and by 1984 the scheme had been extended to cover almost allnon-traditional products using imported materials as well as sales to the FTZ.A "manufacture-in-bond" scheme was introduced in 1982 and a system of exportgrants was set up in 1981. A pre-shipment refinancing scheme for non-traditional exports became operational in 1978 and the Sri Lanka Export CreditInsurance Corporation (SLECIC) was formed in 1979.

79. The objectives of the current export promotion schemes are three:

(i) providing an exporter duty-free access to imported inputs;

(ii) providing inducements to exporting activities designed to increasetheir profitability; the main idea here is to compensate for thedisadvantages the exporting industries suffer vis-a-vis import com-peting activities through tariff;

(iii) providing exporters access to credit on the same terms as domesticproducers.

B. Export Promotion Schemes and Recommendations

Access to Imported Inputs at World Prices

80. There are a number of schemes in place to ensure that firms thatproduce for export can gain access to inputs at 4orld prices. Firstly the FTZoperated by the GCEC enables exporters in such zones to obtain imported inputsas well as machinery and equipment free of customs duty and BTT. Secondly,the Manufacture-in-Bond Scheme permits duty free imports meant for re-export

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directly into the factory premises owned by the exporters. This scheme is nowmandatory for all garments exporters. Thirdly, the Custom Duty Rebate Schemeis a system of general rebates granted to raw materials and packagingmaterials for the processing of non-traditional exports. Lastly, those firmsthat export (or are capable of exporting) more than 50X of their productioncan qualify for exemption from custom duties and BTT on imported machineryand equipment.

81. Thus, schemes exist for the exemption of customs duties on all inputsfor the production of non-traditional exports with the exception of a few suchas fuel and electricity. However, these schemes are biased towards directexporters and restricted to non-traditional exports. The Cabinet is now study-ing a revision to the duty rebate scheme that would extend its scope toinclude (i) inputs used in traditional exports; (ii) consumables not incor-porated in the finished product; and (iii) inputs used by indirect exporters.This is definitely a step in the right direction since experience in othercountries has confirmed the desirability of extending to indirect exportersall facilities that are available to direct exporters.

Assistance to Increase Profitability of Export Activities

82. The second objective in the Government export promotion program is tohelp increase the profitability of export activities on the premise thatexporters need to be compensated for the various disadvantages they suffervis-a-vis domestic producers and international competitors. There are anumber of fiscal measures and other forms of assistance to exporters in placedesigned to achieve this end. First, under the Investment Relief scheme,those individuals purchasing shares in designated high-priority industries areallowed to deduct the amount of this purchase from taxable income. Second,profits derived from the export of manufactured goods are entitled to a fiveyear full Tax Holiday; those manufacturers having a net foreign exchangeearnings of 50 percent or more of the value of exports are eligible i-.r anadditional five year half tax holiday. Third, the Export DevelopmentInvestment Support Scheme (EDISS) managed by EDB is intended to rewardexporters for past export performance and to encourage them to invest infurther expansion of export activity. It applies to all non-traditionalexports other than garments under quota, petroleum products, gems and GCECproducts. In addition to fiscal inducements, the EDB also manages other formsof assistance to exporters, including provision of interest-free loans tosmall-scale export oriented manufacturers and processors and a small programof financial assistance (on cost sharing basis) for market development andpromotion.

83. While EDB assistance to exporters through the provision of loans andfinancial assistance can have a positive impact on developing the exportsector, the set of fiscal inducements has two shortcomings. One, while thelack of data makes it difficult to make exact estimates, the fiscal costs ofthese measures are believed to be substantial. Two, the measures are contraryto GATT and hence potentially countervailable. This places them in a rather

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incongruous situation. If they are deemed effective in stimulating exports,they are likely to be countervailed. If they are not countervailed, they mostprobably are not effective in encouraging exports, and hence, of questionablevalue. The IPC report strongly endorses the concept of targetting the exportassistance on value added, and proposes that all existing fiscal incentivesbe replaced by a transferable tax credit based on vdlue added. However, thisrecommendation may not be as useful as others because (a) it would be impos-sible to administer schemes of this kind uniformly and efficiently and (b) itwould be contrary to GATT and hence potentially subject to countervail.

84. It may be better to narrow the focus of the export promotion driveto improve its efficiency and to minimize its fiscal burden. Given that tuteprincipal objective of export promotion schemes through financial assistanceis to minimize the anti-export bias inherent in the tariff system by increas-ing the exporters after tax profit, the same effect can be obtained morecost-effectively by eliminating anomalies in the present tariff system.Specifically, this entails reducing dispersions of tariff rates resulting fromhigher protection provided to particular PME activities and dismantling theremaining import licensing system. All fiscal inducements now in place shouldbe phased out over time. The functions of the EDB should be then redirectedfrom the administration of these fiscal schemes towards new efforts atdeveloping export markets for Sri Lankan products.

Supply of Credit for Exporters

85. The Central Bank operates both medium-to-long and short-term conces-sionary refinancing facilities for exporters. The medium to long term credittakes the form of concessionary refinancing of up to 70% of the amountadvanced by the commercial bank (with a margin of 2% for the commercialbanks). The maximum loan allowable under the scheme is Rs 30 million. Theduration of the loans range from three to 15 years with a grace period of upto three years. Projects approved under GCEC and the cultivation and process-ing of tea, rubber and coconuts in their traditional form are ineligible.Under the short term preshipment credit scheme, 100% concessionary refinanceis granted to commercial banks for pre-shipment advances made by them toexporters who have received an irrevocable Letter of Credit or a firm exportorder. For the purpose of this facility, exports are divided into twocategories, viz,, Category I consisting of tea, rubber, coconut and theirderivatives, as well as gar:..ents, gems, marine products and petroleumproducts, and Category II consisting of all the rest. The amount available toany one bank for refinance of Category I goods is limited to the amount lentby the bank in the previous year. The amount available for refinancingCategory II loans is open-ended in theory, though in practice, an informalquota appears to be in effect.

86. Finally there are the services provided by SLECIC intended to coverexporters against non-payment by overseas buyers, issue bank guarantees tocover banks which iend to exporters for preshipment or postshipment financingagainst commercial default, and issue export performance guarantees. However,

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the Insurance Corporation has been conservative providing services primarilyto exporters with a proven track record. This has limited its usefulness tonewer and smaller exporters.

87. Immediate access to both preshipment and postuhipment credit forexporters is one of the cornerstones of a successful export promotion drive ina number of countries. Much remains to be done to strengthen the existingschemes in Sri Lanka. In most countries, as it is in Sri Lanka, improvingaccess to preshipment credit is more critical than that to postshipment creditbecause financial institutions are usually prepared to discount export bills.It is a general consensus among the banks, the EDB and the exporters that thecredit facilities available to exporters are inadequate even though thecountry's financial system as a whole is efficient. The exact causes of theproblem have not been analyzed fully, though some contributory factors havebeen identified. In the case of medium to long-term lending, the allowedmargin of two percent is not sufficient in relation to the operatior1 l costsand risks that the banks carry. Hence the Government might consider theoption of widening this margin. With respect to the short-term preshipmentcredit, the banks are not always prepared to consider a firm export order or aletter of credit as sufficient collatoral to warrant a loan to purchaseinputs. Moreover, there appears to an unwillingness to make short term creditavailable liberally on the grounds that it would be inflationary. The IPC hasrecognized that the lack of an adequate supply of short term credit for work-ing cipital is a major bottleneck in the development of exports and that theresolution of this financing problem should be one of the top concerns of theexport policies.

Need for a Coherent Export Marketing Policy Framework

88. Experience in other countries has shown that any successful nationalexport promotion drive would require a coherent policy towards exportmarketing; this is notably absent in Sri Lanka. Its manufacturers and traderslack experience and expertise in export marketing which entails tasks such asselecting the products that would sell abroad, packaging and advertising them,contacting and maintaining links with buyers, arranging shipment andfinancing, and perhaps even after sales servicing. Some producers rely onforeign partners to provide marketing channels while others count on personalcontacts abroad or on the services of foreign trading firms. There has notbeen any systematic and sustained effort to follow market developments, gatherinformation for exporters and to promote Sri Lankan products abroad. Whileexport marketing may not receive the highest priority in the early phase ofexport promotion, it would be essential, in the longer run.

89. At this phase of export promotion, it would probably be premature forSri Lanka to invest large amounts of capital to build up elaborate marketingchannels. A better approach would be to continue for a while to rely on jointventure and foreign trading firms (such as the Japanese sogo shoshas) toperform some if not all of the export marketing functions in which localbusinessmen lack expertise. What Sri Lankan businesses must do at this point

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is to establish to foreign buyers that they are able to supply high qualityproducts at internationally competitive prices, and that the delivery would bereliable. Some government-sponsored marketing initiatives, however, would beextremely helpful while capabilities are being developed in the privatesector. One suggestion would be to expand or redefine the functions of EDB tohelp disseminate information about Sri Lankan exporters and their products toprospective buyers in an organised and sustained manner. The EDB could performwith respect to export marketing the kind of tasks that FIAC carries outvis-a-vis foreign investment, i.e., putting out publications to promote SriLankan products, providing local businesses with information on internationalmarkets, as well as receiving foreign buyers and introducing them to SriLankan exporters.

IV. Role of Public Manufacturing Enterprises

A. Background

90. The PMEs are a costly legacy of the policies that precededliberalization. While the sweeping economic reforms of 1977 did not includeany clear policy statements regarding the role of public enterprises in theeconomy, an implicit assumption has been that the greater exposure to marketforces and international competition brought about by liberalization wouldhelp weed out non-profitable enterprises, and thus reduce the importance ofthe public sector in manufacturing. However, after a nearly a decade, PMEsremain a large presence in the sector, still highly regulated and heavilyprotected. Many are inefficient and require budgetary assistance to prop uptheir failing operations.

91. Before-tax profits of major PMEs are shown in Table 22. The totalsare overshadowed by the large profits of the Petroleum Corporation whichrepresent mostly an implicit tax. Excluding petroleum, PMEs have since.1981shown either losses or very marginal profits in the aggregate. Table 23indicates that the budgetary transfers to PMEs, although declining steadilyas a share of GDP in recent years, still amounted to Rs 1.1 billion in 1985.Moreover, as noted previously, while the industrial sector as a whole grew atan average rate of 5X since 1978, PMEs grew at only 1OX. Had the PMEs beenable to display the same performance as private industries, Sri Lanka'sindustrial sector would have been much more efficient and dynamic than it isnow.

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Table 22: BEFORE-TAX PROFIT(in Rs. Million)

1978-80 1981-83 1984-85

Ceylon Petroleum -31 80 1,403National Textiles -83 -93 -15State Flour Milling 21 -14 -Sri Lanka Cement 53 14 -36Ceylon Steel 27 20 -46Sri Lanka Tyre 43 23 25National Paper 5 -4 21Ceylon Ceramics 27 17 -3Ceylon Plywoods 12 4 -30Sri Lanka Tobacco 25 8 -National Salt 10 22 16State Hardware - -15 -23Ceylon Leather Products 4 3 2Paranthan Chemicals 6 1 4

Total 118 66 1,318

Total Excluding Petroleum 149 -14 -85

Source: Central Bank of Sri Lanka and Ministry of Industry andScientific Affairs

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Table 23: BUDGETARY TRANSFERS TO INDUSTRIAL PUBLIC CORPORATIONS(Rs million, current prices)

Capital Current Z ofTransfers Transfers Advances Total GDP_

1978 1,241 640 1,831 3,712 8.71979 47 214 1,028 1,289 2.51980 546 202 3,240 3,988 6.01981 225 347 1,716 2,318 2.71982 564 610 879 2,053 2.11983 258 623 1,120 2,001 1.61984 /a 780 629 2,916 4,325 2.81985 7a 541 225 330 1,096 0.7

/a Provisional

Source: Central Bank of Sri Lanka.

B. PMEs' Business Practices

92. The disappointing performance of most PMEs can be attributed to themutually inconsistent functions PMEs managers are expected to fulfill: toprovide employment, to distribute income, to substitute for imports withlittle attention paid to economic efficiency, and to be a source of fiscalrevenue to the Central Government. To offset, partly at least, the cost ofsuch a system, PMEs have been granted privileges in terms of protectionagainst foreign and domestic competitors and access to the budget. The netresult of this system is that the managers of PMEs have almost no autonomy andrequire approval of supervisory ministries in almost all aspects of theiroperations.

Investment Decisions

93. The procedures for investment decisions by PMEs as specified by theTreasury are that all projects based on local finance with a total investmentcost of over Rs 2 million (i.e., US$73,000 in 1986) or projects which involveforeign financing over Rs 50,000 (i.e. less than US$2,000) require governmen-tal approval. However, these financial thresholds have, to some extent, losttheir meaning in the light of a March 12, 1981 circular which requires govern-mental approval for all purchases of equipment and machinery, cars and othervehicles, air conditioners and other electrical appliances, whether importedor locally manufactured. This effectively means that the Government mustapprove any capital expendiLures undertaken by a PME.

94. Project proposals have to pass through two stages. In the firststage, the supervisory ministry, the National Planning Department (NPD) and

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the External Resource Department at the Ministry of Finance submit the projectproposal to a cabinet sub-committee, the Committee of Development Secretaries(CDS) which decides on the project's merits. In the second stage, a committeeof members of the same government bodies prepares the project's feasibilitystudy. This feasibility study is reassessed by NPD, passed on to CDS andfinally placed before the cabinet approval. The LIAC or FIAC may also reviewthe project but their acceptance is a formality if ministerial approval hasbeen granted. This protracted system of investment appraisal creates anenvironment of uncertainty which makes any form of forward planning forinvestment by PME managers extremely difficult. The control of investmentdecisions by Government also extends to government owned businessundertakings.

Management and Labor Policies

95. The appointments of top managers of PMEs--chairman, competentauthority and managing directors --are made at the discretion of the relevantminister. This practice has the potential of creating managerial problemseven if the top executives in question were fully qualified. Firstly, thepolitical appointee's job security will tend to be determined by the strengthof his political ties rather than by the profitability of the enterprise, thusreducing the manager's incentive to perform well on the job. Secondly, politi-cal appointments often lead to creation of unnecessary positions. Thirdly,political appointment leaves little room at the executive level for lowerlevel managers to aspire to on the strength of merit, thus undermining theirmotivation.

96. Below the executive level, recruitment is restricted by the require-ment that PMEs recruit staff with salaries below Rs 8,000 per annum from the"job bank". The job bank comprises of unemployed people nominated by membersof Parliament. The Government also directly intervenes in PME pay structures.Each supervisory ministry establishes a pay-scale applicable across allenterprises. Salaries are set in relation to civil service rates which do notnecessarily reflect market rates for the required skills. Bonus schemes arealso controlled by the supervisory ministry which prevents line managers fromoffering production incentives. Table 24 below compares earnings in thepublic and private sectors. The public sector salary scales disadvantage PMEsin competing with the private sector for the best staff.

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Table 24: AVERAGE RUPEE EARNINGS ON A MANAGEMENT LEVELAND SECTOR BASIS PER MONTH

TotalFringe Bonus and Net Remuneration

Management Benefits Incentives Salary PackageLevels Sector Rs Rs Rs Rs

Senior Private 2,141 237 3,802 6,935Public 884 320 2,670 3,425

Middle Private 940 172 2,559 3,964Public 490 300 1,657 2,467

Lower Private 628 190 1,511 2,341Public 578 208 1,113 1,939

Source: ILO Report, UNDP, A Management Survey of IndustrialEnterprises, July 1985.

97. Since one of the most important of public corporations' multipleobjectives is to create jobs, it is difficult to dismiss staff and PMEs aregenerally overstaffed. Moreover, lax labor laws concerning leave and lowsalaries encourage overstaffing. In addition to the 42 days annual leave,employees are permitted to take 36 days non-paid leave before disciplinaryaction is taken. Then, the employee could be suspended pending an appeal tothe labor tribunal which is empowered to reinstate the employee if it chosesto do so. This labor practice has resulted in serious disciplinary problemsincluding high levels of absenteeism. Given the low public sector salaries,many workers hold two jobs. Plant level managers react by overemploying inorder to cover themselves against the disruptive effect of unscheduled leave.

Procurement Procedures

98. PMEs are restricted in the procurement of material inputs in two ways.First, if the input required is manufactured locally, PMEs are not allowed toconsider foreign suppliers even if foreign producers were marketing superiorproducts. The transfer price between corporations is set at the equivalentimport price. The second restriction pertains to purchases that are con-sidered to be large. They need to be approved by a "tender board". Theseboards are appointed by the cabinet for purchases over Rs 5 million (i.e. overUS$180,000 in 1986), by the Ministry for purchases between Rs 2-5 million andby the enterprise for purchases below Rs 2 million. The main purpose oftender boards is to maintain transparency in PME purchases. However, thesystem generates additional costs in terms of delays (as long as six months)and the need to maintain larger invfntories of raw materials and spare parts.

Product Pricing

99. All price changes for products produced by the PMEs have to beapproved by the Cabinet. To compensate for the privileges that are given toPMEs, the Government attempts to protect consumers by forcing PMEs to maintain"reasonable prices". The National Price Commission is responsible for theinvestigation and monitoring of PMEs price increases and reports its findingsto the Cabinet. While the Commission has no legal power to oppose a priceincrease its opinion has a strong influence on the decisions made by theCabinet since it is seen as an independent technical body. Such a system toapprove price increases introduces additional complications in a system thatis already complex, and its likely outcome is to penalize both consumers andPMEs. Consumers are penalized by the higher prices they have to pay for thegoods produced by the PMEs and the PMEs are penalized by the lack of freedomin setting their prices.

Dividends and Taxes

100. For the purposes of corporate taxes, PMEs are not legally distin-guished from private producers. A corporation tax of 50% applies withoutdiscrimination. On the other hand, PMEs are obliged to submit to a dividendpolicy vastly different from what private firms have: PMEs must pay to theGovernment a minimum dividend of 10 percent on all capital employed. In thiscase, the "dividend" constitutes a tax rather than the distribution of arealized return on venture capital. Under the present situation, even lossmaking PMEs are liable to pay a dividend.

Protection Accorded to PMEs

101. In contrast with these restrictive regulations that disadvantage thePMEs vis-a-vis the private firms, the Government also accords preferentialtreatment to the PMEs. As mentioned earlier, while tariffs on imported inputsfor PMEs tend to follow the economy-wide trend of being fairly low, theanalysis of the import tariff schedule suggests that the rates have beenfine-tuned to protect specific PMEs. In addition, licensing arrangements orexport bans (for example, a ban on export of hides in order to ensure supplyat a lower than f.o.b price to the Ceylon Leather Products) are sometimes usedin order to provide PMEs with privileged access to material inputs.

C. Agenda for Future Reforms

102. The IPC report has fully recognized the need for a comprehensiverestructuring of the PMEs. As a general principle, it proposes that PMEs bemanaged as private enterprises. The privileges and restrictions under whichPMEs operate would be eliminated and managers would be given entire freedomto manage. PMEs managers would be allowed to decide on their investments,staffing, procurement and pricing policies and take day-to-day decisionswithout the need for constant referrals and approvals. Consistent with this

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principle, the IPC report indicates that the Government "will pass on themanagement of PMEs to independent Boards of Directors outside the central ofministries". The IPC report further recommends that the Government "get ridof as much of its shareholding as possible".

103. This statement of policies is an impressive one and it should be fullyimplemented in as short a period of time as possible. The first step would bethe enactment of the legislation submitted to Cabinet in August 1986 enablingthe conversion of PMEs to Limited Liability Companies. The second would bethe simultaneous reduction in the tariff protection and other privilegesprovided to PMEs and the change in PMEs management practices. Privatizationis a process that could be carried out in parallel. It has to be recognizedthat the implementation of such a program will not be easy and requirespolitical support at the highest level.

104. Given the large size of the PME sector combined with the thinness ofthe Sri Lankan market and the sceptical attitude of many private entrepreneurstoward the public sector, privatization on a large scale could not be imple-mented in a single stroke. In fact, the program should be implemented inphases. Most PMEs need technical, managerial and marketing know-how, all ofwhich are scarce in Sri Lanka. Therefore, in the short- to medium-run,suitable firms, particularly those that could provide technical and managerialknow-how and marketing outlets, might be tapped for management contract or forforeign investment in the form of joint ventures. The Government will alsoneed to draw up a program for compensating employees who are likely to belaid-off, including financial payments and training.

V. Business Climate

A. Impact of Past Policies

105. The business climate in Sri Lanka is'determined by a complex range offactors, some of which are rooted in the country's history and political andsocial conditions, others are the result of more tangible economic regulationsand ways of doing business that affect the day to day life of an enterprise.The foliowing sections review some determinants of the business climate in SriLanka, in terms, first, of investor confidence as shaped by past and presentGovernment policies and second, the effectiveness of the Government's policiestoward foreign and domestic investment. They then examine the salient fea-tures of Sri Lanka's labor legislation and labor practices in terms of theirimpact on private investment.

106. Investor confidence is an absolute prerequisite for creating afavorable environment for sustained private investment. There needs to be asense of confidence among businessmen that they can invest and make profits inthe local economy without arbitrary, unforeseen interference from publicauthorities. Investors need to be assured that rules of free market competi-tion are respected, enforced and applied to all participants alike regardless

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of if they are public corporations, domestic private producers or foreigninvestors. Unfortunately, quite apart from the impact of the ethnic conflicthas had, there are few reasons for this investor confidence to be very strongin Sri Lanka. During the three decades of independence in Sri Lanka,Government changed hands six times and industrial policies and regulationsshifted in accordance with the philosophy of the political party in power.Confidence of private investors which had gradually been deteriorating sincethe sixties under center-left governments was shattered in the early seventieswhen the Government began to take over private businesses under the GovernmentBusiness Acquisition Act of 1971. Despite substantial progress since 1977,this piece of legislation remains on the books. Moreover, it was only inearly 1987, that the Government, through the IPC report, explicitly stated itspolicy regarding the role of PMEs within the context of the country's overallindustrial development strategy. Private businessmen are concerned that nolegal recourse may be available to them to protect their investments frompossible takeover by future governments.

107. Industries that showed the fastest growth in recent years have beenthose--e.g., garments--in which an investor is able to make a quick profit,generally recouping his capital expenditures within two or three years. Thereis also a consensus among businessmen, bankers and come Government officialsthat not enough effort has been made in the area of export marketing. Asnoted earlier, producers are not experienced in reading international markettrends, forecasting buyer demand for different types of products and reactingquickly and effectively to the foreign buyers' preferences and qualitystandards. The time, risk, money and effort required for developing expertisein these tasks have kept many producers producing for the domestic market.Confidence in the continuity of Government policies must be achieved beforeprivate producers in Sri Lanka can be induced into investing time and capitalin export marketing.

108. The outbreak of the ethnic conflict has had an obvious detrimentalimpact on foreign investment. Investments in manufacturing in the FTZ whichpeaked at Rs 1,500 million dropped off to Rs 200 million in 1983 and have notrecovered since then. Investments in industrial projects approved by FIAChave also declined sharply after 1984. On the other hand, it is difficult toassess the impact of the ethnic conflict on the behavior of domesticentrepreneurs. There is no clear evidenie that domestic investment has fallenoff since 1983; nor is there any indication of capital flight on a significantscale since the outbreak of the hostilities.

109. It would not be an easy task to rebuild the confidence of Sri Lankanprivate businesses considering that for many years Government policies hadconsistently discriminated against private entrepreneurs and still supportspreferential treatment for the PMEs. Nevertheless, there are a few specificinitiatives that the Government can take. The Government could, firstly,consider measures that give appropriate legal protection to private investorsfrom arbitrary administrative or political decision affecting their investment

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or property. It is important to note that foreign investments in Sri Lankaenjoy constitutionally-backed guarantees against business takeovers ornationalization (incorporated in investment protection agreements concludedwith foreign countries) which local businesses have not managed to extractfrom the Government. These investment guarantees to foreign investors providefor the repatriation of capital invested as well as profits and dividends andthe payment of compensation in the event of nationalization as well asrecourse to the International Center for the Settlement of Investment Disputesin the event of a dispute arising between Sri Lanka and a foreign investor.Sri Lanka has entered into agreement with a large number of countries for theavoidance of double taxation. These and other concessions reflect the desireof the Government to create as attractive an investment climate as possiblefor the foreign investor. The same logic should be expected to apply tomotivating domestic investors.

B. Other Factors Affecting the Business Climate

Criteria for Approving Investments in Manufacturing

110. Approvals for the entry of firms to particular industries are grantedby various Investment Advisory Committees. Investments by Sri Lankanentrepreneurs with no foreign participation are approved by the LIACs whilenew projects with foreign participation are approved by either GCEC or FIAC,depending on whether or not they are to be located in the FTZ.

Local Investment

I11. Role of LIACs. There are four separate LIACs reporting to theMinistries of Industry and Scientific Affairs, Textiles, Fisheries and PuralIndustries and covering their respective areas of activity. These four com-mittees appear to work independently without formal coordination or commonground rules, and there is no defined jurisdictional boundary between LIACs.The criteria for approval are not clearly defined and include, inter alia, thepromotion of labor intensive activities utilizing local raw materials, exportorientation, decentralization, small and medium industries, import substitu-tion for essential products or products for which there is potential foremployment and foreign savings, healthy but no excessive competition and adeepening of the technological capacity of the country. The areas of overlapamong Ministries are large, and the vagueness of the criteria leaves widescope for administrative discretion. About 20 percent of applications arealleged to be rejected; the process does not appear to allow for modificationof project design as a result of dialogue between potential investors andLIAC.

112. The LIACs are not necessarily a bottleneck and if all proceedssmoothly, approval can go through in two weeks. Moreover, in most cases,potential investors do not even need to obtain LIAC approvals. In 1977, theGovernment dismantled all laws and regulations requiring Sri Lankan producers(without foreign partners) to obtain LIAC approval before starting a manufac-

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turing establishment except for cases involving products imported underlicensing. Nevertheless, potential investors still take the trouble to obtainprior LIAC approvals. The benefit of approval seem to lie in better access tobanks and government channels, eligibility for tax holidays (limited in 1983to exporters) on recommendation by the appropriate Ministry, and establishmentof creuentials for appealing to the LIAC for restricting additional approvalswhere domestic competition may prove uncomfortable. The fact that the systemis vague and loose could mean that it does little harm, which is to say thatinvestors simply go ahead anyway. On the other hand, the system, having amplescope for administrative arbitrariness, introduces uncertainty and unequaltreatment and undermines any attempt to provide a stable investment climatewith simple and explicit rules applying to all participants. Given the statedGovernment policy of phasing out protection to import-competing industries,the usefulness of LIAC is likely to be greatly reduced in the future. Thisreport recommends the Government to consider the abolishment of this approvalprocedure.

Foreign Investment

113. The Role of the GCEC. Since its inception in 1978, GCEC has beenentrusted with the approval of foreign investments in export oriented manufac-ture primarily for location within the FTZ which it manages. 1/ The mostimportant criteria for approving projects in the FTZ are their impact onemployment creation and their potential for technology transfer. It wouldappear that the size of the project (and hence foreign capital) is also animportant consideration given that projects approved by GCEC tend to be sig-nificantly larger than FIAC aipproved projects. By most accounts, the approvalprocedure at the FTZ is smooth and on the average takes no more than three tofour weeks.

114. The FTZ offers subiitant;al investment incentives. These include con-cessional pricing of land, infrastructure, power and water. Moreover, firmsin the FTZ have access to significant tax concessions. Apart from apparentlyminor barriers for policing material into and out of the zone and with customclearances, investors in the zone operate largely without taxes on trade. Inaddition, there is a 100 percent tax exemption from corporate and personalincome, royalties and dividends ranging from three to 10 years. For up to 15years a tax on turnover of two to five percent may operate in place of cor-porate taxes. These concessions are determined administratively on the basisof such things as technology transfer, value added, employment and developmentof new markets. These criteria are difficult to interpret in a consistentfashion and hard to enforce. What is more important, it is not clear that the

1/ The GCEC also approves projects for location outside of the FTZ if thenature of the investment warrants this, e.g., investment in an agro-based processing factory which needs to be located close to the rawmaterial.

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application of different incentives on the basis of administrative judgementsabout their attributes has had the desired impact on the subseetoral composi-tion of investments in the zone. Notwithstanding GCEC's stated emphasis ontechnology transfer and establishing backward linkages, most investments havebeen concentrated in the footlose, low technology industries, primarilygarments. It may not have been necessary to have provided such generousincentives to get these industries to invest in Sri Lanka.

115. Two changes could improve GCEC effectiveness. The first pertains tothe issue of access to the local market. Currently, the firms can sell fivepercent of their output if approved by the Ministry of Industries on thepresumption that the local market will not be oversupplied. There is nojustification for this selective and discretionary basis for determiningaccess to the domestic market. In principle, it would seem preferable thatfirms in the zone be able to sell domestically so long as they pay all thetaxes and duties. If this is not administratively practical, then the policyshould be for production for exports only. The second point relates to thecriteria for approval. It is recommended that the Commission be more dis-criminating in its approval criteria and tty to restructure the composition ofits investments towards having a larger proportion of longer term ventureswith greater linkages to the rest of the economy. It is not clear whatproject appraisal method the Commission secretariat currently employs, butthere should be an objective and easily quantifiable methodology for apprais-ing projects that can be uniformly and rigorously applied. The presentcriteria are vague with attendant risk of leaving too much to the discretionof its officials.

116. The Role of FIAC. FIAC plays an essentially facilitative role inpromoting foreign investment outside of the FTZ, though it is also entrustedwith the actual approval of investment applications. It operates as a coor-dinating body providing services to potential investors from initial inquiryto approval of project and thereafter in their relationship with regulatoryagencies of the Government. The approval of projects is based on criteria suchas the existing local capacity of a specific activity, the potential employ-ment created, the technology transfer impact, and the size of foreign capitalenvisaged. The committee works by consensus and makes recommendations to theCabinet Economic Subcommittee which can overrule FIAC recommendations.Approvals are given within a month or two, and generally the procedurepresents few problems for the investors. Difficulties come later in the post-approval stages, e.g., securing financing, acquiring land and buildings andthe minimum necessary infrastructure (telephone, telex, electricity), andundertaking all the necessary paper work for the approval of import of plantand machinery and raw materials, for obtaining visa, for concluding contrac-tual agreements, etc., which also entail repeated visits to different govern-ment offices and an enormous amount of bureaucratic red tape.

117. The FIAC projects differ from FTZ investments in that they are jointventures where the majority shares in equity is held by the Sri Lankanpartners. As a general rule, the maximum shareholding by the foreign partner

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is 49 percent. However, there are exceptions. In the case of five starluxury hotels the foreign investors are allowed equity shares as high as 70percent. On the other hand, in instances where no significant transfer oftechnology is involved, e.g., garments9 the equity share holding of the for-eign partner is limited to 25%. These decisions rely, however, on discretionand bureaucratic judgment of the officials involved. Two issues seem relevantin assessing the role of FIAC in affecting foreign investment. First, to whatextent do FIAC decisions affect the incentive structure, and second how areits operations influenced by pressures from established domestic producersfor protection from new domestic competition. On the first point, it 8s

obvious that FIAC decisions do affect the structure of incentives to industrysince approvals are closely tied up with the granting of concessions to inves-tors which can vary at the discretion of the Committee. On the second issue,it does seem that approvals are influenced by existing and expected capacitypresumably assessed by the responsible Ministry, which in one way or anotherdoes take into account pressures from local manufacturers for a restriction ofcompetition on the domestic market.

118, This report recommends that the only criteria for deferral or rejec-tion of an application should be where information sought is incomplete, whereprojects are clearly not viable, where the character of the applicants issuspect, or where the size of the investment is very large as to have majorimplications for the management of the economy. With respect to projectinformation, FIAC must satisfy itself that there is enough data to meet theminimum necessary requirement for an objective project appraisal by banks. Atpresent the committee does not do it, hence banks are required to reevaluatethe project from scratch after FIAC gives approval, resulting in loss of timeand frequently even rejection of the applicant by banks and subsequent can-cellation of the investment approval by FIAC. It is recommended to allowrepresentatives of banks to sit on the committee as observers. Consideringthat investors after obtaining approval and credit lose a good deal of time ingetting electricity and telephone connections, or having their factory designsapproved by Urban Development Authority, FIAC should provide a backup supportto facilitate getting these services started.

Labor Legislation and Labor Practices

119. Legislation relating to Labor Relations. There exists in Sri Lanka alarge body of laws and an elaborate system of regulation relating to workinghours, holidays, leave, maternity benefits, health and sanitary requirements,prevention of accidents, workmen's compensation and superannuation. Thisplethora of statutes makes it difficult for potential investors to determinewhich laws actually apply in their case, let alone to assess the implicationsof the laws on their decision to invest.

120. At present, the issue of greatest concern to local entrepreneurs arethe various legal provisions relating to retrenchment under the Termination ofEmployment of Workmen (Special Provision) Act of 1971. An employer seeking toreduce staff must obtain either the consent of the workman or the sanction

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of the Commissioner of Labor. The Commissioner can grant or refuse suchapproval in writing within a three months period and may decide the terms andconditions of the termination, including any particular gratuity or compensa-tion for termination. It is not obvious that this Act necessarily functionsas a disincentive for potential investors; it does, however, affect employmentpractices in existing businesses. There is a tendency among employers, toavoid having to retrench, to keep the work force as small as possible and toemploy casual lqbor on a short term contract basis or to farm out piece workto part time workers to absorb fluctuations in work load., Abrogating theTermination of Employment of Workmen Act may not be necessary because the lawdoes not appear to have an unfavorable impact on private businesses while itsrepeal is likely to give rise to enormous social pressure to institute acostly unemployment welfare program. Any type of unemployment benefits wouldultimately add to the cost of labor for the employers or increase the fiscalburden for the taxpayers.

Tables 25: INTERNATIONAL WAGE RATE COMPARISONS(US$/Month, Based on 1985 Data)

________________ _Unskilled Skilled Manager

Korea 100-400 450-900 125G-2000Indonesia 200 240 n/aThailand 110-175 220-350 600-700India 35-50 50-75 250-450Pakistan 22-32 68-130 n/aSri Lanka 25 71 157-275

Source: Coopers & Lybrand, Cooperative Matrix of InvestmentIncentives for Sri Lanka and Other Asian Countries.June 1986. Study prepared under Sri Lanka PrivateEnterprise Promotion Project.

Wage Levels and Mechanism for Determining Wages

121 A comparison of monthly wages (nominal) among six Asian countries is inTable 25. (In addition, employers in Sri Lanka are required to make aProvident Fund contribution for each employee amounting to 12 percent of totalearnings and three percent of total earnings to the Employees Trust Fund.)The Sri Lankan wages are among the lowest in Asia, and the country has a largesupply of literate, highly trainable labor highly suited for labor intensiveindustries, particularly those requiring painstaking close work -- metaljewelry making, ceramics, garments.

122 For workers employed in industrial establishments and plantations,minimum wages are determined by 35 Wages Boards whereas those for employees inthe service sectors are covered by the Shop and Office Employee Act; legal

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provision is also available to fix minimum wages through the establishment ofremunerations tribunals. The Wages Boards, the Shop and Office Employees Actand the remunerations tribunals regulate the wages and working conditions forsome two million workers in Sri Lanka most of whom do not belong to tradeunions, Of the three, the Wages Boards constitute the most important wag-fixing machinery in terms of the number of workers covered. A Wages Board istripartite with representatives drawn from trade unions of employees andorganizations of employers in equal numbers; the Minister of Labor isempowered to nominate members representing the state. All members exerciseequal voting rights. A Wages Board is an autonomous body with overridingpowers by the Minister only. However, the Commissioner of Labor is allowed todetermine minimum wages in certain trades where a Wages Board cannot be estab-lished or where an existing Board has failed to make decisions within aspecified period from the date of establishment.

Table 26: MINIMUM WAGE RATE INDICES (December 1978=100)

Agriculture Industry Under Wage BoardsNominal Real Nominal Real Nominal Real

1978 94.2 99.0 98.8 102.6 94.7 99.31979 123.1 116.0 111.3 135.2 119.6 112.91980 153.6 115.9 1A8.8 105.4 147.3 111.11981 153.9 98.3 151.0 96.2 152.2 97.11982 181.2 104.2 161.0 92.6 175.8 101.11983 198.7 100l 4 163.1 82.5 188.8 95.51984 250.2 108.0 168.3 72.9 224.3 96.91985 273,5 116.0 192.5 82.1 244.1 101.1

Source: Central Bank of Sri Lanka Bulletin.

123 This mechanism for fixing minimum wages appears to have functionedreasonably flexibly and has kept wage increases at a modest rate. TheGovernment wage policy Aince 1977 has been directed at reducing differentialwithin private sector occupations as well as between classes and grades withingovernment services, and the Wages Boards have been used to achieve this end.The Boards have also managed to keep average wage increases around inflationrate though individual adjustments have varied substantially depending on thecircumistances that prevailed in particular trades. Table 26 compares wagesrate indices between agriculture and industry. With the idea of eliminatingthe minimum wage differentials that existed between agriculture and industryin the late seventi s, the Wages Boards have allowed wage rates in industry togrow at a Ignificantly slower pace than in agriculture between 1978 and 1985.It also indicates that the increases in average minimum wage rates for all

-69-

trades covered by the Wages Board have just about kept pace with inflation.In the coming years, for Sri Lanka's export industry to be competitive inter-nationally and for the country's literate and highly trainable labor force tocontinue to attract foreign investment, it will be important not to allow thewages to rise faster than productivity.

-70-

ANNEX IPage 1

The Public Investment Program and the Balance of Payments

1. Foreign aid plays an important role in financing Sri Lanka's PublicInvestment Program (PIP). For example, 35% of the total cost of the projectsincluded in the 1986-90 PIP is expected to be financed by foreign aid. Foreignaid agencies generally finance all the import costs of the projects they sponsor,and a share of the domestic ones. The share of domestic costs that is financed byaid depends on the specificities of each project, on the policies of the foreignfinancing agency, &wd varies from sector to sector (Table 1). The financing ofdomestic costs provides foreign exchange resources to the economy that are avail-able for general imports. These resources are estimated to have amounted toUS$130 million in 1986; i.e. about 10X of merchandise exports. This is a non-negligible addition to the country's foreign exchange availability.

2. A reduction in the size of the PIP may thus have the indirect consequenceof reducing the country's foreign exchange availability unless the cuts in the PIPare targetted towards projects for which the contribution of foreign aid agenciesto the financing of domestic costs is low. This is not, however, an appropriatecriteria to follow in any exercise aimed at reducing public expenditures sincethere is no link between the economic returns and the size of the contributions offo-eign resources to the financing of a project.

3. The reduction in public capital expenditures announced in the budgetspeech is one of the main features of the Government adjustment program for1987-89. In projecting the balance of payments in Part I of this report, anattempt was made to link explicitly the size of the PIP, the direct imports thatit implies, and the total foreign aid disbursements that are associated with it.Establishing such links presents no difficulties for ongoing projects. For eachone of those, it is known how much foreign aid is available for disbursements andhow much imports will be necessary for the completicn of the projects. Underfairly realistic assumptions, it is possible to make an estimate of how much ofthe remaining foreign aid will be available to finance domestic costs each year.These estimates can also be made for projects planned to start in 1987 since thesame information, in most cases, is also available. For projects that are plannedto begin in 1988 and beyond, however, even when reliable estimates of the importcost of the projects exists, it is not known what amount of foreign aid commitmentthese projects will attract. In projecting the balance of payments, the followingsteps were followed.

4. The PIP consists of two blocks. One block includes about 220 projects thatare partly, and in a few cases entirely, financed by foreign aid. The secondblock so-called "Miscellaneous", is about 20% of the total cost of the PIP for1986-90. It gets no foreign financing at all and its import content is estimatedto be about one-fifth of the total cost. No project bteakdown is available for thesecond block of the PIP; it was incorp,orated in the balance of payments projec-tions by assuming that it would require imports equal to 201 of its local cost

-71-

ANNEX IPage 2

5. For the other 801, information was available at the project level.Questionnaires (see Attachment A) were sent by the Ministry of Finance andPlanning to all line ministries involved with the projects. The informationrequested was provided for almost all projects.

6. For each one of these projects, the following information was madeavailable:

(i) the domestic cost of the project;(ii) the foreign cost of the project;(iii) the total amount of foreign finance committed for this

project by the external financing agency;(iv) the historical streams of domestic and foreign costs; and(v) the projected stream of domestic and foreign costs.

7. Based on this information it was possible to project the flow of importsand the flow of disbursements associated with each project from 1987 onwards, forall ongoing projects and projects planned to begin in 1987 but, as noted earlier,this was not possible for projects planned to begin in 1988 and beyond. It wasthen decided to use the average of the ratios between foreign aid and totalproject costs and aid disbursements and imports prevailing for 1985-87. It wasestimated that during these years (i) foreign aid financed 67Z of the totalproject costs, and (ii) 651 of aid disbursements financed imports. These tworatios were used in the balance of payments projections in the main text. Theywere somewhat higher in earlier years, 691 and '.J2%, respectively in 1983-84,probably as a consequence that the more import-intensive phase of ongoingprojects was being carried out at that time.

Table 1: FORBIGN COSTS AND FOREIGN AID .N THE FINANCING OF PUBLICINVESTMENT PROGRAM IN SELECTED SECTORS, 1985-87

Share of Foreign Costs Share of Total Costsin Total Costs (X) Financed by Foreign Aid(%)

1985 1986 1986 1985 1986 1987

Agriculture 52.3 43.2 38.4 77.8 88.3 71.7of which Mahaweli 47.4 39.0 20.i 81.3 86.8 85.8Housing 30.8 27.2 31.0 8.6 3.8 7.7Water Supply 50.0 48.1 36.3 98.9 10l.0 100.0Transport 77.5 51.0 50.8 - - 26.2Power 90.0 65.3 63.9 85.8 89.7 85.7Integrated Rural Dev. Project 37.1 39.7 39.0 67.2 100.0 100.0Airport Development 84.2 76.3 71.3 79.1 71.3 59.3

Source: Ministry of Finance and Planning and Bank staff estimates.

-72-SRI LANKA Attachment A

Public Investment Project

Sector: Year of Coosenceamut:

Project Nace: Proj.No. Year of Completion:

Executing Agency:Exchange

External Financing Agency: Aaount *il. Currency: Ratet USW Equivalent:

Additional financing it any by: ExchangeExternal Financing Agency; Asount: oil. Currency: Rate: US$ Equivalent:

Sl Rs. dillion Check Nhether data below are:

Total Project Cost: (a) tx I At current prices, or

Foreign (direct) (bl i I At constant prices lbase year l

Domestic(1) (2)

Exchange PriceProject Cost: SL Rs. million Rate Index------------------------ ----- ^ W M 1/

Total Foreign Donestic

Actual 197919801981198219831i841985

Est. 1186Proi. 1987

1988198919901991

Later Years

TOTAL

Project Description:

I/ It data are in constant prices, please fill in exchange rate and price index in base year tunder columns 1 and 2); ifdata are in current prices, please fill in exchange rate and price index for all the corresponding years.

C If project has not yet been initiated, are feasibility studies completed?-

Notes: (a) Foreign costs refer to the direct import cost of the project (which is generally different fros the amountfinanced by foreign sources).

(b) All amounts should be in aillions of currency units.(c) The above foreat is adequate for projects that started in 1982 or after and are expected to be completed by 1991.

For projects that started before 1982 and/wor ill be completed after 1991, please provide annual data on aseparate sheet.

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Annex IIPage 1

The Fiscal Impact of AlternativeTariff Systems

1. The purpose of this Annex is to present in more detail the simula-tion results referred to in the text and to document the classification ofimports by stage of processing.

2. A nine-level classification of the stages of fabrication from StageA (Raw Materials) to Stage J (Finished Goods primarily for householdconsumption) is given below.

Table 1: CLASSIFICATION OF GOODS FOR FISCAL SIMULATIONS

Stage A. Raw Materials; fish, animals and livestock; crude agriculturalproducts.

Stage B. Intermediate semi-processed (includes industrial chemicals,refined produicts and simple compounding).

Stage C. Processed food and agricultural products (includes dried andfrozen foods and refined products).

Stage D. Processed food and agricultural products (canaed and frozenwith additives).

Stage E. Pharmaceuticals, health and personal care products.

Stage F. Intermediate inputs not included in B (plastics, fabrics,building materials and intermediate finished products fromitems classified in B).

Stage C. Capital equipment and subassemblies thereof (includeselectronic equipment).

Stage H. Transport and motive equipment.

Stage I. Finished goods intended primarily for production orindustrial purposes.

Stage J. Finished goods primarily for personal or householdconsumption (includes appliances).

3. While the choice of the levels of fabrication and the assignment ofimports to a level of fabrication is a subjective process, the scheme out-lined ilere has proven to be a reliable and robust base for preliminaryanalysis. This classification could, in principle, support a nine-banded

-74- Annex IIPage 2

tariff system. However, the objective of the exercise is to examine thefiscal impact of four-banded systems.

4. Three four-banded systems characterized as having "low", "medium",and "high" rates have been constructed. Table 1 indicates the percentage oftrade, and the percentage of revenues, as well as the trade-weighted, tariffrate, of the current tariff system, when imports are classified according tothe scheme in Para 2.

Table 2: EXISTING TARIFF SYSTEM

TradeWeighted Z of

Category Z of Trade Rate Revenue

A 35.5 8.3 16.1B 10.8 9.7 5.7C 12.0 44.7 29.1D 2.5 21.1 2.9E 1.7 9.3 0.4F 13.1 25.3 18.0G 11.9 15.8 10.2H 8.2 23.3 9.8I 3.1 26.1 4.3J 1.4 43.1 3.2

Weighted Avg. 18.0

Source: Bank staff estimates.

5. Table 3 indicates the change in fiscal revenues brought about by achange in the tariff system. The first two scenarios result in less revenuethan the present system whereas the third scenario yields slightly more.The categories where the present system generates significantly more revenuethan any of the alternatives are A, C and F. Crude petroleum (which entersat five percent 1/) accounts for approximately 75 percent of Category Aimports. The remainder is attributable to imports of wheat and rice whichenter at higher duty rates. The major imports in Category C which generatesignificaintly more revenue than any of the alternative schedules are sugar,flour, dried vegetables and milk products, all of which enter at much higherrates than in any of the scenarios. In the case of Category F, the revenuegains are attributable to such items as fabrics, rubber, paper, plywood andiron and steel products.

1/ The duty on petroleum was increased to 45X in 1986.

-75- Annex IIPage 3

Table 3: FISCAL IMPACT SIMULATIONS OF CHANGES IN TARIFFS

Trade Weighted Z of RevenueAverage Rate of Present System

Cate- % of Present 4-Band 4-Band 4-Band Present 4-Band 4-Band 4-Bandgory Trade System "Low" "Med." "High" System "Low" "Med." "High"

A 35.5 8.3 5 5 10 16.1 9.8 9.8 19.7B 10.8 9.7 10 5 10 5.7 6.0 3.0 5.4C 12.0 44.7 10 15 20 29.1 6.7 10.0 13.3D 2.5 21.1 10 15 25 2.9 1.4 2.1 3.5E 1.7 9.3 15 15 25 0.4 1.4 1.4 2.4F 13.1 25.3 15 20 25 18.4 10.9 14.6 18.1G 11.9 15.8 15 20 25 10.2 9.9 13.2 16.5H 8.2 23.3 20 30 40 9.8 9.1 13.6 18.0I 3.1 26.1 20 30 40 4.3 3.4 5.1 6.8J 1.4 43.1 20 30 40 3.2 1.5 2.3 3.3

WeightedAverage - 18.0 11.0 13.5 19.5 - - - -

Revenueas Z ofPresentSystem 100.0 60.0 75.0 107.0

Source: Bank staff estimates.

TI i zT y^o A I_- d -m, J- L " . L

I-S BLA1F

-77-

STATISTICAL APPENDIX

Standard Tables

Table 1: Sri Lanka - National Accounts Summary (Millionsof Rupees at Current Prices)

Table 2: Sri Lanka - National Accounts Summary (Millionsof US$ at Constant 1982 Prices)

Table 3: Sri Lanka - Balance of Payments (Millions ofUS$ at Current Prices)

Table No.

1.01 Population and Vital Statistics, 1963-86

1.02 Employment in the Public Sector, 1975-85

2.01 Gross Domestic Product: Composition and Sectoral Deflators,

1970-852.02 Growth Rates of GDP and Its Components, 1970-85

2.03 National Product and Expenditure, 1970-85

3.01 Balance of Payments, 1970-853.02 Composition of Exports, 1970-863.03 Selected Non-Traditional Exports, 1975-86

3.04 Composition of Imports, 1971-863.05 Aid Commitments, 1970-863.06 Aid Disbursements, 1970-863.07 Overall Aid Pipeline, 1983-863.08 Commodity Price Projections, 1987-95

4.01 External Debt Outstanding, by Type of Debtor, 1980-86

4.02 External Debt Outstanding, by Type of Creditor, 1980-86

5.01 Economic Classification of Government Revenue, 1978-87

5.02 Fiscal Outturn - Derivation Table, 1978-87

5.03 Summary of Budgetary Operations, 1978-875.04 Economic Classification of Current Expenditure, 1978-87

5.05 Financing of Central Government Budget Deficit, 1978-87

5.06 Central Government Budget Debt Service, 1978-87

5.07 Operational Surplus/Deficits of Trading Enterprises, 1978-87

5.08 Current Transfers to Public Corporations, 1978-87

5.09 Capital Transfer to Public Corporations, 1978-87

6.01 Interest Rates of Major Credit and Savings Institutions, 1980-86

6.02 Monetary Survey, 1978-86

-78-

Table Mo.

7.01 Volume of Agricultural Production, 1975-867.02 Paddy Cultivated Area and Production; Rice Availability,

Procurement and Distribution, 1975-867.03 Cultivated Area and Production of Subsidiary Food Crops, 1975-867.04 Tree Crops Production Statistics, 1975-867.05 Tea Producer Margin, 1975-867.06 Fertilizer Issues by Crops, 1975-86

8.01 Growth of Industrial Outputs 1977-858.02 Industrial Investments Approved and Contracted by Greater

Colombo Economic Commission, 1980-868.03 Industrial Investment Approvals by Foreign and Local Investment

Advisory Committees, 1980-86

9.01 Petroleum Imports, 1975-869.02 Imports of Crude Oil by Country of Origin, 1975-869.03 Petroleum Product Exports, 1975-869.04 Domestic Production of Petroleum Products, 1975-869.05 Local Sales Volume of Petroleum Products, 1975-869.06 Production, Trade, and Apparent Consumption of Energy

Petroleum Productse 1975-869.07 Petroleum Product Price Changes, 1970-869.08 CEB Electricity Generation, 1970-869.09 C-8 Electricity Sales, 1970-85

10.01 Minimum Wage Rate, 1977-8610.02 Colombo Consumer Price Index Numbers, 1977-8610.03 Wholesale Price Index, 1977-8610.04 Cost Indices for Selected Building Materials and Different

Construction Activities, 1977-8610.05 Administered Prices of Basic Consumer Goods, 1977-86

11.01 Selected Social Indicators, 1946-8611.02 Health Statistics, 1975-8611.03 Education Statistics, 1975-8511.0's Tourism: Arrivals by Regions, 1975-86

-79-

Table 1: SRI LANKA - NATIONAL ACCOUNTS SUMMRY(Millions of Rupees at Current Prices)

1980 1981 1982 1983 1984 1985 1986

1. Gross Domestic Product 66,527 8S,005 99,166 121,571 153,708 160t569 183t440

2. Resource Cap (N-X) 5l,010 13,647 18,729 18,377 10,150 20,125 20t2033. Imports (G+NIS) 36t449 39,558 45t886 50,377 54,492 62,359 62,5974. Exports (G+NFI) 21,439 25,911 27,151 32,000 44t342 429234 42,394

5. Total Expenditures 81,537 98,652 117,895 139,948 163,858 180t694 203,643

6. Consumption 59,084 75,061 87,468 104,834 123,170 139t912 155,8447. General Covernment 5,685 6,310 8,242 9,889 11,935 16t762 16,4818. Private 53,399 68,751 79,226 94,945 111,235 123,150 139,363

9. Investment 20,845 23,279 309207 35,312 39,520 39,848 43,22110. Fixed Investment 19,225 22,948 29,959 35,522 39,370 39,623 43,22111. Changes in Stocks 1,620 331 248 -210 150 225 -

12. Domestic Saving 7,443 9,944 11,698 16,737 30,538 20,657 27,59613. Net Factor Income -430 -1,867 -1,956 -3,200 -3,484 -3,449 -4,34314. Current Transfers 2,248 3,908 5,494 6,447 7,047 7,225 8,29415. National Saving 9,261 11,985 15,236 19,984 34,101 24,433 319547

Average Exchange Rates:16. Rupees per US$ 16.53 19.25 20.81 23.53 25.44 27.16 28.0217. Rupees per 8DB 21.53 22.69 22.98 25.15 26.19 27,40 33.43

Notet The exchange rates in line 16 were used in converting from US dollarsto national currency terms, items 3,4,13 and 14, taken from thebalance of payments.

-80-

Table 2: SRI LAMKA - NATIONAL ACCOUNTS SUMKARY(Millions of US$ at Constant 1982 Prices)

1980 1981 1982 1983 1984 1985 1986

1. Gross Domestic Product 4,285 4,533 4,765 5,002 5,258 5,250 5,7362. Terms of Trade Effect 103 12 0 154 393 25 283. Gross Domestic Income 4,388 4,545 4,765 4,156 5,651 5,J45 5,764

4. Resource Gap (5-6) 829 662 900 855 289 846 9275. Imports (G+NFS) 2,067 1,923 2,205 2,288 2,122 2,699 2,9586, Capacity to Import 1,238 1,261 1,305 1,433 1,833 1,853 2,0317. [Exports (C+NFS)] 1,135 1,249 1,305 1,279 1,440 1,828 2,003

8. Total Expenditures 5,114 5,207 5,665 6,011 5,940 6,121 6,691

9. Consumption 3,687 3,862 4,203 4,442 4,624 5,179 5,34510. General Covernment 355 325 396 419 448 621 565I1. Private 3,332 3,537 3,807 4,023 4,176 4,558 4,780

12. Investment 1,462 1,372 1,452 1,464 1,371 1,370 1,36213. Fixed Investment 1,349 1,353 1,440 1,473 1,377 1,362 1,36214. Changes in Stocks 113 19 12 -9 5 8 -

15. Domestic Saving 598 671 562 560 634 341 39116. Net Factor Income -27 -100 -94 -132 -116 -119 -13617. Current Transfers 145 208 264 265 241 248 25918. National Saving 716 779 732 693 759 470 5;4

Rupee Deflators (1982 = 100)19. Gross Domestic Product 74.6 90.1 100.0 116.8 140.6 139.8 153.720. Imports (G+NFS) 84.7 98.8 100.0 105.8 111.0 109s0 99.821. Exports (G+NFS) 90.8 99.7 100.0 120,2 148.0 '1i.0 101.722. Total Expenditures 75.1 91.0 100.0 111.9 132.3 135.9 146.323. Government Consumption 77.0 93.4 100.0 113.4 128.0 129.8 140.124. Private Consumption 77.0 93.4 100.0 113.4 178.0 129.8 140.125. Fixed Investment 68.5 81.5 100.0 115.9 138.5 139.8 149.426. Changes in Stocks 68.5 81.5 100.0 115.9 138.5 139.8 149.4

27. Exchange Rate Index 125.9 108.1 100.0 88.5 81.8 76.6 74.3

-81-

Table 3S SKI LANKA - BALANCE OP PAYNENTS(Millions of US$ at Current Prices)

1980 1981 1982 1983 1984 1985 1986

1. EXPORTS (C+>;ks) 1,297 1,346 1,305 1,360 1,755 1,555 1,5132. Mercharis.ae (fob) 1,065 1,066 1,014 1,062 1,475 1,315 1,2043. Non-f,sttr Services 232 280 291 298 280 240 30)

4. IWt.gTS (C+NFs) 2,205 2,055 2,205 2,138 2,121 2,296 2,2635. Merchandise (cif) 2,051 1,877 1,990 1,918 1,911 2,044 1,9576. Non-factor Services 154 178 215 220 210 252 306

7. RESOURCE BALANCE -908 -709 -900 -778 -366 -741 -750

8. Net Factor Income -26 -97 -98 -138 -131 -127 -1389. Factor Receipts 47 33 40 43 59 83 6510. Factor Payments 73 130 138 181 190 210 20311. (M&LT Interest Paid) (33) (50) (69) (86) (103) (108) (98)

12. Net Current Transfers 136 203 264 274 277 266 29313. Transfer Receipts 152 230 289 294 302 292 33014. Transfer Payments 16 27 25 20 25 26 37

15. CURRENT BALANCE -798 -603 -734 -642 -220 -602 -595

M&LT Capital Inflow16. Net Direct Investment 43 49 63 37 36 26 2917. Official Grant Aid 138 162 162 171 154 178 17718. Net M&LT Loans (DRS) 236 336 403 292 311 277 324ig. Disbursements 286 380 472 373 410 395 50220. Repayments 50 44 69 81 99 118 17821. Other M&LT (net) 0 0 0 0 0 0 0

22. Net Short-Term Capital 157 31 7 38 -26 0 023. Capital Plows NEI and

errors and omissions 4 -8 72 105 50 8 -22

24. Change in Net Reserves(- indicates increase) 220 33 27 -1 -305 113 87

Memo Items:

25. Net Credit from IMP -4 +165 -6 -11 +9 -36 -7026, Disbursements 39 229 43 38 32 - -27. Repayments 43 64 49 49 23 36 70

Note: Underlying data from CentrAl Bank of Ceylon except for lines 18-20which are from World Bank's Debt Reporting System, and lines 25-27from the IMF.

-82-

Table 1.01: POPULATION AIM VITAL STATISTICS, 1963-86

Vet AnnualPopulation Birth Death migration Natural

Year Mid-Year Rate Rate Rate Growth Rate(1000) ----------- ( per .000)-----…-- (X)

1963 10,651 34.1 8.6 -1.0 2.551964 10,889 33.2 8.8 -1.0 2.441965 11,133 33.2 8.2 -0.5 2.501966 11,439 32.3 8.3 -0.5 2.401967 11,703 31.6 7.5 -0.6 2.411968 119992 32.0 7.9 -0.7 2.411969 12,252 30.4 8.1 -0.9 2.231970 12,516 29.4 7.5 -0.8 2.191971 129608 30.4 7.7 -2.7 2.271972 12,861 30.0 8.1 -3.2 2.191973 13,091 28.0 7.7 -3.8 2.031974 13,284 27.5 9.0 -4.0 1.851975 13,496 27.8 8.5 -2.3 1.931976 13,717 27.8 7.8 -3.8 2.001977 13,942 27.9 7.4 -3.7 2.051978 14,184 28.5 6.6 -2.8 2.191979 14,471 28.9 6.5 -3.0 2.241980 14t738 28.4 6.2 -4.6 2.221981 14,988 28.0 6.0 -3.4 2.201982 15,189 26.8 6.1 -6.0 2.071983 15,416 26.2 6.1 -6.8 2.011984 15,599 24.8 6.5 -4.9 1.831985 15,837 24.3 6.2 -0.6 1.811986 16,117 .. .. .

.. not available.

Note: Figures for 1983-86 are provisional.

Source: Registrar General's Department.

Table 1.02s CIVILIMW N hEIAJT IN ME PUBLIC SE1CTOU t975-85 a/

1975 1976 1977 1976 1979 1980 1961 1982 1960 1984 1965

Government Institutions

Adninistrative. Technicaland Froftesiondl Officersof staff rnek 16.133 19.646 16.901 17,511 18.366 146439 18.525 18.634 18.762 16.989 19,112Subordinate haplayees b/ 150,891 118.309 185,893 195.922 206.319 207.533 209.242 210.305 212,807 215.361 218,760Ninor Esployee cI/ 113.714 124.130 82,514 87.172 94.141 95.908 99.071 99.938 100,172 101.374 103,103School Teachers 109.855 111.097 119.004 126.437 133.269 135.270 134.991 136.978 137,302 138.950 140.824Others 35.272 32.M 18.335 19.042 18. M 18.936 196. 19.957 20.429 20.674 21.124

TOTAL 425.865 406.381 422,647 446.085 470.188 476.086 461.475 485.812 489.472 495.346 502.943

Administrativoo Teebsieal Smi-Gover nt Institutions d/and Profe-sional Officersof staff rank 14.793 14.648 11.402 12.239 13.005 13.033 14.304 14,605 14.892 14.505 14.192Subordinate P2ployees k/ 37.596 50.656 50.184 60.711 72,936 80.503 03,309 84.951 85.703 83.474 81.414Minor Zaployeea c/ 169,930 455.899 516.806 606.302 621.760 627.656 631.563 632.849 634.039 617.554 602,765Others . 36.865 19.841 38.641 37.782 41.333 47.130 49.023 49,829 51.083 49.755 48,550

TOTAL 259,184 541.044 617,033 717.034 749.034 769.122 778.199 782.234 785.717 765.288 746.921 If

a/ The employees are classified according to categories and status, and include temporary nd casual workers.bh Clerical workers.ci Sad-skilled and unskilled workers.4/ Growth of employment In this castegoy (public corporations. universities. research institutions. etc.) wasoaaggerated in the period by the nationalization of agricultural lends.e' Principols, tebche and otber education wotker.

Sources The Central Bank of .ri Lanka.

Page I of 2 pages

gkle 2.01: GROSS DOMESTIC PROWNCT: COMPOSITION aD SECTORUL DEFLATORS, 1970-85(Current Factor Prices)

I97 l9t 1976 1977 1978 1979Rs S of Rs K of Rs loOf Rs Sof s s t of as Z of

kL RGVP H.s GDP No. GIDP "h. 6PL E.L GDP Lnt. G

agriculture hi 3,732 28.3 7.798 30.4 8,133 29.0 10,644 30.7 12,332 30.5 13,412 26.9Iminiog 95 0.7 450 1.8 639 2.3 595 1.7 732 1.8 947 1.9Ibaufacturing 2,197 16.7 5,158 20.1 5,620 20.0 8,023 23.1 8,094 20.0 9,484 19.1Construction 744 5.6 1,018 4.0 1,164 4.2 1,133 3.3 1,965 4.8 3,218 6.5Services 6,419 48.7 11,267 43.9 12,476 44.5 14,289 41.2 17.356 42.9 22,721 45.6Utilities 101 0.8 164 0.6 171 0.6 194 0.6 239 0.6 398 0.8Transport/Communications 1,258 9.5 2,079 8.1 2,286 8.1 2,723 7.9 2,994 7.4 4,744 9.5Cannercial Services 2,533 19.2 4,975 19.4 5,456 19.5 6,239 18.0 7,536 18.6 9,435 19.0Financial Services 152 1.2 336 1.3 419 1.5 542 1.6 845 2.1 1,243 2.5Rousing Services 399 3.0 639 2.5 726 2.6 832 2.4 969 2.4 1.293 2.6Public Adinistration 517 3.9 1796 3.1 948 3.4 1,177 3.4 1.516 3.7 1,664 3.3Other Services 1,459 11.1 2,276 8.9 2,470 8.8 2,582 7.4 3,257 8.1 3.944 7.9Gross Donestic Product 13,187 100.0 25,691 100.0 28,032 100.0 34,684 100.0 40,479 100.0 49,782 100.0

Priese (1hplicit Deflators)

Agriculture hj 100.0 214.2 208.9 247.6 272.4 290.23dining 100.0 113.9 111.9 115.4 118.3 145.7Neaufacturiug 100.0 227.9 237.0 340.4 318.5 356.7Construction 100.0 156.9 169.9 183.0 247.5 335.2Services 100.0 141.6 160.3 172.4 194.7 236.5Utilities 100.0 140.2 140.2 148.1 151.3 209.5Transport/CIoAicationS 100.0 138.9 160.4 181.8 186.3 276.5Cmercial Services 100.0 172.4 193.2 208.0 230.7 265.7Financial Services 100.0 121.7 170.3 183.7 265.7 355.1lousing Services 100.0 100.0 155.5 175.2 194.2 249.6Public Adinistration 100.0 109.5 124.7 148.8 177.5 183.9Other Services 100.0 122.0 125.9 123.0 147.2 165.9Gross Domestic Prodect 100.0 173.2 183.0 215.7 232.6 269.1

Table 2.01Page 2 of 2 pages

1980 1 981 1 982 19Z13 1984 al 8SnRs I of Re of Rs Iof Rs X of Rs S of Rs S ofMk CDP MI CDPJ HM, GDP PaCGDP lb ;P no. GDP

PreXteioa

Agriculture h/ 17,151 27.6 21,977 27.7 24,964 26.4 32,180 28.3 40,138 28.7 41,089 27.5mining 1,249 2.0 1,514 2.0 2,238 2.4 2,799 2.5 3,153 2.3 3.328 2.2Ib facturing 11,048 17.7 12,883 16.2 13,601 14.4 15,958 14.0 20,890 14.9 21.849 14.6Construction 5,552 8.9 7,001 8.8 7,959 8.4 9,807 8.6 11,180 8.0 11.640 7.8Services 27.246 43.8 35,962 45.3 45.917 48.4 53.134 46.6 64.678 46.1 71,509 47.9

Utilities 601 1.0 808 1.0 1.089 1.1 1.428 1.2 1.633 1.2 2,077 1.4Trausport/Comunications 5,293 8.5 7,307 9.2 10,666 11.3 12,554 11.0 15,499 11.0 16,554 11.1Cmercial Services 10,898 17.5 14,197 17.9 19,964 20.8 21,759 19.1 27,192 19.4 30,320 20.3Financial Setvices 1,785 2.9 2,463 3.1 3,715 3.9 4,193 3.7 4,731 3.4 5,693 3.8sousing Services 1,457 2.3 1,768 2.2 3,250 3.4 3,696 3.2 3,958 2.8 4,162 2.8Public Ainistration _ .965 3.2 2.350 3.0 2.899 3.0 4.100 3.6 5,322 3.8 6,376 4.3Other Services 5,247 8.4 7.069 8.9 4.604 4.9 5,414 4.8 6,343 4.5 6,327 4.2

Gross Dmestic Product 62.246 100.0 79,337 100.0 94,679 100.0 113.878 100.0 140,039 100.0 149.415 100.0

Prices (isplicit Deflators) O

Agriculture iL 360.0 431.2 480.9 590.5 739.! 696.3Iising 182.6 212.3 233.7 271.1 300.8 312.9lban acturing 412.1 456.8 478.3 556.7 649.1 645.2Construction 520.8 677.1 785.7 958.6 1,093.7 1,133.0Services 262.5 325.7 361.1 391.4 445.6 474.5

Utilities 287.5 345.3 484.0 595.3 637.9 765.7Trausport/Cm-nications 287.9 373.4 410.6 457.0 511.6 524.3Cmercial Services 283.1 351.9 375.6 394.0 463.5 496.9Financial services 444.0 533.1 617.4 625.4 645.2 706.3Rousing Services 265.4 305.4 335.8 374.4 393.2 407.3Public isdinistration 204.9 235.7 261.2 282.9 333.8 375.9Othtr Services 204.0 254.4 291.5 345.2 400.1 420.3

Gross Dmeotic Product 318.0 383.2 421.2 482.7 564.8 574.5

A/ Prorisioal.hi Includes forestry and fisbing.

ource: lbe Central Bank of Sri Lash.

Tabl 2.,02: aWU RATES air CDP MlD in co3UoUUU, 1970-8 A/(So Million at Constaut 1970 Fector Prices)

19ZD L2Zi L2U6 , 2L2Z 1271 117. L2in LL3 12. 1IU i93 hi LIU h/Sericulture S/ 3,732 3,47 3,894 4,299 4,532 4,622 4,766 5,097 5,231 5,492 5,471 5,947Mli a 95 395 571 515 619 652 684 713 742 800 812 824lhsufacturing 2.197 2,263 2,371 2,357 2,541 2,659 2,68 2,820 2.955 2,979 3,345 3,519Construction 744 649 605 619 79 960 1,066 1,034 1.013 1,023 1.022 1,027Services 6.419 7,833 7 ,9O 8.288 8,91S 9.608 10.378 11,042 11,815 12,606 13,409 14,015Utilities 101 117 122 131 1SS 191 209 234 257 274 292 310Trassport/Cuaicatioue 1,258 1,497 1,425 1,49 1,60t 1,716 1,838 1,957 2,079 2,200 2,424 2,526Cmarcial Services 2,533 2,886 2,928 2,999 3,267 3,551 3,849 4,034 4,275 4,502 4,781 4.977?iusacial Services 152 276 246 295 338 350 402 462 517 575 630 692Ransig Service, 399 463 467 475 499 518 549 579 611 623 635 646Public kdmiaistration 517 729 760 791 854 905 959 997 1,102 1,439 1,583 1,664Otber Services 1,459 1,865 1,962 2.099 2,212 2,378 2,572 2,779 2,974 2,965 2,995 2,84Crocs lPoestic Product 13.187 14.987 15.431 16,078 17,401 18,501 19,575 20,706 21,756 22,844 24,009 25,209

henal Cr.th ate (12)4riculttre £/ 3.8 -2.4 1.2 10.4 5.4 2.0 3.1 6.9 2.6 5.0 -0.4 8.7Wini 8g 18.5 33.9 44.6 -9.8 20.2 5.3 4.9 4.2 4.1 7.8 1.5 1.5Mu ecturing 5.7 4.6 4.8 -0.6 7.8 4.6 0.8 5.2 4.8 0.8 12.3 S.Construction 14.4 -8.8 5.5 -9.6 28.3 20.9 11.0 -3.0 -2.0 1.0 -0.1 0.Seieos 2.8 4.8 1.0 4.7 7.6 7.8 8.0 6.4 7.0 6.7 7.0 3.9utilities 21.0 8.3 4.3 7.4 20.6 20.3 10.0 12.0 9.8 6.6 6.7 6.0Troasport/Cmuications 1.4 2.4 -4.8 5.1 7.3 6.8 7.1 6.5 6.2 5.8 10.2 4.2Cmerci.1 Services 2.4 4.2 1.5 2.4 8.9 8.7 8.4 4.8 6.0 5.3 6.2 4.1Viamuial Serices 3.S 29.6 -10.9 19.9 7.8 10.1 14.9 14.9 11.9 11.2 9.6 9.93msio Services 3.6 1.8 0.9 1.7 5.1 3.8 6.0 5.5 5.5 2.0 2.0 1.5Public &iastration 3.0 6.0 4.3 4.1 8.o 6.0 6.0 4.0 10.5 30.6 10.0 6.4Otber Servites 3.9 5.0 5.2 7.0 5.4 7.5 8.1 8.0 7.0 -0.3 1.0 -5.0Orooe _mestic Product 4.3 2.8 3.0 4.2 S.2 6.3 5.8 5.8 5.1 5.0 5.1 5.0

1. Ire. 13 oawards, cmposts do not add to total because mew constant Price series for 1982-84 with base 1962 bha beau linkedwith old series which is ia comusaut 1970 prices.h/ Pevisiomal./ mlodes forestry Oa fisbi 8.

Sfbr. *be Central leak of Sri Lanka.

ablL 2.03: UIi0IcA.L PROCT SD UPEWDII2S, 1970-85(Rs Million at Current Prices)

1P at Pactor Cost 13,187 25,69 28,032 34.684 40,479 49,782 62.246 79,337 94,679 113,878 140,039 149,415ndiect Tsnes 1es Subsidies 477 886 2,171 1.723 2,186 2.605 4,281 5,668 4,487 7.693 13.669 11,154

GW at Ibket Prices 13,664 26,57? 30,203 36.407 42.665 52.387 66,527 85,005 99,166 121,571 153.708 160,569not Factor leee from Abread -220 -213 -282 -252 -237 -240 -432 -1,868 -1,959 -3.214 -3.401 -3,410GM? at mbaret Prices 13.444 26,364 29,921 36.155 42.428 52,147 66.C95 83,137 97.207 118.357 150,307 1%7,159

Coumption 11,505 24,422 26.012 29,8!6 36,148 45,169 59,084 75,061 87,468 104,834 123,170 139,912Pulic 1,623 2,460 3,021 3,118 *,043 4,798 5,685 6,310 8.242 9,889 11,935 16,762private 9,882 21,642 22.991 26,691 32,105 40.371 53,399 68,751 79,226 9$,945 111.23S 123.150

Grosn Fixed Capital P atien 2,359 3,699 4,595 5,035 8.521 13,246 20.865 23,279 30,207 35.312 39.520 39.88overnenat & Public Enterpitioe 570 1,095 1,631 1,542 3,077 3,09 4.709 4,126 4,866 5,963 7.075 9,tS1

Publie Corportion s/ 451 426 588 861 2,056 2,620 7,553 $,360 )Private 1,338 2,137 2,376 2,632 3,388 6.817 8,583 10,793 )25,341 29,349 32.445 30,097

Chooge in Stacho 2 0 441 301 224 33 281 1,620 331 248 -210 150 225nwerto .f Seeds 6 MS 3.478 7,306 8,773 12,311 14,835 17,640 21,434 253,89 27,148 32.016 44.25 42,078npertos of Coeds & WEY 3,38 9,291 9,478 10.979 16.872 23,969 36.456 39,.58 45,305 50,381 53.417 61,4S4

Cresso 5tiam -wiss i 1,930 1,974 4,003 6,539 6,622 7,732 9,272 11,994 15,232 19,9S4 34,168 24,545Itkarnl COurrt Accont Uslae -659 -2, I -8% 1,260 -1,9"2 -5,795 -13,195 -11,616 15,223 -15,138 -5,S02 -15.528

(Percent of 61P at Current bdet PriLe)

SW (at merit pice) 160.0 100.0 100.0 100.0 100.0 160.0 100.0 100.0 160.0 160.0 160.0 160.0 leEtormI Usseur" (t ipsts of GM) f 3.1 7.5 2.3 -3.7 4.8 12.0 22.5 18.1 18.9 15.1 5.9 12.0total 12eairea Aailable 1- totl ses) 103.1 107.5 102.3 96.3 104.8 112.0 122.S 116.1 118.9 115.1 105.9 112.0

Co.mtie 84.2 91.9 86.1 81.9 84.7 86.2 ".8 88.3 89.2 86.3 60.1 87.1Publia 11.9 9.3 10.0 8.6 9.5 9.2 8.5 7.4 8.3 8.1 7.8 10.4Private 2.3 82.6 76.1 73.3 75.2 77.0 60.3 0.9 79.9 78.2 72.3 76.7

Cross lin Capital Fozostion 17.3 13.9 15.2 13.8 20.0 25.3 31.3 27.4 30.5 29.0 25.7 24.8Coermout 6 Pblic Etoprises 4.2 4.1 5.4 4.2 7.2 7.3 7.1 4.9 4.9 4.! 4.6 6.1Public Corprtio s 3.3 1.6 1.9 2.4 4.8 5.0 11.3 9.8 )Pvate 9.8 8.2 7.9 7.2 7.9 13.0 12.9 12.7 ) 25.6 24.1 21.1 18.7

CbDne in Stotks 1.6 1.7 1.0 0.6 0.1 0.5 2.4 0.4 0.2 -0.2 0.1 0.1

Gros Natiomal Savings / 14.1 7.4 13.2 17.9 15.6 14.8 13.9 14.1 15.4 16.4 22.2 15.3htterol Crrent Accost Dloue S -4.8 -8.1 -3.0 3.5 -4.5 -11.1 -19.8 -13.7 -15.4 -12.5 -3.6 -9.7

Prswisiocal./ Include Dilys, Pots, Ucwber, larcb.. so,Posts ad Teleemuicad ion.. Since 1979, the Parto, earbor, and Varebonso have become

Public Copratiemd ar no lessr included tvner Public nterpri"e.A; atmmo atenmi enterprises.

/ Ilo Oreo Fisd Capital *emutioe plus Cbsae is 8tocks pius fttornal Current Account Balatce.k ternl traseticas daring 1970-77 coevrted to rupe values using PXC rates.

not impgo of SOWd sad non-factor sevices.

Smut: Th Central e.k Of Sri Laom.

.t400 PS J0 .me? tW330 0 t10

i3 £q *t os Pe" *DM fma; "a ttP WM* "t9 PM 'CO-C t@l eoTqa oftMR as IT" so etqea "as VT .3.qmu UT9 "A* a.sp.. *tdiP P qanumm so; iap ow3wa prew tM Sl- .. wt l,ssus UR* £q4 Pia ad el.Ta eu tosog

,@1w etmBG U-0 '"In t PM111It DM to las CT '*61eTTT SCOe0~~~~~~~~~tet6 U, etTTt *o. et' cse: U; .om§ m_ 6Lt Ut * . dfl.e SI, t 19L4X el U'lflWn 11* 01 $038Uu "3q 'v':40 AMOU00r.uo4. (AT jumi $Op- - . Ues wone-i asq p..; aeaa iftwopmes l a.'svple a; U al oqo e.u /3

Uf'WOVVWS 94 '032' 8w9o1 /3*e61 205 SUSd Petae /u

91 CZ 69 6 99 5 E * t CZ fit t9 Z It eW"t-de- 2c St Ct 6tt 6C gOt n0 9 0 t rs t tit ar 12 9g- 6+ lt- 9- 91 9- 19 01+ OP , Ot+ et+ c+ S - * - /f mp-S j4 Itt

TM HF r TF F W+ IF w IF 11 £ LI 7F A

TTu- Cot, V -iF- IF arr- IF WF UF £I# -- iF T. W+ A5 *W1f Tl

1r- Ol" 2 9t+ f- 9t# 9" I - t * 01- Ot- £ - tt- t + A , t 9 'iVPd3*

n11 9t+ 9T+ - - - - - - Ct* op*-,v 9- _ I. 11+ fT1+ - 1- 62- Z* 91- 9+ It 9t+ ("a) U2. aI"

ttl) 91t) 01) ttt) 05) K91) 91 Ct 91 9s 09 t2 St tt *$1e993 ,W*TTddf) ) ) ) ) ) 99 9 n It 9t 6C 92 et 61 _M"

t t t C 1 1 2 - 2 - t I t 2 ,U6o.*i 04*Atad 3ata

ir fti Va 9 7 5 If9 a N m 6C it R RIMEMW

299) Z99) 969) 9Ut) 66t) q St - it t9 ZS 19 St 91t etsgo , tidato9t WI 912 9Ct lIt 9tt O0 2s O S

OLT tSt tit g9t t9t SIt 9T eS 09 es it 2t 11 1t eawso9t it 6C 99 t2 99 69 t t t t 2 t t 3U69109 940AP& A5 *UZO

r49 m1F ii wi ri w i wi wi m11 wi w ar wr U ~) ?'fl~UW Fs RWs t""" rill-III ; W; nq

"m lutd"

HF HF HF W- HF WF IZF wI- R W- wf- "r- W- TF r-ae.w t .aaS TR

92 u2 Ot St 12 9t CT it 6 9 9 S £ I U'UU'UIIOI@Attdo0t 061t t1t act Ot Cl cc Ct it K2 St1, tt Of 1t mom% U?Iu*t_ _ _ 9 _ _ - - I - t - - - Pi" -ON601 t6 Ot Ot 96 6£ Ot e2 t i t K2 9 et it 0Ot ,tg* 30440It 1t Et I 5 I S S9 t *9 9 1 S *ala

99 99 6C 09 9K 9t 6t 62 t t Z t 2 C tOM4 p1eleg09 If 09 it 1t 91 9Z O0 1t tt tt Ct 01 t 91U 5 tU_*ISuU & l

"It t16't Ot6'1 0661 LisI H10alt o0t 666 91 09t 11£ tel 1t9 6t *5t' t *sft oBp..qose

ttt't 7W' t1W! E' ZTI' WI' 7WT II!'! ii ml 3W 17 19 W

a6t 201 96? 609 OCt Ct1 09 61 et el 6 8 I t ODUM33) osoAtsatJ of 19 9 c 419 0O o9 tt t1 £ 9 4 2 t'Jl -I o oit£ U 60t a6 1Ot a6 69 6t 92 It O0 91 91 0t SOOT"a" seqbOtt 21 91t I at 5 S L 9 9 9 s S s *3a3pU'qt )u'a.a.

20t 2Ot 61tt ttt 46 e9 et cc a St 9T 6 9 t1094 ags.aoOt 2£ 69 61 @t 9t 6C 0Z £t St 62 92 9f 61 "U"'t30 9 00'0Pf"A10335 @1t11t 2t9t "Olt 9tO 9SOt not 10 6 9" t91 9C1 M11 ttf £91 6t1t *q@ S0d4 6t ?*Wqoswt

SST S Sw ̂ w ~~~~~~~~~~~gollm m m4) (Ufltsllg * s0)

-88-

Table -. J2: COMPOSITION O EXPORTS. 1970-86(US$ Million)

1970 1971 1972 1973 1974 1975 1976 1977 1978 1979 1980 1981 1982 1983 1984 1985 1986 a/

VAURE ($ Million)

Tea 188 193 194 197 204 274 248 410 411 367 373 .35 305 353 620 442 330

Rubber 74 52 44 92 Ill 93 105 107 130 160 157 150 112 121 130 94 94

Major Coconut Products 40 47 44 22 59 55 44 36 62 83 46 53 48 60 61 88 57Copra (4) (4) (9) (1) t-) (1) (1) (-) (7) (1) (...) (3) (3) (3) (3) (4) (3)Coconut Oil (20) (25) (22) (4) (21) (27) (22) (4) (21) (33) (3) (10) (17) (18) (12) (35) (24)Desiccated Coconut (16) (18) (13) (17) (38) (27) (21) (32) (41) (S0) (42) (40) (28) (38) (46) (49) (30)

Sub-total 302 292 282 311 374 422 397 553 603 610 576 538 465 534 81l 624 481

Otber Exports b/ 40 36 53 98 148 136 171 188 245 369 488 555 566 533 641 709 735of which,

Precious & Semi-precious stones (1) (1) (2) (22) (16) (26) (31) (34) (34) (31) (40) (33) (33) (40) (24) (21) (27)Petroleum Products (5) (4) 12) (20) (52) (50) (48) (64) (59) (124) (189) (175) (158) (114) (129) (143) (84)

TOTAL WEPORTS 342 328 335 409 522 558 568 741 848 979 1.064 1.093 1,031 1.067 1,452 1.333 1.216

(Percent of Total Export Va2ue)

Tea 55.0 58.8 57.9 48.2 39.1 49.1 43.7 55.3 48.5 37.5 35.1 30.6 29.6 33.1 42.7 33.1 27.2

Rnbber 21.6 15.9 13.1 22.5 21.3 16.7 18.5 14.4 15.3 16.3 14.8 13.7 10.9 11.4 8.9 7.1 7.7

Major Coconut Products 11.7 14.3 13.1 5.4 11.3 9.9 7.7 4.9 7.3 8.5 4.3 4.8 4.6 5.6 4.2 6.6 4.7

Sub-total 88.3 89.0 84.2 76.0 71.6 75.6 69.9 74.6 71.2 62.3 54.2 49.1 45.1 50.1 55.8 46.8 39.6

Other lxports b/.7 11.0 15.8 24.0 28.4 24.4 30.1 25.4 28.9 37.7 45.8 50.9 54.9 49.9 44.2 53.2 60.4

TOTAL EKPORTS 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0

VOLUME

Tea (mdllion k}) 208 207 190 206 175 213 200 186 193 188 185 183 181 158 204 198 208

Rubber (million kg) 161 129 130 128 161 137 136 136 138 128 121 133 131 125 126 120 110

Major Coconut Products (c.llion kg) c/ 123 140 180 59 65 114 108 39 71 73 35 56 79 81 46 127 151Copra (million kg) (16) (17) (44) (3) (-) (1) (1) (-) (1) (1) (...) (2) (3) (4) (2) (7) (10)Coconut oil (million kg) (58) (70) (87) (18) (22) (54) (61) (9) (30) (32) (3) (17) (34) (35) (12) (67) (81)Desiccated Coconut (aillion kg) (49) (53) (49) (38) (43) (59) (46) (30) (40) (40) (31) (37) (42) (42) (32) (53) (60)

a/ Provisional.h/ Other exports include coconwt by-products, spices, minor agricultural crops, precious and semi-precious stones, manufactured

goods. dmnerals. and petroleum re-exports.c/ The approzimate conversion ratios for nuts into kilogr ms for major coconut products are as follws: 4.93 nuts = 1 kg of

copras 13.33 nuts 1 8g of coconut oil; and 6.80 nuts - 1 kg of desiccated coconut.

Notet Due to rounding off. e0omponento amy not add up to totals. Data not necessarily consietent vith exports data as compil,4 onpaymnts bsis (Table 3.01).

Sources Adjusted Sri Lanka Customs data as reported by the Central Bank of Sri Lanka.

Table 3.03s 81NLWMCT M-TDUI0IA CM O tSU 1975-86(US8 illion)

1975 1976 1977 1978 1979 1960 1981 19812 1985 1984 1985 MS 5/

Food. t vrage and Tobaeco 5.64 11.17 11.93 16.42 23.60 18.98 22.88 30.20 22.97 25.71 19.66 25.85of licbt Fish and fTlk Products (3.13) (8.8) (9.30) (14.89) (19.75) (14.95) (17.99) (20.79) (17.89) (23.62) (17.25) (22.27)

Textiles sd Wearing Aptal 3.49 6.24 12.70 30.66 71.18 110.45 157.05 168.2? 201.36 297.41 298.04 343.69of vbiei: Gauets (3.30) (8.12) (11.81) (30.39) (70.88) (109.38) (153.68) (165.49) (197.02) (289.26) (382.51) (330.70)

_soential 0o1i 0.96 1.24 1.29 1.63 - - - - - -

Cmicad Products 1.58 1.39 1.06 1.43 3.15 4.25 3.54 10.80 4.89 7 52 12.98 16.26

Petrtlo Products 50.03 60.27 63.74 59.38 123.72 188.86 175.39 157.62 113.99 129.25 142.71 84.15of hicb: Napbhta (8.09) (12.47) (10.53) (9.72) (28.01) (38.71) (29.30) (20.70) (14.61) (17.20) (29.55) (16.95)adkers and Aviation Puel (41.74) (43.77) (42.77) (41.62) (97.56) (119.79) (104.41) (102.03) (79.11) (96.38) (81.02) (61.16)

Fuel Oil (0.20) (4.03) (10.44) (8.04) (8.15) (30.36) (41.64) (34.89) (20.27) (15.66) (27.14) (6.04)

LtAther. Rubber. Wood and Cere cs 3.10 3.73 1.67 4.49 6.42 15.00 14.8 22.03 21.69 33.26 33.60 41.69

Natural Graphite 1.76 1.89 2.20 3.80 4.79 4.82 4.56 2.87 2.59 3.60 4.47 4.30w

mbtallie Ores and Sron Pyriteo 0.96 0.38 - 0.76 3.36 2.09 1.57 2.45 3.01 1.75 3.05 4.39

Ilasito 1.04 1.05 0.57 1.52 O.S3 0.39 0.62 0.76 0.54 1.70 3.05 5.53

Preclous sad Semi-preclous Stone 25.56 30.90 28.92 34.02 31.48 40.17 32.95 32.91 39.97 24.24 20.64 26.95

Other 2.12 0.33 0.45 1.14 1.30 4.36 S.55 8.32 10.01 14.65 24.2 55.10

TOML 96.24 120.79 124.S3 a525 7.g3 390. 7 420.3 4s&n 423.es so." 558.09 "eO@e

gog Gostra eawk of Sr Leaks.

Table 3.04: CoPoSITIN OF ZMORS. 1971-86 A/(US$ Killion)

1971 1972 t973 1974 1975 1976 1977 1976 1979 1980 1981 2962 1983 2964 I Ij96 bI

0(331 00(38 191.6 176.2 222.5 321.5 376.0 204.7 308.6 358.8 501.7 614.4 479.2 414.0 494.7 434.5 525.0 531.3of ubcbs

eood and Drf 154.8 152.8 195.0 2g3.2 357.4 181.3 255.4 263.1 3C7.5 3B7.6 254.1 171.1 228.5 196.0 217.4 197.7Rice 32.9 26.8 42.2 10S.3 150.6 75.9 107.6 44.1 57.2 53.3 51.6 44.4 32.5 7.7 40.1 39.5view 34.7 32.2 70.6 126.9 t42.1 60.7 109.4 145.8 107.0 110.4 1.5 3.0 4.6 1.1 7.6 3.3Refined svr 50s0 41.3 50.2 28.6 35.2 7.6 21.4 32.9 60.1 122.5 146.9 46.6 e4.4 52.9 73.1 56.6NM13 ad .s8 products 7.9 9.5 10.9 10.5 11.6 9.6 11.7 25.4 30.8 32.5 25.1 24.7 41.6 29.5 27.6 29.4nish 12.1 13.7 6.1 7.5 6.2 3.0 2.1 2.1 12.2 17.6 5.3 15.6 ^3.9 24.5 2.6 26.6

Tastiles Cialudia. clotbim*) 17.4 8.0 6.6 6.9 2.8 5.6 27.3 34.0 96.7 104.1 121.3 104.1 115.6 116.9 139.9 130.5Othet Coasius Goods 13.7 10.5 13.1 12.8 5.9 10.6 25.2 49.6 76.9 107.1 93.8 121.7 l3.0 121.6 167.7 16S.1Ibdcidue a pbom.costicel

WodtaX 5.7 6.6 5.6 6.6 9.8 7.0 10.5 11.7 16.2 15.7 10.0 17.1 17.3 19.9 22.0 29.6

_Go 8 G*W 65.4 83.7 127-3 2867 267.8 267.0 320.6 358.6 586.4 936.8 932.6 1 09S 923 933.6 9.-0 707.1

_heat ad moun 5.9 7.3 9.5 17.6 19.3 17.1 17.7 6.7 19.0 34.8 96.1 8.9 99.5 97.1 101.8 97.6Fertlizeer 9.9 10.5 17.3 33.2 29.5 11.7 31.5 16.1 43.2 61.0 62.6 2.9 26.4 40.4 58.1 45.1Pet.1o 4.4 6.3 46.1 136.1 123.7 137.6 160.4 154.1 251.2 489.4 448.4 589.7 468.5 419.9 404.5 230.6C _ls. eloa ata ad

coaPouds 11.1 12.2 16.7 34.9 16.3 10.6 16.3 28.6 32.2 32.9 34.5 35.0 35.4 40.4 33.2 49.3DYeiu p. -s=La colodaS

ntetias 1.9 2.3 1.9 3.3 2.7 3.1 4.5 7.7 9.6 12.3 12.0 11.6 9.4 11.5 10.6 25.2Paper and p.tboozrd 8.1 7.0 6.2 9.8 9.9 6.6 7.4 15.3 25.6 27.6 38.1 32.4 29.2 25.0 37.1 39.0

D9:= Wm 70.7 73. 70.6 0.7 9-6 76.0 82.6 215.9 520.54 413.5 . 169 476.4 382.4 358-5 6

9adiding aetozials 19.9 20.2 16.7 22.1 24.0 12.3 9.8 9.6 23.6 36.9 27.3 26.6 50.0 26.6 33.1 32.6Y'eas,ett eiwofpmmt 12.6 17.6 14.8 13.7 16.4 20.7 7.3 63.3 103.7 146.5 115.9 265.? 262.6 119.2 92.0 50.9Sbcbiooq sd piA-t 33.7 30.2 35.0 27.5 45.7 43.0 37.0 118.4 186.2 254.7 201.5 190.5 23.6 209.7 175.6 10.3

iuu.asumu DQ0RU 7.2 9.2 L4 5.9 6.4 6.4 9.6 7.6 8.6 7.1 6.9 4.8 4.9 22.4 100.6 220-3

IVZAL ago= 334.9 3441 424.3 6668 744.6 554.1 721.4 940.9 1.447.2 2.052.8 1.832.2 2.015.4 1.S36.1 1.060.9 1,948.1 1.7972

15RT Of TOTAL MOatSIk.ai Itm

AL. omamer Goods 57.2 51.6 52.4 46.9 50.5 36.9 42.8 38.1 34.7 29.9 26.2 20.5 25.6 23.2 26.9 29.63. Int.mdieto goods 19.5 24.3 30-0 42.2 36.0 4S.2 44.4 38.1 40.5 45.7 50.9 51.6 47.7 49.9 48.3 43.6C. Invootasat Good 21.1 21.2 16.6 10.0 12.4 13.7 11.4 22.9 24.2 24.2 22.6 27.6 26.5 25.6 19.6 19.9D. good sd rtak 46.2 44.4 46.0 42.8 U.O 32.7 35.4 28.0 21.3 18.9 13.9 6.5 11.8 10.5 11.2 11.0B. Food. Wettllaet mad

lectom 50.5 49.3 60.9 67.5 6.6 59.7 62.0 46.1 41.6 46.6 41.6 39.0 37.4 35.3 34.9 26.4P. Mpott oetbw tha u 49.5 50.7 39.1 32.5 31.4 40.3 36.0 53.9 58.4 53.4 58.2 61.0 62.6 64.7 65.1 73.6

/amd an oustams data ad. thWefore. not aooeo.sely clezdstat with balatce of peysets date in table 3.01.Prow lid.

notes 1ue to rtoaqdi off. coapooeats sM not a"d M to totals.

s AdJusted 3 d La&e 0-tmo data as tepoettd by the Centra sa of Rd %mr&&.

-92-xikAs..L&F AID I IND:1hT. 1970-86

(US$ ul.

Inn DU all WI 2i*4 LIn M 17 ff 1 AM 1i 3 13 lI 11 1

*uuttelia - 2.1 2.1 0.4 7.8 6.1 2.0 1.6 7.3 3.7 2.1 8.6 6.1 4.4 4.3 t .0

3dgsia - - - - - - - - 1.6 0.? 0.8 - -

CO"ad 4.9 8.7 4.6 9.7 3.2 19.3 12.4 16.6 27.3 10.4 71.3 30.8 12.6 20.7 33.9 6.2 0.1

Denmark - - 2.8 - - 3.7 - 0.3 - 3.8 - 2.3 0.4 6.1 . 6.7

33 1.S - - 1.4 7.4 6.5 5.4 6.9 6.7 9.5 10.2 27.8 6.7 - 26.0 6.3 4.0

tinftlnd W - - - - 1.0 0.8 3.6 * . .2 7.7 7.2

trance 0.3 6,5 0.7 6.4 7.2 6.2 7.7 6.5 1.0 28.4 17.5 25.6 19.0 - 19.0 11.6 10.2

G*tnan 0.9 3.9 1.3 18.1I 16.8 29.7 6.4 3.3 23.0 30.8 17.6 186.6 6.0 10.1 3.6 3.3 102.9

India - ~~~~~~7.2 7.9 0.6 11.0 7.8 8.0 12.4 12.4 . 12.7 I - -

Italy - ~~~~ ~~1.3 - - 1.4 - - 0.7 - - - - 1.1 - - -

Japan 0.1 8.3 11.4 14.0 14.7 16.6 16.7 23.6 66.6 36.1 100.6 96.7 33.7 30.0 70.6 113.5 160.6

Notbarisnde - - - - 9.5 11.3 !'.O0 is.? 13.4 41.3 16.4 11.9 14.3 9.3 11.7 1S34

Nognup k/ - - .. - - - - Lu~~~~~~~~~2. 6.2 9.1 9.1 6.7 10.2 9.4 10.1 104$ 11.3

beden - ~~~~ ~~1.6 - 2.5 10.8 12.6 13.5 16.6 19.1 20.6 24.1 22.7 23.8 26.7 33.2 34.9 25.9

biberland - ~~~~0.2 0.2 0.1 - - - 0.3 - 16.1 0.9 - - 0.9 - 6.4 -

UnAted Ktingie 9.3 16.0 0.1 4.6 6.3 7.4 3.7 23.9 41.1 2tM. 1 '7.1 - - - 21.5 29.1 46.3

United Stat.., 15.3 17.2 14.7 7.0 3.2 37.4 67.4 14.0 76.9 51.4 66.3 70.3 63.2 88 866 107.0 37.4 46.8of aWoab: am8 (1.3) (1.6) (1.3) (1.1) (3.2) (4.9) (3.3) (3.0) (3.5) (3.4) (7.6) (6.1) (5.)) (3.4) (7.0) (3.6) (3.3)

helen Deaolopuent soak 6.3 7.8 9.3 2.8 2.5 30.0 - 22.6 20.2 36.9 33.0 30.5 43.6 47.6 14.3 98.9 26.9

UW Group 0.3 4.6 0.6 6.6 12.6 22.3 19.6 13.1 6.4 10.1 13.4 14.2 10.7 16.7 11.6 24.1 21.7of vbeich VIP (0.2) (1.7) (0.6) (0.4) (1.3) (12.43 (16.4) (0.9) (0.8) (2.7) (1.6) (1.3) (2.6) (4.0) (2.3) (8.J) (6.9)

VAG H- C-) (-) C -) C- (-) (0.8) (2.2) (0.8) (14) C-) C-) C-) (-) C-) (1.1) (1.0)

World Bank Growp - j~ 2 S ~ J M.Aa -nnn 111 MA.~ HUj -.iiL -VAL 111 LOASob-total Aid Group 68.0 8.4 48.3 87.5 112.5 349.7 178.1 22V. 577.6 567.6 569.6 737.3 428.0 340.8 437.0 546.6 628.7

centrally PlanneIcond.ai 24.2 38.2 84.6 -37.2 60.2 3.5 4.1 10.4 - 32.7 - - - - - -

116A - - - - - - - 12.0 - - 1A.S 13.6 14.1 - - 8.3

Ewavit fund - - - - 25.3 0.3 - - - 2.1 - 43,0 - - - -

Iran - - - - 32.0 - - - - - - - - -

OPEC lund - - - .1 3.2 - - 6.0 14.0 11.0 - -

Saudi Fund - - - - 6.7 - - - 1.0I/ - 50.0 - - 24.2 24.2 -

VAt 12.0 - 3.2 - - - - - - - - - -

Libya - - - 15.0 - 0.1 - - -- - -

Others (I/- .-9,j J2.7 0~ 0.j .1_ 66 a/&- -

Sub-total Yon-Aid Group 24.3 38.2 64.6 49.3 127.1 20.1 22.4 22.3 1.1 47.4 78.3 69.6 14.1 24.2 24.2 6.3

TomA coS@yT8 jW MAj j132 87.3 Mj 1 Sjl 249. MI 001 MA4. 657.0 3j4 WAZ WlA II M"4 lS MAn

SI hnanse cobintem of 1. 4. 13. is, 43 and 50 mllIe. wspectively during 198 thwoug 1963.k~Afiflui emwibitat of 13. 13. 32. 40. 45. 50 snd 63 .1111.. reepectiwoly'during 19) tbrovoh 1986 and Nkr.65 aillion

each yeou during 190 throug 1963. An additional goomibant of Atv. 43 millio (US7.0 nillion) wo sod. dnri.g 198tor Rural D.eowdmot Projet. Sumbetote Pietriet. witb aftnual ell*ttios of ohr. 12 .1111.. (1962). Uhr. 12 mUillen*(198) and Wk. 13 aillie. each yer duting 19S4 through 1986 including th ecary ftowad balance, of 1kv. 24 mtillicef rom pVieLa yeer'e comminat.

jq/ beuding the debt caneelleti.. of UsS5.7 millie../ awlndiag the loomings ourete. Lean an" M Loan of US$1 and US$2 mille.. reepe.tivelp.a/ 4.10.0 relif aoaietmno.

a/ bludig the, telleAing c 'tmetee lur..curresy Leem of US$30 aihlO in 1979luoerec oom of US$75 milton in 1981

kzetnro e. Leew of US$100 .1111 in 198b anis lo er,Crt for Romal. Project. Mrt. 256.2 willie. tn 1980.nufaoetnor'. ifaewe Trust awnparq Loam for Victor"a Prjet. L 20 millie. in SM8.

Japanes To en oad.mentiag to too 3.000 mihlco in 1986.j t InludingIaq eE a" N&i4 leon of $5.3 million.beludiag - snrgmay "itahoE setose. US$12.0 millie..

Boo amertmnet Of bteonaa eseeure. Sadetny Of inence and Pleaning.

-93-

table 3 AI D9 DIUUI I8,m 19708-6(8 aillion)

WI WIt 19n WI i 1976 19 t77 tW9 WI WIU WI WA WI WI DR

Atridis 0.9 1.0 1.1 2.2 4.2 8.3 2.0 1.7 1. 2.9 4.2 6.6 9.1 4.5 7.0 0.7 0.1

Felgtaz - - - - - - - - - - - - 0.°20 0.9 0.9 0.7

Canada 8.4 5.5 5.6 3.7 3.1 11.5 11.5 14.7 14.0 14.6 27.8 28.9 28.7 34.5 51.2 22.8 19.6

DePaurk 1.2 0.4 0.2 2.1 0.7 0.2 0.6 0.3 0.9 0.5 3.5 2.5 2.9 1.1 0.2 0.4 0.0

3C 1.2 - - t.4 2.2 13.1 0.6 6.2 3.0 4.4 0.3 16.0 11.4 t113 14.4 12.1 5.6

ittnand - - - - - - - - - - 0.6 2.4 4.4 5.5 5.3 5.9 11.4

Prance 4.6 2.9 5.6 5.3 3.2 7.1 11.2 3.4 4.5 7.1 5.3 18.5 10.7 13.9 8.6 12.4 9,4

GOea 3.3 2.3 4.3 9.3 17.7 12.3 8.7 11.5 28.2 24.2 13.4 5.8 18.3 49.0 44.0 47.3 63.5

India 4.8 2.9 2.4 2.3 3.9 2.4 4.7 6.2 15.0 9.5 9.1 1.5 3.1 6.6 0.4 0.1 0.2

Italy 1.r 0.9 1.8 0.3 0.3 1.3 - 0.7 - - - - - 1.1 - - -

Japan 5.t 7.6 5.5 9.2 9.2 18.1 11.3 17.2 38.1 37.9 37.7 49.9 50.1 54.2 61.9 86.2 118.2

Ittbarleada - - - - - 3.3 4.3 9.6 28.3 19.8 t1.3 42.4 15.5 13.9 25.9 15.7 10.5

Noru - - - - - - 1.1 5U. 8.3 12.3 16.7 11.8 4.7 11.2 8.7 8.9

soe. Wk/ - 1.6 - 2.4 3.5 8.6 6C8 9.4 7.4 34.4 22.8 22.1 21.1 26.4 31.3 34.2 23.8

Sutmeunrlad - - - - - - - - 0.1 0.6 - 6.9 4.2 4.6 2.9

United Xulgd S- 10.3 16.1 7.4 4.6 3.0 4.7 7.4 2.7 8.9 19.1 63.0 43.6 32.6 36.3 28.7 6.5 1.5

UrAIted States 9.9 10.9 25.6 8.5 8.4 26.6 32.7 40.6 39.9 46.2 61.2 37.8 61.7 4/ 06.6 S/ .2 95 7 54.1

of wItch CARS (1.3) (1.8) (1.5) (1.1) (3.2) (4.9) (5.5) (5.0) (5.) (5.4) (7.8) (6.1) (5.9) 0.4) 07.0) (5.6) (3.3)

Aidan D.elopmeat B3k 1.5 2.8 4.0 3.8 3.0 5.0 8.2 7.7 28.2 10.3 5.3 10.2 18.0 18.8 37.1 50.9 41.0

UN rvow 0.3 2.3 0.9 0.6 2.6 19.1 16 6 15.1 6.4 12.0 13.4 12.2 12.8 6.7 11.8 24.1 21.8

at wIteb W1P (0.2) (1.7) (0.6) (0.4) ;1.5) (6.9) (13.3) (6.9) (0.8) (2.7) (1.6) (1.5) (2.8) (4.0) (2.3) (8.7) (6.9)

TAO - (-) H -) (-) (-) (-) (t.9) (2.2) (0.8) (.3-3 (-) (-) (-) (-) (-) 0t.1) (1.0)

World 5an* areu t19 7.5 5.8L 10.5 1t8.7 I j4 1.9U U.83 S 20.2 2.0A -A9 4.7I 1AI DA tE

sub-totl 4 Greop 55.1 64.7 70.2 66.2 82.6 160.3 133.0 162.0 240.8 265.4 ".1.5 335.7 392. 447.1 5U1.4 482.3 4U9.3

cantrally Planned 0 . .

SeCotr ania 8.8 35.0 13.2 1.2 39.1 3.9 14.9 12.3 5.4 0.8 0.t 16.8 5.4 4.0 1.8 1.7 _

WrAD - - - . - - - - - - - 2.7 3.4 2.0 1.6 3.2 $.1 5.8

Korat Fund - - - - 9.6 5.3 3.9- 1.7 4.7 3.1 1.2 - - 1.2 10.1

OP3 lurAt - - - - - 8.0 1.0 - 1.4 9.6 5.5 3.0 4.0 3.1 2.1

SWudi lnd - - - - - 6.7 - - - - - - - 3.0 7.7 7.9 5.5

Otb rj / -aI1LiWiLIiy 0il 2A .Li/ .U _&A LZ _. 0.I 0.3

Sub-total ou-Ai Group 8.6 15.0 13.2 1.2 29.1 45.1 37.1 41.7 10.4 2.7 14.4 34.0 15.7 9.3 18.0 19.2 33.8

i 81u8O 6.9 99.7 83 4 67.4 Ullt7 20 170.1 HUL3.7 268.1 325.9 7 30 240 42.4 23L4 I.0

gt olaudea P$1.3 ialicn dtaburd uldat ao0 lan aM .".0.4 (Trance) on for NI V ttor Suptpy Pro ect.g 1 ludo USt2.92. 11.8 avO 11.2 1Ul11n d&Lbweed under Sadioab pert t trdt for Zotle ProJctt rtpcive1y in 19B2 1983 e 19.

g; lud 0610.1 aillieo in 19in an s 1 8.0 million in 1984 diburd undr auatr's le er T t C (0 l or ictorPrejet.

t Ibude U014.43 ailliOm dibured under WSaon Brothtem mncorporanion (PM8 loan for low coat oueins porps_.1 lud1 Ptv6.18 allione diau under Sameoa Irotbara Icopeatieo (USA) l"a for low Cot lousat Pre_e./ lud*o the folletl lene: I te l t y loan ot 1U0 militee disbursed eI i980

am Oouraee loan of 00675 aMIia diaburea tn 1981ure-curre leca of US100 mailie Of wIeb US$0. 25 and $5 dillion We diab"rCd respectively in 198

1986 and 1984.Japee tea so4n oft yu 3.000 illion (*2.14 illiton) diebrd in December 19MI.

1nclu'do irsn loane of usP2.0 aielan.Iacudge covertiblo -urrm leo of t012.0 otiien.

it Incluel Lbyae loouef pt065.O milioe.repraaat ttb irt loan .or ain ank4i#.

~, 8apargnt of Uterna. ieouree. lalst.y of Flame and S inonaus.

-94-Table 3.07t aVLL AID P2PILI. 1965-8

us million)

MahnOOlitdon-Nah.li (Accalerated) Of which:

proist .. o. ect . . 0ui131 !Ei dottul Non-mahavei

Udiaburse alane, 12/31/64 646.3 423.5 108.9 35.1 1,413,8 990.3New C0smtenta 1985 452.1 31.6 48.0 38.0 569.7 536.1Total Disburements 1985 236.9 16.7 55.8 41.0 501.2 334.5

Uadiaburees salance 12/33/65 1,016.1 / 280.4 100.9 k/ 31.3 1.438.7 S/ 1,150.3 £/New Coatmesto 19" 445.6 120.0 44.4 27.3 637.5 517.5Disburements ftrm Post C4maitmiata 270.9 5839 50.6 35.2 410.6 356.9Disbur_aeto from Now Osdtments 45.5 70.3 3.1 12.6 131.5 61.2Total Disbursant, 196 (Proviiol) 316.4 124.2 55.9 47.8 542.3 418.1

Undisburtd Balance 12/31/66 1,107.7 A/ 28.9 i/ 91.4 j/ 10.6 1,492.68 j 1,209.9Nv -C4iluta 1967 493.2 26.7 67.0 36.2 645.1 618.4Disbursements tre Pent Cinitaenca 262.0 53.2 33.6 14.5 363.3 310 1Diabu:amsnto er NeW Comitments 61.6 35.0 29.8 19.7 146.1 111.1Total Diaburs_eto 1987 323.6 66.2 63.4 34.2 509.4 421.2

Undiabursed anoe 12/31/87 1.277.3 221.4 115.0 14.8 1,628.5 1,407.1

*/ The follwing undisbuwod bdances wore tveted Ss laoed en December 31. 1985. Udew Non-Mabhwali Project Aid.

U.K. Oraent 1977 ad 1978 9.31*P.R.-Cina 1972 Derlopnet Loa At00 t ) 28.20Jpan OCADS It Tolacomuic a'ion Project 0.13Jopan Maritime Tranpot.tation 0.07USAID A4ricultural la" Mapping Project 0.47USAD Paddy Storpe and Procesaing Project 0.065US=AD Rice Reearcb Prect 0.065Us=D Waleria Control Project 0.50 (Canellation)USAID Hater Hanegmet Project 2.00 (Cancellation)USuD Jaffea Naukot Two Water Supply Project 256 (CacVlloatio)

W437

*Represenst the blancet accimuloted appareatly due to variation in exchange cooercion rates forUS Dollr ad the round Sterling.

k/ The follaing undisburtsd blance. wore treated as loped on December 31S 1985, undr Coemodity Aid.

$ Ifillion

Japan Debt Relief Grants 191 and 19I8 0.20

c/ A total of 843.7 million use canelled as por tootnote. (a) and (b) aboe.

d/ The follwing amounta bae ben canceled during 196. under on-Mahowali Projects

*- million

IDA Tea Reasbiliation (1240) 6.73IDA Water Supply 12 (1041) 8.04tDA laheli it (701) 7.69IDA Tree Crops Rehabilitation (616) 4.91IDA Road Maintntce (900) 1.55IDA ball nd Madiu. Industry 2 (942) 0.92IDA Rub,er Rehabilitation (1017) 4.00DID Poser Vi2t. (2167 CB)

_/ The following undiabursed balance boa beon canctled during 1986, under Aceoerated Nshmali.

IDA Maboweli Technical Assistace (979) 1.30.V/ A total of USS 41.1 million vw cancelled a par footnotes (4) and te)

$eurc Department of etomnal Resources, ministry of Iinance and Planing.

-95-

Table 3.0LSS CMOODITY PRICE PROJECTIONS, 1987-93(Ratio of the 198 US$ Projec+ted Price to the Current Price)

198M 1987 1988 1989 1990 1991 1992 1993 1994 1995(Actual) --------- -- ojected---- …- - ---

Pricee of Nsporto

Too 1.00 1.11 1.24 1.32 1.36 1.40 1.45 1.49 1.54 1.59

Rubber 1.00 1.03 1.09 1.16 1.22 1.29 1.38 1.46 1.55 1.64

Coecout 1.00 1.11 1.35 1.53 1.74 1.87 1.99 2.13 2.28 2.43

Petroleum 1.00 1.18 1.32 1.32 1.32 1.41 1.51 1.61 1.72 1.84

Gaments a/ 1.00 1.01 1.08 1.12 1.09 1.11 1.14 1.17 1.19 1.22

Other. ./ 1.00 1.01 1.08 1.12 1.09 1.1l 1.14 1.17 1.19 1.22

Prices of Imports

Food Products 1.00 0.89 0.94 1.00 1.06 1.09 1.12 1.16 1.19 1.23

Petroleum 1.00 1.18 1.32 1.32 1.32 1.41 1.51 1.61 1.12 1.84

Investment and InvestamntGoods a/ 1.00 1.01 1.08 1.12 1.09 1.11 1.14 1.17 1.19 1.22

a/ Manufacturing Unit Value Index (muv)

Source: Bank staff estimates, (Economic Projections Department).

Table 4.01: EXTERNAL DEBT OUTSTAMDNG. BY TYPE OF DEXTOR. 1980-86 aJ(US$ Million)

Category 1980 1981 1982 1983 1984 1985 1986

A. Central GovernmentDisbursed 1,286.1 1,497.1 1,674.2 1,880.5 2,062.1 2,498.5 3,046.0Undisbursed 999.3 1,4S8.9 1,669.0 1,430.4 1,275.3 1,423.4 1.604.2Total 2,285.4 2,956.0 3,343.2 3.310.9 3.337.4 3.921.9 4,650.2

B. Public Corporations b/Disbutsed 29.8 118.0 283.2 332.5 348.8 336.9 287.3Undisbursed 31.4 122.0 64.5 36.1 43.2 2.5 22.0Total 61.2 240.0 347.7 368.6 392.0 339.4 30i.3

C. Private Sector with GovernmentGuarantee

Disbursed 6.6 6.2 4.1 3.1 3.7 15.4 78.5Undisbursed 0.3 - - - 46.3 46.2 30.0Total 6.9 6.2 4.1 3.1 50.0 61.6 108.5

Public and Publicly GuaranteedDebt (A+8+C)Disbursed 1,322.6 1,621.3 1,961.5 2,216.1 2.414.6 2.850.8 3.411.8Undisbursed 1,030.9 1.580.9 1,733.5 1,466.5 1.364.8 1.47i 1 1,656.2Total 2.353.5 3.202.2 3.695.0 3,682.6 3,779.4 4,322.9 5,068.0

D. Private Sector without GovernmentGuarantee c/

Disbursed 4.7 4.1 2.5 2.0 44.7 102.4 96.5UnDdsbursed 0.1 0.3 0.5 - 68.3 30.8 24.0Total 4.8 4.4 3.0 2.0 113.0 133.2 120.5

TOTAL EXTERNAL DEBT (A+B+C+D)Disbursed 1.327.3 1,625.4 1,964.0 2,218.1 2,459.3 2,953.2 3.508.3Undisbursed 1,031.0 1,581.2 1,734.0 1,466.5 1.433.1 1,502.9 1,680.2Total 2.358.3 3.206.6 3,698.0 3.684.6 3.892.4 4,456.1 5,188.5

a/ External debt with an original maturity of one year or more. including debt repayable inlocal currency.

b/ Figures for 1984-1986 include IBRD loans serviced by the Development Finance Corporationof Ceylon and the Ceylon Electricity Board.

c/ Non-guaranteed private sectoz foreign borrowings approved by the Exchange Control Departmentare included in the figures for 1984. 1985. and 1986.

Note: End-year exchange rates were used for conversions.

Source: Department of Public Debt. Central Bank of Sri Lanka.

Table 4.02: mETAL DEBT OUTSTMIDING BY TNPB OF CR ITOR, 1980-86 a/(US$ illion)

Categonr 1980 1981 1982 1983 1984 1985 1986

A. Public and Publicly Guaranteed DebtDisbursed 1.322.6 1,621.3 1,961.5 2.216.1 2,414.6 2,850.8 3,411.8Undisbursd 1.030.9 1.580.9 1.733.5 1,466.5 1,364.8 1,472.1 1,656.2Total 2.353.S 3,202.2 3,695.0 3.682.6 3,779.4 4,322.9 5.068.0

Loan frm Comercial Organizations:Disbursed 72.3 239.8 474.0 565.7 588.0 610.0 644.6Undisbursed 31.1 207.2 196.2 112.5 135.0 92.9 106.9Total 103.4 472.0 670.5 678.2 723.0 702.9 751.5

suppliers, CreditesDisbursed 42.0 50.2 44.2 33.6 21.7 20.1 18.4Undisbursed 0.5 8.6 -Total 42.5 58.8 44.2 33.6 21.7 20.1 18.4

Loan from InternationalOrganizations: b/

Disbursed 318.6 370.6 435.8 514.2 654.9 755.1 879.1Undisbureed 349.0 612.5 653.9 686.8 590.0 766.5 842.4Total 667.6 983.1 1.089.7 1.201.0 1.244.9 1.521.6 1,721.5

Loans from GovernmentsDisbured 889.7 960.7 1,007.0 1,102.8 1,150.0 1.465.6 1,869.7Undiabured 650.3 752.6 883.4 667.1 639.9 612.8 706.9Total 1.540.0 1,713.3 1,890.4 1.769.9 1.789.9 2,078.4 2.576.6

B. Private lU.-Guaranted Debt c/Disbursed 4.7 4.1 2.5 2.0 44.7 102.4 36.5Vadisbursed 0.1 0.3 0.5 - 68.3 30.8 24.0Total .4.8 4.4 3.0 2.0 113.0 133.2 120.5

TOTL 8TWL DEBT (A4B)Disbursed 1,327.3 1,625.4 1,964.0 2,218.1 2,459.3 2,953.2 3,508.3Vndisbursed 1,031.0 1.S81.2 1.734.0 1.466.5 1,433.1 1,502.9 1.680.2Total 2,358.3 3,206.6 3,698.0 3,684.6 3,892.4 4,456.1 5,188.5

a/ Vtorl debt with an originl maturity of OD. year or more. including debt repayable in local curreac.ligrsts for 1984-1986 inlule IBRD lano serviced b the Devaloment Finence Corporation ofCeylon and the Ceaylon lectricity Board.Eon-guarateed pvate seetor foreign borrmuin approwed by the fchange zon trco Departmetare ineluded in the figues for 1984. 1985, and 1986.

vote: End-year ehang rates were used for conersions frm MW to 1g$.

Source: Department of Public Debt. Central Bank of Sri Lanka.

-98-

2kk aLLa& amiuz OAIIVCA3U 4Si_ owimmt 3WI3 978-1987(Re WUba)

10*a uo 11.145 12.306 13.124 HOW947 16.320 23. t16 32.556 34.S$ 36.002 37,732 4t1.16

I. TMa lel_ 10.314 1101 U5 1359 13.*6 14.750 19.613 28.465 28.498 30.274 30.30 35.2541.1 ae aotop tbade 6.476 6.529 6.317 8.519 S.77 7.438 13.00 10.90 9.51 10. 75 1os .8e0

Repasts 4.746 4.391 3.740 3.771 3.034 31391 6.41t 2.905 20033 1t605 1.740lee (2.781) (2.495) (1.920) (1O79) (1.444) (1 390) (1.768) (1.182) (910) (870) (895)A Vd Yalosa- (510) (223) (102) (86) (150) (902) (36.36) (1.032) (230) (50) (60)

habbe (100) (1.239) (1.386) (1.433) (753) (02) (1.009) (54) (490) (38O) (520)C_out (345) (335) (Ito) (241) (191) (341) (288) (342) (8) (190) (140)Otbet Iaer" (109) (99) (114) (132) (96) (76) (102) (95 (115) (115) (12)

swt"e 1401 2.131 3.576 2.725 2.742 4,047 6.684 7.998 7.4tO 9.570 11.146b Veoaua temt 1.469 2.271 2.924 3.225 3.222 4,06 7l9t5 D,3956 808D 9,970 11.540Lows " Sobato (48) (-140) (-348) (-500) (-479) (-789) (-1.261) (-398) (400) (-600) (-400)edito iE Wuo Sig 7 1 23 I

1.3 lus ea _iante cowd 4 seo.6eo 2.452 2.879 3,416 4*771 6*174 6.522 10.694 1.n913 14.871 14.189 1U.916Iamoet b, 1.07$ 1195 1,640 2.Sa9 i,032 6.224 $8145 9.951 10.340 9,995 10,70

aDestvtl (814) (4S) (LOSS) 1.728) (806) (.718) (3.045) (3.*619) (414,) (1) (31.895)- Tbade.e so *wo A dfefoesel (244) (530) (508) (1.101) (1.324) (.891) (1.928) (2.482) (2.360) (2.550) (27s0)

l,ons - - - - (722) (1.615) (3.170) (3.031) (.855) (3.915) (4t140)8.1ectlte S4le s t1374 1.484 1,776 t1.9 2123 a.l9 2.551 2.598 4,511 4.196 5,131

UqWa (555) (498) (60) (749) (80S) (657) (1.013) (1,104) (1.370) (1.370) 1 750),=b*M (759) (801) (1,000) (1,1U) (1315) (1,431) (1.530) (1.8) (3140) (S.85) (3.38o)Otbe (60) (385) (1) (70) - - (1) (t) (t) (t) (1)

1.3 ""meTo 74 87 82 f f145 188 194 18 228 2401.4 Twes to omsd Psoftita t.102 1.357 2.086 2.029 2.923 3.2647 5480 5.81" 5.40 4.735 so t0

0O.eo (718) (971) (1.708) (1.459) (S.115) (2.476) (3.720) (4.162) (4.000) (3*320) (3.420Nos-CooSt (384) (38) (378) (570) (808) (891) (1.760) (1.682) (1.405) (1.415) (t1603)

1. tongante optay T"WOtS t46 Ill 210 t2t 25 336 407 388 475 437 1.5131.6 me OW6Cap Talwle 63 52 4S 61 65 61 82 Ill 35 59 50

to lt (45) (15) (14) (24) (23) (17) (23) (41) (7) (23) (15)Usstb TM (25) (23) (18) (24) (29) (32) (45) (48) (22) (27) (27)060 TaM (5) (5) (6) (8r (8) (a) (t1) (9) (1) (6) (3)

;th. (12) (11) (10) (5) (5) (4) (3) (13) (5) (3) (5)1.7 UnIleoable To Rasos (1o boelt) - - - - (-191) (-299) (-1.489) (-t1849) (-250) (-250) (-450)

2. roe-To PA"m 678 06$ as? t1065 1.453 3.526 3.554 5.792 5.034 5.476 4.8072.1 ftqerw room, 317 445 476 584 777 2.606 2.530 3.926 $.469 3.910 4.025

Rweus of trauma btoqisbe (106) (157) (160) (262) (327) (356) (692) (66) (944) (818) (1.098)taoS (15) (26) (36) (51) (41) (164) (49. (123) (t20) (115) (112)late"t () (173) (t2) (168) (243) (492) (1.075) (2.230) (1.430) (1.605) (1.536)joas .tbiot Dabs laterest (ill) - - - - - - -t.263 -1.044 -745 -450 -482

pseito 4 Obdsea (104) (69) (134) (S) (140) (I8t) (559) (465) (943) J763) (73)Lege foetom Spedal L - - - - - -10 -249 (-231) (-589) (409) (-770atslt btit raoe - - - - - (1.500) (1.650) (1.500) (1.350) (1.779) (1.750)etloa Lett a (19) (20) (19) (t8) (1) (16) (17) (17) (16) (9) (9)

2.38 ee6t amSewfl nt C butiet so 52 5t 60 71 71 84 89 90 90 952.3 oea-Induteal Bal 124 63 102 119 2n 158 179 475 184 1a 1972.4 teasdad Ad6statbve i sge 66 98 105 147 181 202 265 364 376 335 3532.3 tlhs 21 51 47 n 49 55 79 372 100 124 1252.60the Cana gSalaoe * Receipbt 100 99 76 as 98 304 417 566 S15 8S5 1*012

Oter anes ?asefers (50) (55) (57) (70) (9 (200) (209) (13) (226) (226) (16)Net PrOlito fs Adweese Acsat (50) (44) (19) (13) - (1) (9) (322) - - (225)

uslemo Specal. LO - - - - - (103) (249) (23t) (589) (609) (771)

3. Cegtoi e, 153 1ts15 10 tg 117 158 539 267 695 1*873 4553.1 s of dcahtal GOod (4) (5) ( (14) (20) (9) (13) (15) (20) (20) (20)3.t U t of Las am ""me" (94) (70) (101) (172) (97) (149) (526) (252) (675) (500) (435)3.3 Other - - - - - - - - -

3.4 Sale of God (55) (1U8)

,U Otv4 5f Leas

-99-

Z*ila.1A 11800 0811UW - DUAtIW TSULI 197S8-87(Re IUliea)

WA~~W 111 11 1 129 119 129 113 11 LW 1IIAppd 3.6d4 led

1. eas. (ueasp Date) 11.667 12.730 14.068 16.328 17.808 25.310 37.731 39.010 39.00 40.488 44.113tt.. ova" n".pts of frdian lhto wi9s -579 -711 -757 -1.044 -1,145 -1.310 -1.853 -1.828 -3.43S -2.075 -3.345*A I Ooatite Deplno .106 +157 .160 *+s27 +37 .356 4692 64 .94 *10 .1.098Leess lpots "llS O&to -68 -140 -348 -500 -479 -789 -1.217 -_30 6480 -600 -400

ftbaudl -t- -191 -29 -1.489 -1.949 -250 -230 -450in Imtfotmt t_oom 1.263 -1.04 -745 -430 -482

Ib.. ortt bosemo c u191.estiem 11.146 s 2.036 13.123 1.94 16.520 25.168s 32.557 34.557 36.003 37.731 41.514Los Leow mpaerpmi -94 -70 -101 -172 .96 -149 -526 -253 47S -J00 -33.1 hSM thtP oa V_oJm 11.053 11.934 13.023 14,774 16.224 75,019 32.03t 34.305 35.338 37.251 43.081

2. Dntemt Depe8tse (bee"mqste) 10,408 11,502 13.249 16.005 20,110 33.,95 2s,92s 33,843 '57,000 58469" 7 9000&*.. eas 7_e et bod1w uteo -558 -706 -811 -975 -1.205 -1.447 -1.013 -1.349 -1.687 -3.60 -1.709Ad I Opntt e+ 46 btes- ese .85 +153 +2U1 +194 +387 493 4453 +87 *t1S 4U0 +442town Ctal It 1 t oe. -142 -181 -233 -233 -264 -537 -413 -117 -V7 -378 -t16A46 i 4u t It . te C*tl Vte * 9116 * 26 +155 +14 1ts +401 *3.800 93 2733 *.926Los tt ede. - - - - - - - - -1.,4 -J597 -1,919

Jaanr Daty Rebeto -48 -140 -348 -500 -479 -719 -1.361 -398 -60 -e0 -400_m i w5 - - - - -191 -299 -1.489 -1.069 -350 -250 -450

J4 tttS as - - - - - - -1,263 -1t04 -74 4650 -4832.1 emes b_mdtue Lot lessee. -vtotieml 6.alficatiou (ltweet eete 1.) 9.841 10,8t5 1MMt9 14,646 6L544 21.599 33.84t 53.078 33777s 35074 37.242

S. Coital _eadto (tsa at) 6,614 8,991 13,854 t3,373 10.68 31.733 21.750 30,539 MISS 34,S9 33.000Laot PU4t bebt A,Ideaot of *Meb -1,16S -1t.1 -1.507 -1.80 -5.612 -5.025 -229 4es.97 -7.133 -4.35 -5.93

ftg4-p (-50) (-49) (-400) (-6) (-674) (-1.164) (-1,465) (-1.789 (-2,633) (-3.051) -4.470)D_m e (-4) (4U) (-902) (-1.003) (-1.938) (-3.81 (-764) (-5.l0o) (-401s) (-4.51) 1 (-933)

_ue Items to apital Vote -116 -1n -254 -1s5 -1to -4tS -501 -3.IN -463 -2.733 -s.9Omant Uspeedtwe PresIde..- - - - - - - -36 -1.714 -3t

A" CI ital It.. is ONTae Toe t142 +181 222 *213 *2i4 +33* .413 *11t e278 -2S +16Caitl _a3twe lt Ooo_mle ClSdaIotides 5.475 7.79t 13.338 11.843 16.135 t6630 19.S3 t9,943 325t79 33676 240.ULows ls.llo mmtmuts -6 -49 _8 -569 -718 -801 -S90 -99 -1,68 -14914 -201643.1 CIst"l bpmatwu (bind 3g rant) 4,012 7.300 1.531 11,274 13.417 15,629 1MM53 1,46" 8,673 M0l"62 323.52

4. Iot Lee"das emAis. _ e Xome ( Steeuy ber_et) .1.051 +1.038 O3.40 1.716 -8t9 +1.120 U2.916 +31 +80O +1.1O0 2350A" I lasel remmutet 64 a 492 +807 +569 +71i .88 O0t .S +1.6 n *1,914 +42.164

#Aw _am noeqmm -94 -70 -tOt -172 -97 -149 .436 -525 -275 50 40 5s4.1 Pet LksitUs (si4 Ib rt) 2.400 1,450 3.94 2.113 -U38 1.772 3.391 1.059 1,75t1 3514 1.979

s. Total b*W.tmo 4 list Lendng (2.1 *3.1 4.1) 17.053 19.5S5 27.796 38.053 S3.M 39.600 49.664 53.03 $5.0$9 5S4S3 61.8

6. 0egtI Ddliet (S -1.1 6.001 7.609 14.774 13.259 17*.479 16.58 13.633 1.778 19.I81 21.11t 20.79

7. Gtss 61 1.90 2.620 2,721 3.376 3,473 31291 $.SO 3.36O 3.3800 4.095

8. 011I Deflat aetw Swet 5,340 6.219 12.1'4 t0.538 14.10S 13.108 10.340 13.471 16.491 17.019 16.49

9. Pee1 ol w Iage (.eme bt) 3793S 3.847 4.116 5.48 5.418 7,478 7.957 8.89 10.840 tOt13 U11.10Lee. oretsm Loteem st 503 499 600 007 674 1.t165 1,465 1.89 3.834 3.051 4.4719.1t Pet oweip D oomIsg 3.392 2,3347 3.516 4*,8800 744 4.313 4493 7t109 8.00 7.0o 6."

iOj.eDmte 1s-1a Bnwlsg Met) 1.874 3.239 1.608 1.809 5.604 6S321 5.942 3.6512 6299 3.999 6,578Aeesistrative 9owvedOms (OS) -50 17 -338 179 -129 219 -175 1ULows fepuests 174 178 272 37 49 144 93 8 -

A eiwdeIv ie wDuemOL Oht) -224 -161 -609 141. -178 74 -7t 10 -_upee Loses (Guess) 1.750 2.950 3,803 2.454 5.893 7,773 4.344 10.400 10.800 8.580 7.50

Rapepsests ~~~~ ~~~~~438 487 606 993 1.874 3.679 551 4.660 4.501 45092L1312 2,483 2.196 1,491 4,019 4,094 3,7s9 5.540 4;50t SOI 9*22

?w.eSu3a 8111. 295 -138 -98 -43 1 -11 1,541 120 - - -DeposIts 488 1.074 88 235 1.,19 2.170 1.064 -2.130 - -lS. Ret,. Cafeatee -12 -5 -4 -2 - -1 - -Mtollaaeu biado 15 6 55 -13 23 -5 - 14 - - -

11.9mmadeRewtmIflgO 115 552 7,10 lot 8SS 3,990 1.168 -2,760 7,212 1,946 5238 3.470S _aoowwy SIlls -17t 495 6.647 3.919 3.19 135 -3.893 7.17 - - --'two 130O5I 33s8 1t 491 -91 604 6S4, 1.249 15

Uqee 1.oase - - - 69 ~~~~ ~~~~~ ~~~~~~~~107 4153 - 15 --

topwome ;S~~~~~~~~~~~~~~~~~~~~~~~~5 18 25 32 16 34 117 259Lom - -2 -18 25 57 91 379 -117 -a9 S_ _sem CtIIIem - 4 -13

m a e mb e olo 58 -28 -72 -3S -35 -694 "S -2301 - 1,0078 1t2 -101 -16 13 -426 702 -2.042

foweige A" Comsaeu Tmi -20 -310 30 -22 -338 -368 -34 -458 11.1 De.sseia0 ;Doew (tet) 173 654 7,029 5,857 5,75 474 -2,0" 4,711 I'9 6.738 I,470

* de at_ Ca sme ml Atist,tv" lowmus..

-,t Castal Bob ef Ol LO&*o

Table 5.03: sI;UARY OF BUDGETARY OPRUATICS 1978-87(Rs Kllion)

1978 1979 1980 1981 1982 1983 1984 1985 1986 1986 1987Approved Revised BudgetEstimtes Estinates Estimteo

Revenue (1.1) 11,052 11.966 13.022 14.774 16.224 23.019 32.031 34.305 35.328 37,231 41.081Rpenditure and Nlt Len8ng (5) -17,053 -19.575 -27.796 -28.033 -33.703 -39.600 -45.664 -53.083 -55.179 -58.350 -61.873Current E ipendture (2.1) -9,841 -10.925 -12.319 -14.646 -18.544 -21,999 -23,841 -33.078 -32.775 -35.074 -37.242Capital Espenditure (3.1) -4,812 -7,300 -11.531 -11,274 -15.417 -15. 829 -1,532 -18.946 -20.673 -20. 762 -22652Net Lending (4.1) -2,400 -1.450 -3.946 -2,113 258 -1,772 -3.291 -1.059 -1.731 -2.514 -1. 979Current Accout Balance 1,211 1,141 703 128 -2.320 1,020 8,190 1,227 2,553 2.157 3.839Overall Budget Deficit -6,001 -7,609 -14.774 -13,259 -17.479 -16,581 -13.633 -18.778 -19.8S1 -21.119 -20,792Grants (7) 661 1.390 2,620 2.721 3,376 3,473 3.293 3,307 3,360 3.300 4,095Overall Budget Deficit af ter Grants -5.340 -6,219 -12.154 -10.538 -14.103 -13.108 -10,340 -15,471 -16.491 -17.819 -16,697Foreign Bortroing (9.1) 3,292 2.347 3.516 4.880 4.744 6,313 6.493 7.109 8,206 7.082 6.649Dmestic Yon-lank Fimacing (10) 1.874 3,239 1.608 1.809 5.684 6.321 5.942 3.652 6.299 3.999 6.578Dmstic Blank Financing (11.1) 173 634 7.029 3.847 3.675 474 -2.094 4.711 1.986 6.378 3.470GDP at market Prices 42,665 52.387 66.527 85,005 99.238 121.601 153.746 162.375 179.500 179.500 205.300 1As S of GDP

Total Revenue 25.9 22.8 19.6 17.4 16.1 18.9 20.8 21.1 19.7 20.7 20.0Total Expenditure & Net Lending -40.0 -37.4 -41.8 -32.9 -33.8 -32.6 -29.7 -32.7 -30.7 -32.5 -30.1Current lxpenditure -23.1 -20.7 -18.5 -17.2 -18.5 -18.1 -15.5 -20.4 -18.3 -19.5 -18.1Capital Expenditure -11.3 -13.9 -17.3 -13.3 -15.5 -13.0 -12.1 -11.7 -11.5 -11.6 -11.0Net Lending -5.6 -2.8 -5.9 -2.5 0.2 -1.5 -2.1 -0.7 -1.0 -1.4 -1.0Curret Accouat Balace 2.8 2.2 1.1 0.2 2.3 -0.8 -5.3 0.8 1.4 1.2 1.90verll Budget Deficit -14.1 -14.5 -22.2 -15.6 -17.6 -13.6 -8.a -11.6 -11.1 -11.8 -10.1Grants 1.5 2.7 3.9 3.2 3.4 2.9 2.1 2.0 1.9 1.8 2.0Overall Budget Deficit after Grants -12.5 -11.9 -18.3 -12.4 -14.2 -10.8 -6.7 -9.5 -9.2 -9.9 -8.1Foreign Borroings 7.7 4.5 5.3 5.7 4.8 5.2 4.2 4.4 4.6 3.9 3.2Domestic Non-Bak Finaning 4.4 6.2 2.4 2.1 5.7 5.2 3.9 2.2 3.5 2.2 3.2Dometic Bank Financing 0.4 1.2 10.6 4.5 3.7 0.4 1.4 2.9 1.1 3.8 1.7

(Parenthetical Referencex identify corresponding itew in Table 5.02)

* Eatimates iveM In to Budget Speech for 1987.

Sourcet Central Bank of Sri 1anka

Table 5.04: PtCaC CLASSIICATIOO W IMIDI2UU 1978-87(Rs ilflion)

1978 1979 1980 1981 1982 1983 1984 198S 1986 1986 1987Aproved Rmised BSdstEstimatos Ustintes Botintes

current Expediture 9.841 10.825 12.319 14.646 185S44 21.999 23.841 33.078 32.775 35.0?4 37.242

ExPenditure on Goods & Services 3,358 4.207 4.781 5.522 6.781 7.936 9,292 14.730 14,253 17.187 17.959saladries and ware 2.323 2,909 3.302 3.578 4,317 4,752 5.377 6.321 8.714 9,200 8.268Other Goods & Services 1.035 1.298 1.479 1,944 2,464 3.184 3.915 8,409 6.169 7.987 9,691

Interest 1,368 1.667 2.241 3.738 5.104 6.606 6,153 7,428 8,423 8.857 10.200Foreign 2865 357 413 713 915 1.270 1.623 1.970 1.951 2.290 2,420D:---estlc 1.053 1.310 1.828 3,025 4.189 5.336 4.560 5.478 6.472 6.567 ;.EOO

Subsidies & Current Transfer. 5.115 4,951 5.297 5,386 6.659 7.457 8.366 9.192 9.893 10,627 10,482To PUblic Corporations 1.158 1.048 1.720 1.471 2,005 2.319 2.369 1.795 2.569 3.303 3.112To Otber Levels of Governeat 121 IO 160 182 317 388 443 SO1 748 748 641TO Iouseholds 3.836 3,723 3.417 3.733 4.337 4.750 5.554 6.896 6.576 6.576 6.729

food Subisidy & Foodatamps 2.074 2,320 1.606 1.603 1.538 1.508 1.495 1.439 1.537 1.537 1.600Pension and Other 1.762 1.403 1.811 2.130 2.799 3.242 4,059 5.457 5.039 5.039 5,129

Unclasified - - - - - - - 1.728 2.000 2.000 500

LeS: Provisdon for uedr-kpni ture - - - - - - - - 1.824 3.597 1.919 '

Capital Expenditure 4.812 7.300 11.531 11.274 15.417 15.829 18.532 18.946 20,673 20.762 22.652 '

Acquisition of xiting Assets 2.222 3.862 5.278 3.927 4.773 5.378 6,446 7.372 10.678 11.107 12.702

Capital Transfers 2.590 3.438 6.253 7.347 10.644 10.451 12.086 11.420 10.022 11.370 9.982To Public Corporations 2.070 3.112 6.086 7.174 10,462 10.123 11,844 10.913 9.289 10.637 9.172To Otber Lvea of Governmnt 77 144 106 107 101 127 59 64 65 65 245Otber 433 182 61 66 8t 201 183 443 668 668 565

Les Provision for Under-Expndture - - - - - - - - 26 -1.714 -31

Net L_aing 2.400 1.450 3.946 2.113 -258 1.772 3.291 1.059 1.731 2.514 1.979Of wicht Under Advace Accounts 1.831 1.028 3.240 1.716 -879 1.120 2.916 314 800 1.100 250

ource: Centrol Bank of Si La1ka

Table 5.05o IMIACIG OF CITRAL GOCERUM T BUDIGET DlSFICIT. 1978-87(Re Milliot)

1978 1979 1960 1981 1982 1983 1984 1985 1986 1986 1987Budget Revised BudgetNatimates 1stiate Zutimotes

Foreign 3.953 3,738 6.136 7,602 8,121 9,786 9,785 10.416 11,566 10,382 10,744Net Borrowng 3,292 2,348 3,516 4,881 4.744 6,313 6,492 7,109 8,206 7.082 6,649Gross Cfmuctial rBorrowing (-) (-) (898) (1.700) (1.199) (1.366) (744) (476) (-) -) (-)Grnts 661 1.390 2.620 2.721 3.377 3.473 3,293 3,307 3,360 3,300 4,O9S

Doestic 2,048 3,872 8,636 5.656 9,359 6.795 3,847 8,362 8,285 10.737 10.048NonW-szket 280 918 -487 363 1,644 2,239 807 -2.008 - - -Non-bask a/ 1,595 2,320 2,094 1,446 4,020 4,082 5,135 5.659 6.299 3.999 6,578Bank Systmn 173 634 7.029 3.847 3,675 474 -2,095 4.711 1,986 6,378 3,470Central Bank (31) (720) (7.160) (3.821) (3.338) (1.340) (-2.640) (7.305) () (-) C-Cosmrcial Banks (84) (-58) (-59) (64) (652) (-172) (-120) (-93) (-) (-) (-)Treautny CashBdance (58) (-28) (-72) (-38) (-315) (-694) (666) (-1.500) t) __J) _)

Total 6.001 7.610 14,773 13.258 17.480 16.581 13,632 18,779 19,851 21.119 20.792

-Not avaiable

a/ Includes Nationa Savings Bank and social security institutido.

Source: Central Bank of Sri Lanka

Table 5.06: CETRAL GWERNWMET BUDGET DEBT SERVICE. 1978-87(R mil1lion)

1978 1979 1980 1981 1982 1983 1984 1985 1986 1986 1987Budget Revised BudgetEstimates Estimates Estimates

Damestic DebtAmortisation 664 683 903 1,002 1.939 3.861 764 5.108 4.S01 4.501 922Interest* 1.083 1.339 1.864 3.143 4.198 5.354 5.849 6.542 7.277 7.277 8,399

loreign Debt bald bySiukiag FundAmortisation - - - - - - - - _ laterest - - - - - - - _ _ _ _

Foreign GoverM.et &International OrganisationsAortisetion 502 499 600 607 673 1,165 1.465 1.789 2.634 3.051 4.471Interest 285 357 413 713 915 1.270 1.623 1.971 1.950 2.290 2.420

Total Foreign DebtAortization 502 499 600 607 673 1.165 1,465 1.789 2.634 3.051 4.471of wbicb: FZZC Cost C-) C-) t-) C-) C-) C-) C-) (-) C-) (-) (-)Interest 285 357 413 713 915 1.270 1.623 1.971 1.950 2.290 2,420of wcbdh: EC Cost C-) 1-) 1-) C-) (-) (-) (-) (-) C-) I-) 1-)

* lacludes losn floatation epeanses and JI? interest.

Bourc Control Bank of Sri Lauka

Table 5.07: OPERATIOAL SURLUS/DMICITS OF TWADIUG UDTERPRISUS. 1978-87(RS Millien)

1978 1979 19Se 1981 1982 1983 1984 1985 S96 1986 1987Approved Revise Sudget

1. Railway1.1 Revenu 239.5 312.1 358.9 408.8 427.3 434.6 503.0 464.5 685.0 476.0 485.01.2 Recurrent Expeniture 300.5 394.4 505.2 602.7 681.5 872.4 1.054.4 510.0 811.8 811.8 867.7

Adds CMA - - - - 53.8 14.7 48.0 14.0 33.0 33.0 -1.3 Current 8urplus (1.1-1.2) -61.0 -62.3 -146.3 -193.9 -308.0 -452.5 -599.4 -59.5 -159.8 -368.8 -382.71.4 Capital xpQndture 301.6 567.6 502.6 459.9 377.4 364.7 392.0 969.4 1,046.0 1,046.0 1,007.2

2. Port, laxbor 6 wearebs2.1 Revenu 74.5 78.8 1.6 1.9 0.6 1.3 0.6 - - - -

2.2 Recurrent Rxpenditure 44.9 44.5 - - - - - - - - -

Add tCOMA - - _ - - -

2.3 Carrent Surplus (2.1-2.2) 29.6 34.3 1.6 1.9 0.6 1.3 0.6 - - -2.4 Capital xpenditure 14.8 53.2 - - - - - - - - -

3. Posts3.1 Revene 116.1 110.4 137.1 288.5 245.3 342.7 388.4 436.2 500.0 475.0 490.03.2 Recurrent lxpediture 140.4 180.5 205.3 226.2 279.0 378.0 415.5 464.4 509.3 509.3 548.6

Add: COA - - - - 45.0 5.0 25.0 - 27.0 27.0 -3.3 Current urplu (3.1-3.2) -24.3 -70.1 -68.2 462.3 -78.7 -40.3 -52.1 -28.2 -36.3 -61.3 -58.63.4 Capital Empediture 6.0 9.6 18.1 15.6 10.8 10.5 10.5 19.7 18.0 18.0 20.6

- Teldco ications4.1 Revenue 148.8 209.8 259.1 344.2 471.8 531.4 961.2 927.6 1,2SO.0 1,124.0 1.390.04.2 Recurrent Expenditure 72.4 87.1 100.4 146.2 145.9 176.7 261.4 252.2 295.9 295.9 291.8

Adds tOLA - - - - - - 8.0 9.0 10.0 10.0 -4.3 Currant Surplus (4.1-4.2) +76.4 .122.7 4158.7 +198.0 +325.9 +354.7 4691.8 4666.4 +944.1 +818.1 +1.098.24.4 Cqpital Expenditure 43.5 225.9 399.5 276.9 348.4 469.6 1,074.7 444.0 696.1 696.1 816.6

TOTAL

Gros Receipts of Trading Enterprisee 578.9 711.1 756.7 1.043.4 1,145.0 1.310.0 1.853.2 1.828.3 2.435.0 2.075.0 2.365.0Gross Paymet of Trading Interprises 558.2 706.5 810.9 975.1 1,205.0 1,446.8 1,812.3 1,249.6 1.687.0 1,687.0 1,708.1Opervatial uplus (a) 106.0 157.0 160.3 262.2 326.5 356.0 692.4 666.4 944.1 818.1 12098.2operatial Deficit (b) -83.3 -152.4 -214.5 -193.9 -385.7 -492.8 -64t.5 -87.7 -196.1 -430.1 -441.3Not Surplus of Troding

Enterprises t(a)-(b)] 20.7 4.6 54.2 68.3 -60.2 -136.8 40.9 578.7 748.0 388.0 656.9

Sourees Central Bunk of Sri Lanka

-105-

T&L%j_0t 03331 11T6138 To RJI6C ODIWOMAISI. 1970 6-7

t979 M 19(as 19 19104) 9 U

S(tis"tlo

,CraeylGa 1@tttii**t COtpOgt*t - $95.0 530.6 437.0 281.4 127.2 307.0 459.9* 303.1* LA.

liver Vohlqu Dw tlopaft Ioard - - 21.6 - 20.0 16.0 50 0

ata., Resources board 0.5 4.0 4.0 7.8 5.0 2.0 1.5 - -

Natiot a t et., Ialy & Drainae bocr 1.4 0.8 1.5 - 13t8. 139.6 21.3 135.4* 01.4* 3.0

Agrarian Reueaac! & Training Institute 1.4 2.0 2.0 1.9 2.2 3.2 4.6 S., 5.7 7.6

ApXcu1turl ttearene llonrd 2.8 6.1 7.5 4.1 . 5.3 6.7 6.3* 6.4 10.6

4arieatturel laeuts"* 4utlq - 2.7 3.0 9.7 13.0 16.9 15. 19.5 24.6 6.0

CApttibution to ttrl ti n sol ic - 1.0 1.1 0.4 1.7 3.2

JOD.S o - 5.2 106.4 91.5 76.7 20.3 s3.4 - - -

State nlantation Corpotrtion - - - - 50.0sn La" "C Cption - - - - - -

COylon niaeieo Corpotetion 20.3 21.0 58.0 3. - 2.0 - - - 42.0*

=tate tiletrafnufacturing COortation - 269.0 543.0 494.7 557.3 42.9* 27.3 -

state nour NAllin5 Corpoation - - 21.5 - - -0 1 0

Buildins Matarial Coporation - - 3.0 - 2.0 2.0

Ceylon State mardwaro Crperation - 28.6 - - - 0.4

Nationd milk Boetd 82.7 54.0 53.0 44.3 45.9 21.3 25.1 61.4 96.9 .A.

Ceylon Petralm Corpretido 528.0 7.0 - -

ePor Corporation 10.5 28.7 21.2 10.0 S 7. .0 6o .0

tud1t.ial byolop t 1oard - 5.0 - - 7.9 8.0 10.0 13.5 13.8 22.0

C.! .2.t.. 4.4 5.3 6.0 6.9 7.1 6.5 7.1 8.5 10.1 14.0

Sri Lanka Cleba Corporation 0.4 2.0 2.2 3.5 4.2 7.9 0.2 N.A. NA. NLA.

stk & Allied Producto VW,. Authotity 2.) 4.0 5.6 6.5 3.6 3.4 0.3 0.4

Oll 4 ltto ctpration 16.4 27.0 41.9 -

Tw til* Corporation - 13.4 26.6 - - 32.7 - - - -

etherC 0.6 0.2 - - - - - 0.6* 1.1* N.A.

raft Naxkating Board 1.4 - - 2 - 47 7 - 2.0 5.8 2.5

Cocamut Doa.olonet Authority 28 - 0. . 76 4.4 05 - -

Cowl* Tourist bord 19.4 26.0 41.6 51.8 55.0 75.0 0.7 60.9* 52.3 35.0

Cetata Treanapot Bonrd 304.0 05.0 456.9 - 125.0 174.0 35.2 152.7 214.9* 305.4Ptrt COgW CoCpoaotio n

etat. _.lati Co rqporation U -. -0 - 1

troa of Ceylon Standeard 1.9 2.5 2.7 3.5 4.7 45 6.0 11.5 13.1 16.0

National Youth servicee Coaul 3.4 20.0 30.0 255- 32.0 32.0 32.0 34.4* 33.2 40.0

National Awpr.ticeship board 19.0 30.0 41.0 46.5 50.0 50. 91.8 31.3 33.4 44.0

Natio"a Development service - 3.0 15.4 13.0 17.2 16.0 16.0 10. 19. 22.0

Corperrtice Mnoagamnt soervi, Cantot 1.0 1.2 1.5 2.5 2.6 2.2 2.7 2.9

Goverment Caned Bualnw esa dertdanig, - 1.6 - 7,5* 46.1* -

RdiAkorg4amon of Lose" to State Corporations 42.6 . - - 100 5. 1. 3. 0.

Geafter Cologbo toonmni co s"oman 12.1 - - 1.5 3 - 1 - 1-.

Corperetive ol.aalo lotadli_s - 49.6 2.3 75.5 12.2 - 12.5

ArPOSrt Dwel_,mt Autoity - 21.0 - - - - - - - -

Ce 3en Iity boden - U17.2 430.5 25.7 49.0* 224.0*Ceylon" ndaipig Coprtion - - - - - 60.0 - - ;

Uuiy.raitia and 411. Intigutio - - - 2481 27V9.2 322.9Sri Jeyardenawe aItao BordUba Doeloment Authodty -1.4 56.1 3.0

patlemslwft S Bak ~ ~ ~ 117.0 38 t N.A.Ratiodui DavEnga Bak -y - - - - 495.0 1".3* 250.0otoad DeValogmnt Authorty - - - - - - 260.0

Patnot o ef p.aetion 0m gratuity torattrosehad personnl of Corprti - - - - - 2

Others a 1 9 . 3. 20 26.3 JZJ & - 20

1001.03 920.4 1.l52.7 1,350.4 1,697.1 I95.3 1,660.8 2,243.1 2.097.7 21305

* Aludings nt. ad dies.

mga Control Bank of Sr Laoks

-106-

T*Mej,gg1 CWM?N lism To PUBLIC 00970A?208. 1978-86

state Plantoatin. Corporation - 6.2 118.1 80.4 242.3 148.4 435.9 97.5 75.; i5.7 O.5

not. AST. Pivoriauication aNdSettiemot Authority - - 36.5 18.9 15.8 24.0 18.1 7.0 7.0 7.0 5.0

Coconut Poteac"b hoard 9.4 11.? 12.9 10.4 11,2 '7.1 19.6 27.7 33.0 33.0 38.4Coconut Cultivation Bonrd - 12.5 21.7 33.9 8.4 -.O 54.8 65.4 72.0 72.0 85.8

VIate: vesouraea Board 28 10.6 4.8 4.4 5.0 2.3 2. 4.0 4.0 4.0 8.

.Jaothe Reutte Development Board 2.0 - 178.7 20.6 173.0 75.4 87.8 111.1 203.4 20.4 34.5

Tea S2Aa Roldiu8 OQveQopIeIt Authority 0.5 2.5 11.9 27.0 18.7 10.5 19.8 14.6 14.0 5.7Wlaer Supply and Draina"e boar - - - 342.5 318.3 964.7 853.8 966.3 821.5 821.5 1,202.0other. .1.6 8.5 4.6 3.5 3.5 2.3 9.2 - 39.9 39*9 -

Pioherigs WL -AW .. L JZ 44 .1 .L .4 .4 ..Cey7lon pie~ 'rice Corp"orato

and Vliaheriaa Roeort 33.4 45.9 94.6 28.8 12.7 84.5 79.6 12.1 4.3 4.3 6.7

kmtstenuarrn 6 NInaiu WA*47 11 kI W*1 MA4 IIa =laD lad ha. lt 311 ICeylon CemeNUt COrporatiolk 28.1 MA -- 26. Ceylon Ceramics Corporation -

Ceylon Mineral Samds Corporation 23.7 - -. Ceylon flyvoe Corporatios 0.3 -- - - - ---

Ceylon, Steel Corporation 67.3 - 10.7 7.9 - 39.1 - - -

Easitern Pape" Mille Corpration 33.7 - 40.4 4.8 - - 5.8 - -

Na4tioali NM1 Board - 12.8 15.5 50.5 62.7 9.0 7.3 10.3 2.5 2.5 .5national Tertila Corporations 4.2 10.3 -2.0 46- 73 31.3 127.2 - 43.0 43.0 42.0

Sri Lanoa Bugs Corporation - 4.5 8.0 48 754 122.5 410.2 308.3 15S. 150.0 15.,State PattilUser MAnufactnurine Corp. 1.061.4 - 397.5 88.5 300.0 - 26.1 - -

Satate oft Corporation - - -- - - - - -

State Tiab.: corporc-ion -1.8 = 0.1 - * - - --

~State Davelopme.t & Coaorrntion coap. 8.0 - -- - - ---

Ceylon Petrolefm Corp"oation 8.2 - 10.? Oil and Par. Corpworarom 23.1 34.7 10.9 25.3 91 6. Srate PattiUiser Corporatist 25.0 9.3 33. 61.1 6.3 17.9 4.8 3.0 3.0 27.2=ubo XManUfacturing Cotporation 4.6 -

State Printin CorpratiLon - - - 16 3.7 ;

Other fl 8.6 18.1 25.8 17.3 - 0.1 5.5 - 1.5 19.5

DOte yj1.4 k/ 14132. 2.7.9LLI&z' zL ,hL 162.1141.Ceylon Apprenticeahip Board - -- 3.6 10.0 120 2. 0.0 45.9 45.9 3.

Ceylon slactricity Board 42.3 32.4 116.7 672.5 247.4 110.0 16015.5 152.9 432.0 452.0 80.0Ceylon Shipping corporation - - - 155.8 200.0 714.9 274.0 274.0 33.9

Ceylon Ttraport Board 172.8 6.2 1.3 - - - 2.8 1.4 1.4 induatrial Development Board - - 31.2 10.0 140.7 4.4 7.9 3.1 3.4 3.4 6.4

Land Raefrm Cvmiauion 47.5 - 125,0 225.0 168.1 130.0 225.0 200.0 200.0 200.0 190.0Liveetock Davelopeent Boaut - 8.0 15.8 20.8 8.5 8.7 4.2 0.2 5.0 5.0 13.1Paddy Marketing Bonrd 18.1 - 125.6 97.6 16.3 2.7 - 3.4 10.0 10.0 Raucareb 4 Scientific ?aatitnte - 2.0 - I. I.;4. 10.2 10.1Mationel Youth Sarriose CoaUrl-1. 16 18 36.3 . . . 6.

State Pharmaeetical Corporation - - 1.3 1.0 - - - 5.0 - . 206.7

Ceylon aroadaatins Corpoation 1.0 6.0 - - - 3.53.- Ceylon Hotel Corporation - .2 2.9 - .

Ceylon COctont Authortgy - O.-4 - 6.5 13.6 28.0 76.8 74.2 72.9 * 72.9 96.3

Greater Colombo Sconwic4nnoiodn 2.1 122.8 10.0 35.8 60.0 60.0 46.0 50.0 50.0 310.0 38.0Airports Authority of Sri Lank - - 16.6 31.9 680.4 - - - - -

Nationa Rousic$ Development Authority - - 976.0 1,020.0 702.8 571.0 480.0 $39.3 465.0 485.0 420.0Airports & Aviation Service. - 3SO.1 955.3 1,050.0 1,050.0 90.3

(Sri Lanka) Co. Ltd.Ccabo Diat. seonmarion 6 - 88.9 103.0 36.3 48.8 18.4 .3. 6.5 6.3 6.3 8.0

Development Doard'Jrbes Development Authority - 24.1 80.0 200.0 - 82.0 162.1 23.0 56. 58.5 30.0Air Lana 300.0 - 0.5 300.0 900.0 935.0 800.0 700.0 1,0.0. 1,117.0Sri Lanka Port Authority - - - 16.7 2.9 212.8 306.8 543.7 543.7 40.1Asian Moterl. Corporation 49.1 - - - ---

C.O.5.0. - - - - ~~~~~~ ~~~~~~113.0 24.5 86.4; 30.0 20. 80.0Eapot Dvelopamet $oMAd - 200.0 100.0 100.5 101.4 102.4 50.0

Others It, 32.8 13. 51.6 37.5 27.1 44.8 48.0 95.7 131.8 151.6 170.9

101W. ~~~~~~2,070.0 3,111.8 6,086.3 7,147.1 20,451.9 10,22. 11844.9 10,913.0 9,8.9M 10,636.9 9,171.4

goati ties uhich receved lees them no t0 nillie.every ylar in the period tar.

k/ Complete breohdtm not evagable.

Sora The Central sank & of r Lanka

(a PMt ONmmt and of pwet.)

-90 ni SI am 1 am l ues UK a am am amOmesmml Imimey 2311 i 4.7) SA.0 5.00 9.00 9.00 O.00 2.oXO 15.00 12.30 12.00 14.00 21.52 11.20Cmtta 2a be h G.50 4.50 4.50 20.00 10.00 10.00 12.00 14.40 13.00 M2.Oe 14.00 12.00 2100

12 btf nxsd _Uqept 4.5-.tS 1.00-7.50 7.00-1.50 14.00 IS.00 14.05.00 14.00-ts.00 20.00 20.00-22.00 15.o0-2.00 .00,2.00 4.0-n22.o0 12.00-28O0 I.5-4.00buSs. bagpm'a 4.50 5.20 5.50 7.20 7.20 5.00-9.00 0.0-2.0o 10.014.00 to.00-u4.50 l0.1.o to1.0-5. O O.00-U.50 4.00-23.00

*1z Dapeadl 2.50-4.00 oi 7.20 7.20 0.40 8.40 8.40 22.00 12.00 12.00 12.e 0 12. 00 MOD 12.0012 b Pned ompth 4.50 S 7.0 7.5so 15.00 .0M M5.O0 20.00 20.0 20.00 M OD 1.MD 12.0to-%wet smi wnt . e 13.00 u1.ee u.eo 11.e0 11.oe 1.00 21.e0 1t.40 u1.0o 11.0 u1.eo 11.00, |

y _ ~ ~ ~~~~~~~~~~~~~~~~~~~* O

"am" 4.512.00 4.50-1.0e 6..5-14.00 to.020.00 10.00-20.0e 0.02o.o0 11.00-23.00 11.00-20.00 11.0-20.00 11.00-50.00 2.000.00 1.00-20.00 10.0020.00sie_gd 8.502.O 0.5-4.00 9 .- 14.00 0.00-2e0.00, 10.02W0.00 10.06-21.00 9.e00-30.00 19.002.00 14.00-22.00 11.00-20.00 13.2.00 12.00-20.00 10.00-2e0

_to- amatow am& IV 5.00-10.50 s.0t-2.00 S.0-22.0 S.0-12.00 5.00-12.00 S.00-100 5.00-20.00 12.00,24.00 M22-24.00 12 24.00 12.00-e.0e 10.00-24.00 8.40-20.40

4. ptead & 9.00-12.00 9.00-12. ee .60-12.00 2.00-15.00 1.0-14.00 i g y ulegme flam _ C e.arpelim. L.02.50 0.50-12.50 9.5-2.50 0.50-3.00 9.5t0.0o 20.50-1*e t1.51.0, 12.0-117.00 22.00f1.00 11.00,14.00 11.0044.*D 11.00-14.e00 12.00-1.00Umtieum al Seni bseutaml 11.00 4.00-9.00 4.00..00 4.00-.00 4.0.4.00 4.00-9.40 4.009.00 4.00-.00 4.00..00 4.00-9.00 4.00.9.00 2.00-10.00 2.00-10.00hiem" bue 8O .00o-12.00 Fi 10001.00 9.00-12.e0 9.0-1t.00 9O.00-.00 9-00-0-0D 9.00-17.00 12.00-17.00 12.0t07.ce 12.'U11.00 12.00-47.00 12.0e-21.00 12.-22.00

ga gUd1. seasqe of WU11 Seemed em, ban.h fi 34 pt mAb D S m abp. to ._eiat books by 0w,egmet and OGnogot ONSambd Cft_iti_. AWIefcUtim for peimad . ave im ormamly inoUIl2 at r: rs$in tM 2.50-223.06.

1.00.4.0oea Le _ t qwet buiq _=. abs tt OlfemininsmoN. _b _being 0 ati.u"t. food. Uee teetcttie se.ing- ish as SelS.i2 LWI2W aeoe OD 1. t102.

D e Jne 1. 1I079 s ullute am 1ll event Osepsiemw m ametud 1.1. tb. bat Se2 bok.

au, aNze1 Seh of ovu1m.

Table 6.02: MONETARY SURVEY, 1978-86 a/(Rs Million; end of period)

1978 1979 1980 1981 1982 1933 1984 1985 1986

Net Foreign Assets 5.500 6.706 3.477 2.780 2.111 2.749 9.552 8.963 8.251Central Bank 4.408 5.362 1.602 1.049 131 480 7.475 7,315 7,115Coimercial Bank 1.092 1.344 1,875 1.731 1.980 2.269 2.077 1.648 1.136

Net Domeatic Assets 12.848 17.963 32.040 39.618 48,313 56.620 57.599 68,724 78.118Net Credit to Government 1.889 2.962 b/ 9.100 12.889 17.236 17.639 14.605 20.486 22.175Credit to Private Sector 8,812 11.082 16,208 20.763 24.934 31.345 34.979 38,201 40,885Other Credit -100 142 -168 -142 14 514 26 294 -74Other Assets 2.247 3.777 6,901 6.108 6.129 7.122 7.989 9,743 15,182Central Bank (excludingGuarantees) (681) (1.462) (2.938) (1.857) (884) (948) (1.171) (2.529) (4.458)Comercial Banks (1.566) (2.315) (3.963) (4.251) (5,245) (6.174) (6.818) (7,214) (10.724)

0Monetary Liabilities 10.803 14.957 19,709 24.287 30,249 36.818 43.015 48.099 49.691Money 5.895 7.643 9.333 9.950 11,673 14.589 16.647 18.662 20.183Currency ( (3.015) (3,774) (4.181) (4.823) (5.988) (7.200) (8.561) (9.816) (11.169)Demand Deposits ( (2.879) (3.869) (5.152) (5,127) (5,685) (7.389) (8.086) (8.846) (9.014)Quasi-AMney 4.908 7.314 10.376 14.337 18.576 22.229 26.368 29.437 29.508

Other Liabilities 7.546 9.713 15,808 18.111 20.175 22.550 24.135 29.587 36.677Central Bank (ezcludinSGuarentees) 3.970 5.329 9.124 9.572 10.352 10.471 11.204 15.864 19,340Coaercial Banks 3.576 4,384 6.684 8.539 9.823 12,079 12.931 13.723 17.337

St This table is not consistent with the Country Data sheet. which uses as a source the monthly bulletin of theCentral Bank of Sri Lanka.k/ Adjusted for amounts in Suspense Account Paddy Marketing Board and/or Goods Receipts.

Source: Central Bank of Sri Lanka.

Table 7.01: V(LUMB OF AGRICULTURAL PRODWCTION. 1975-86 a/(Indices. 1968 = 100)

1975 1976 1977 1978 1979 1980 1981 1982 1983 1984 1985 b/ 1986

Tea 95 87 93 89 92 85 93 83 79 92 95 94

Rubber 104 106 98 104 103 89 83 83 93 95 93 93

Coconut 92 80 74 86 91 81 90 100 92 75 114 116

Paddy 82 90 123 139 141 158 164 159 183 179 193 188

HigUland Crops 284 295 310 310 286 298 316 354 361 343

Livestock andLivestock Products 113 111 120 124 131 138 148 156 172 179

Minor Export Crops 88 158 251 211 222 212 293 288 325 293

TOTAL 109 111 123 129 131 135 144 147 155 158

not available. o

/ These indices are calculated on the basis of valeu added figure.b/ Revised.c/ Provisional.

Source: The Central Bank of Sri TLnka.

Table 7.02: PADD CLTIVATE)D ARMD PRMCTIC3 RICB £VAflt 11I,T. POWIUUIT AND D18U1fMlT o 1975S6

.197S 1976 1977 1978 1979 1980 1fI 191 1984 1964 a/ 1985 b 19 /

Ogltivated Ara ('000 bectare)

lkteut Ameddomised a/ 622 621 643 659 684 653 7(2 706 724 740 747 759of Whiclh: Major Irrigation Sel. (203) (205) (208) (217) (226) (243) (258) (256) (270) (284) (289) (296)

lintn Irrigation Sce8n (173) (177) (161) (185) (184) (177) (177) (178) (1IS) (184) (187) (185)

Gror Area Bonn 696 724 628 876 839 645 877 84S 825 990 882 897

Net Area Razested ('000 ha) 509 541 666 724 697 728 740 6S1 689 767 768 741NPa 302 363 431 471 494 496 501 424 495 451 498 469Tal- 207 176 235 253 203 232 239 237 194 336 270 272

Paddy Prodtioed Timelds

Padd Production ( 000 ton) 1.154 1.252 1.677 1.6891 1.917 2,133 2.230 2.156 2.484 2.420 2.661 2.595nabs 719 882 1.144 1,286 1.393 1.4S3 1.523 1,363 1.765 1.360 1.751 1.688*ala 435 370 533 605 524 tSD 707 793 698 1.060 910 907

Average Yield (k per becterebhaveted) 2.270 2.315 2.521 2.613 2.750 2.927 3.01* 3.260 3.606 3.076 3.464 3.476

Rice Avaiability ('000 tos)

lice Production _O 808 876 1.174 1.266 1.304 1,450 1,516 1.466 1,689 1,631 1.809 1.764Not Dme.tic Supply s/ 711 771 1.033 1.132 1.148 1,276 1,334 1,290 1.486 1,435 1.592 1,552Opndig Stock Of lC/ 63 98 61 173 116 129 68 105 115 74 20 76Opning Stockl of P1 8/ 49 17 15 103 128 65 36 32 34 112 40 29Rice Import sb 457 419 526 160 212 190 157 160 123 26 182 200Total Consumpdio I/ 1.134 1.197 1.316 1.320 1.420 1,394 1.521 1.487 1.627 1,518 1.730 1,709 F.

Pre oc me_t a Di ttribution

Lce Procured by Po ('000 tons) 169 186 358 469 378 142 aS 59 217 118 69 tO8Rice Distributed by IC (000 tons) 629 634 722 671 447 327 159 161 140 166 160 207

Namorandia rtems (as a percentage)

imports/Rice Cobomuption 40.3 35.0 40.0 12.1 14.9 13.6 10.3 10.6 7.5 7.6 10.5 11.7Imports/Rice Distribution by IC 72.7 66.0 72.9 23.8 47.4 58.1 98.7 "94 874a 15.6 10.1 9.7Procureaent/Productiou 21.5 22.1 31.4 36.7 29.0 9.8 5.6 3.9 12.5 7.2 3.8 6.1IC Dimtribution/itce Consumption 55.5 53.0 54.9 50.8 31.5 23.4 10.4 10.9 11.1 10.5 10.4 12.1

a/ Ravied.k Provisiona.cJ Leveled ..d beaded laAd aintabl for paddy cultivation./ Based on conmersion factor of I oetric ton of paddy = 0.68 setric tons of rice.S. Equals rice production less seed and wastage. estimated at 12S of total production.

f/ FC = Food C5mmissioner.a PMS a Paddy Karkating Board.hi Total rice iaports not adjusted for 2.SZ slackage loss.J Apparent conumption. estimated to net domestic rice supply plus imports, adjusted for saack. plus change in the

stocks beld by IC and PM. Change in stocks of private traders is ignored.

'otes There bad not been at. rice imports in 1984. but a shipment of 26,000 nr indented in 1963 arrived in 1984.

Sources: Pood Comdasionert Agricultural Implementation Progranmes and The Central Bank of Sri Lanka.

Table 7.03: CLITIVAT M AREA AND PRODUCTIiN OF SUBSlDIARY FOOD CROPS. 1975-85

1975 1976 1977 1978 1979 1980 1981 1982 1983 1984 1985 s

Cultivated Area ('000hectares)

NanAoc (cassava) 79.2 69.4 54.6 74.3 53.5 51.0 56.1 59.1 55.3 56.8 52.9Raise 40.1 30.4 36.7 24.7 19.4 19.4 24.0 26.6 26.2 32.8 33.0Cbillies 33.0 43.3 41.1 50.2 35.9 38.3 40.9 37.1 34.7 29.4 30.8Red Oions 6.3 7.7 8.2 8.2 9.0 8.7 8.7 9.0 9.6 3.9 5.6Groundnuts 7.8 6.7 6.5 8.8 9.9 12.0 14.2 14.8 14.1 10.6 10.2Green Gram 9.3 8.4 12.3 12.1 12.8 13.4 15.5 17.9 19.8 22.3 23.6Sorghum 3.8 1.0 1.4 2.0 0.7 0.5 0.5 0.3 0.4 0.5 0.5.Soyabean 1.1 0.7 1.0 - - - - - - 5.2 4.0Potatoes 2.0 2.8 3.2 2.8 4.1 4.5 5.3 6.1 6.8 6.0 7.1Sesame 12.7 19.0 13.5 - - 30.2 26.0 32.1 24.8 14.4 14.8Cobpea 8.7 19.2 30.2 13.4 13.9 22.6 26.7 31.6 32.6 28.0 29.6Black Gram 2.0 5.1 13.9 - - - - - - 5.6 9.9Dhel 0.3 0.07 0.03 0.7 1.4 0.6 0.5 0.5 0.3 0.3 0.1Sweet Potatoes 21.2 15.0 12.8 20.6 16.3 14.3 16.6 16.2 14.4 16.4 14.8

Production (OO0 tons)

Nanioc (cassava) 767.0 638.7 544.8 585.8 534.5 499.5 526.1 572.8 722.1 682.5 597.7Maise 34.6 31.2 42.0 19.6 22.2 22.6 23.6 23.9 30.7 37.7 43.6Chillies 16.4 19.1 32.1 38.6 46.4 51.0 37.5 36.5 40.6 73.6 98.7Red Onions 72.8 76.7 66.3 58.5 67.9 66.9 59.1 67.5 96.3 36.7 41.7Groundauts 7.6 6.1 5.7 4.0 6.1 7.1 7.4 5.6 6.8 6.3 5.9Green Gram 6.0 5.1 7.8 7.6 8.5 9.2 10.0 11.5 16.8 16.1 18.8Sorghum 6.3 1.7 2.0 2.3 1.1 0.5 0.6 0.3 0.4 0.6 0.4Soyabean 1.2 0.7 1.1 - - - - - - 3.1 3.4Potatoes 27.3 38.7 33.4 29.1 37.9 51.1 66.0 76.9 89.8 68.3 89.0Sesame 6.4 8.6 7.4 - - - 10.3 13.2 15.0 7.7 8.7Cowpea 7.6 12.0 21.3 12.4 11.0 16.5 19.4 21.7 30.8 21.8 23.9Black Gram 1.0 2.4 11.7 - - - - - - 5.0 9.1Dhal 0.2 0.04 1.4 0.7 1.9 0.5 0.3 0.4 0.2 0.1 0.1Sweet Potatoes 142.2 125.8 97.3 133.2 148.7 127.5 172.6 158.6 117.6 147.0 117.5

a/ Provisional.

Sources: Department of Census and Statistics.

Table 7.04: ERES aUPS fPRMWC STATISTICS. 1975-86

1975 1976 1977 1978 1979 1980 1981 1982 1983 1984 1985 2/ 1986 b/

TEA

Production (million kge) 214 196 209 199 206 191 210 18 179 208 214 211.of whchs Itlgh grown 80 76 79 72 77 73 81 72 68 79 79 77

medi8tgrown 73 65 67 61 63 55 59 52 48 55 55 53L grwn 60 56 63 66 67 63 70 64 63 74 SD a

Rxports (million kg) 213 200 186 193 188 185 11 181 158 204 198Planted area ('000 hectore.) 242 241 242 243 244 245 245 242 230 228 231Averae yield (kgs per bhrveted

bectare) 41 1.031 940 1.007 958 993 922 .. .. ..

Replanted Annuals (hector..) 1.764 1.116 1.242 1.709 2.491 2.156 2,677 2,004 1.367 1.145 1.348Rplanted Cumulative (hecta) 27.504 28.619 29.861 31.570 34.061 36.217 38.894 40.898 42.265 43.410 44.758

Production (million kV) e/ 149 152 146 156 153 133 124 125 140 142 138 139of wbichs Sbeet tubber 87 87 86 92 82 72 62 62 57 66 66

Crepe ubber 59 62 59 59 57 S0 47 49 73 64 60Isports (miclln kgs) 161 137 136 138 128 121 133 131 125 126 120 11SPlanted area (000 bectores) 228 227 227 226 227 227 206 206 206 206 206 205Averae8 yield okgs per harvested

bectate) 774 790 773 845 820 718 705 729 818 840 818 831elanted Annhual (bector..) 3.231 2,550 2.617 3.226 4.168 5.434 6.442 5.866 4.862 5.530 6.694 5.975

Replanted C*umative (hectores) 131.952 134.502 137.119 140.346 144.514 149.948 155.795 161.661 166.523 172.053 178.747 184.722 1

Production (million nuts) 2.398 2.330 1.821 2.207 2.393 2.026 2.258 2.521 2.312 1.942 2.958 3.023of which: CoGout Oil f/ 960 00 393 641 803 500 605 820 663 295 1.038 1.146

Deaiccated Coconut / 354 313 206 283 272 217 276 286 295 221 362 426Reports (million nuts equivalent) 845 803 281 595 537 239 401 569 582 327 935 1.039

.. not available.

a/ Revised.b/ Provisional.c/ Estimates.

H1 Iarvested area excludes area under ivaature tea and. effective 1974. abandoned tea lands. Data for 1974 omardas are ealculatedon the basis of the new defirntion of harvested orea and thus are not strictly comparable with those of earlier years.

e/ Total includes other* rubber not ohown separately.f/ In nut equivalent converted at 1 at. ton oil = 8.000 nuts.

1 mt. ton Desiccated coconUt = 6.800 nuts.

Source: The Central Bank of Sri Lanka.

Table 7.05: TEA PRODUChR IAMIM. 1975-85(Is per kg)

1975 1976 1977 1978 1979 1980 1981 1982 1983 1984 1985 aJ 1966 g/

A. Average Report Unit Value 9.08 10.50 18.86 33.22 30.51 33.41 34.00 35.03 52.52 77.20 60.62 43.95

Report Duty 0.86 0.86 1.98 t/ 15.50 13.27 k/ 10.50 10.20 b/ 8.00 8.00 7.00 b/ 7.00 b/ 5.00Ceases 0.23 0.26 0.42 0.70 0.90 0.90 0.90 0.90 1.00 1.50 1.50 1.30FM Charges. ReportersMargins. etc. c/ 1.09 0.13 0.15 2.76 4.04 3.68 3.35 2.69 0.25 6.16 13.64 -

S. Colobo Auction Gross Price 6.90 9.25 16.32 14.36 12.30 18.33 19.55 23.44 43.27 62.79 39.01 30.68

C. Sales Taz 4/ 0.86 1.52 3.07 2.82 1.19 0.59 1.84 0.92 6.31 16.34 3.62 0.40

D. Cloawbo Auction Net Price (3-C) 6.04 7.73 13.24 11.44 11.11 17.73 17.71 22.52 36.96 46.45 35.39 30.28

B. Cost of Production 6.73 7.44 8.63 12.19 13.70 15.45 1S.66 23.05 27.15 34.35 35.61 35.42of which:Trensportation/lual Oil 0.54 0.56 0.67 0.95 1.10 1.82 2.25 2.30 2.65 3.39 3.51 3.50Fertilizer 0.78 0.86 0.56 0.65 0.85 0.79 1.11 2.12 1.93 2.47 2.56 2.55Tea Ceats 0.65 0.71 0.71 0.84 0.95 1.19 1.45 1.62 1.93 2.47 2.52 2.54Labor 3.06 3.29 3.74 5.98 7.20 7.59 8.40 11.51 13.26 16.97 17.59 17.45Other Cost/Depreciation 1.70 2.02 2.95 3.57 3.60 4.06 5.45 5.50 7.38 9.05 9.43 9.38

P. Producer Margin CD-I) -0.69 0.29 4.61 -0.75 -2.59 2.28 -0.95 -0.53 9.81 12.10 0.10 -5.14

1 Proisional.b/ The specific export duty on tea was raised to RS 15.50 per kg in Noveabet 1977 and then lowered in July 1979to Re 10.50. The average specific duty shown for 1977 and 1979 is calculated by dividing rerenua from the

specific duty by total aeports. On November 13. 1961. the ezport duty was lowered to s 6/klg. On lovenbr 14.1984. the export duty was lawered to Rs 7/kg and again lowered to Re 5/kg with effect from Nowllber 13. 1985.The figure shon abo in the estimated average for the year.

c/ Residual.d/ Ad velorem tz receipts divided by total amount of tea sold at Colombo auctions.

Source: fTe Central Bank of Sri Lanka.

Table 7.06: FERTILIZER ISSUMS BY CROPS. 1975-86(000 metric tons)

1975 1976 1977 1978 1979 1980 1981 1982 1983 1984 1985 1986Paddy 97.9 72.4 128.7 136.1 130.4 189.9 155.6 167.1 162.1 186.8 202.5 213.5Tea 106.7 95.3 80.1 115.5 105.2 109.9 103.3 102.6 115.5 137.4 149.5 128.8Rubber 20.3 13.0 12.4 20.9 23.2 22.0 16.8 16.5 18.5 23.4 24.2 26.3Ccconut 40.6 30.7 29.1 42.6 49.6 55.8 37.7 30.3 35.7 49.9 41.0 31.5Others 50.8 52.9 53.2 64.9 64.0 62.0 52.9 62.9 73.4 73.3 73.3 78.4

ODTAL 316.3 264.3 303.5 380.0 372.4 439.6 366.3 379.4 405.2 470.8 490.9 478.5

"tCffS Uational Vtatilser Secretariats Caylo. 1ertillser Cerporation; A. Beat G Co. Limited.

Table 8.01: GROM Of DWSTRIAL r52P1. 1977-05 s/(Re million)

1977 19 1964 1985

ar" Xguue at Cwt erices

eood. leerages. Tobacco 2.295 2,609 2.856 3.89" 4.496 5.246 6.n8 8.623 10.497

Teztiles Clotbing, an Leather 698 1.006 1.126 1.923 3.040 3.863 5.136 7.565 9.505

Wood ad good roXdcts* inclaungfUrDiture 127 124 166 289 315 361 522 640 705

Paper and Paper Products 270 376 445 476 626 725 901 907 1.1S

Chmmicals. Petraleun. Coal.Rubber ad Ilastic Products 2.469 3.279 4.506 9.416 12.01t5 13099 11.88 14.326 13.104

UonUStallic NLeral Products(ecept ftuls) 411 592 710 1,156 1.250 1.370 1o468 1.829 1.854

Basic Metal Products 132 219 349 478 428 262 302 199 123

fahricated metal Products.Mbchiney and Equipseet 571 590 569 620 782 904 1.129 1.456 1.592

Otber Manufactures 34 55 S0 54 58 74 90 106 125

Total Manufacturing 7.007 8So52 10.781 18.311 23.010 25,904 28.434 35,653 386692 1-

Al 11mt8F"cturiag

Value Add C t Prices 2,688 3,109 3,437 493 6.030 6.760 7,987 111.8 13,522

Value Added. 1970 prices kI 790 953 964 1.187. 1.320 1.413 1.507 3.099 u.s.

n.e. aot available. /

/ As covered in the Central Bank's Annual Suwvy under wbicb questionnaires are sent to all fims believed tohve an output of Rs 500.000 or more. Around 5.000 questionaires are set out. but tbee hawe long beearotd 1.500 respone only. emplqing in 1978, 136.000 (almot balf of these in the puic sector). orapproachng 40S of total omufacturing mployment.

/ Implicit deflator for manufacturing. 1970 = 100.

Sources The Cential Bank of Sri Lanks.

mILgblE n.msUaa ll S 10m am amiucs= at e om mc asam. arn-gi

im t# !IJliat;w | l sr1 t (S b4413UV43t i t u SE us Ltotin t4. 1

?.i 3 _qa" se>. S - - - - I -28 - - 4- 49 - - 2. - W.1 - - - -- -Twt64 mit _0a. td

Le.d6r Wmedt 6 4 s t 4 S A 2e7 210 46 1 8 1 4 I2 27VI 7n 0 17 17$ 28 4.172 5.12, 1.104 as 2.443 3.04 Oamm& d i P.. 9p.44e46u4.shgalam.3 t -I - I - - I - S2 - 24 - - 250 - 2CO - 2 -I89eg.4s- - - t --a -- - 2Sa 2 5 - - 56 _ _ _

_e>bma" tjn.e0 e 6 5 I 2 I I I 3 133 1is It 0 4I 4 me S to IT s On 4 zteo a" S12 45

(_a s"etseIm _d ) 6 a a a - s *56 is 2s a - - 17 224 # 2 3 - - s I.2ftS 649 15 no0 - - U64t,-vwtg44vm6 6 2 5 a 3 I _ 12S 54 201 14 74 - 36 toS s0 2II 20 9 - 4 1.765 414 50 t02 557 - 356Umwedec1e hI I .. )4 6 6 1 4 5 06 S7" 5s 61 254 I 8 n0o 1.ll2 ISO 95 6 5 n 7.") 4.550 1.456 1.75 "a2 39 1sawwscw .1 -z _1 .1 1 1 hIM - .f4 26 .1 A LAR Ld .fl - -a 2-401 a m in ISS M 4 ii

t4 36 35 Is is '10 2.604 ?9 1.1731 136 4)6 37 as* 5.502 3.41 1.60 2 678 205 340 M.AS2 11.40 4.769 4.P7 4.019 4.076 2.86t

me _" - - - - - I - - - -4 - - - - - - 20 - - - - - - 9 -1=4*2m6 biding apmLo. O3.mt , _d m 4 7 2 5 2 1 t 2 35 183 064 S5 go 21 45s 155 uS to t 36 45 s5.2 2.14 2.35 as I.40 7_922 1.44(Suez e" 949"to"a.(04L01.3. £d - - - I - - 3 - - - 2 - -2 - - - * - - 250 - - - U, - -_ _, f_,, to 2$ - --- -Is - -

_6u ad "Oett . 2 22 t * 5 a t 2 1 61 35 5 7 St 5 to * 51 TO 20 1t 9 S" 7 9 559 I0 VI77 440 Sftmw-Owww* 13Msaw" hto3ue(rigshr.20midCO61) 4 a I 2 - S 5 57 1i 7 25 - - 10 5 55 36 50 - - to 2.25 "D9 355 $00 - - 2401.26982384 on"2 heodeto S"I _e,teds t 2 I I - 2 a 1 60 6 S - 22 t3 58 87 U 2 - 20 20 44 340 S9 - 145 56 55635269t m h8wto 6 2 4 4 5 I - $06 142 284 04 24 a I 47 25 400 56 54 4 2S 4.44 573 2.24 3.6 1.098 24 3420bwge.e 3~~~~~~~~~~ - .L .1 .1 - -z Is -- . Si4 41 - - -- .. AA. aM ii -- Za JM 2

VOUL 3 I la2 1 10 1 I 7 94 21U 1.974 96 278 1II 91 1.266 40 2.2S16 t.212 58 976 145 *4.0X7 4.55 7.661 4.120 *.0n I.9t 2.740

fels _geet Gd3tbe g e_meA Clte3e.

'OV¶ 1411 SO Xm1 P%we3 SU V 1110044 A-9low sqm30.03 m i "on "0 £009A ammesom: coirna MUM.@_% pX t~~~~oai mPtam P0 t~. UAI t-050 013 t_t Ptt@$t4

VW8 Owl-04 #-XP-t P _taE 900 313 an 3t'*VU JfL4T *t o "* *anwem am *Pomk lose Sm w ea *tv -@1

'0300pa a-*0_I 5t *wt -

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tff- gall 3W1 tCl0 369t tOt- t t t 0to t t a 3 -a g9 - - es St Ct 69 99' mUMbO PM So""

1931 139 09 3161 091U3 141*3 441 4L 91 941 U * 601t - - - -L -4 -I -L IL 433 *91 e>00 31306 9C3 30930

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-1 393- 91L46 660 51 4C 34 94 94 3L 09 K 1 - r - 6 4 91 16 A3 19t 34 93f3s*13

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as9 34 as4 03 l "C@ 9 Cs 13 91 I as1 I Oct 9 3 4t 3 et 1 SO I 6 9 6 9 C33 (-"-~oA bosp.13 01309.34P 905 PM P00310'? 916 1439o 441 W36t 343'? 01 SU3 Go 066 owl 391 S1 43 SC a 01 01 6' 9 06 I CS C 61 of 33 3 9 31~J4 sooem1

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19306M~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~Z045

911-003 3 um&stwseaea W3Lfg 016 ~S4fWoI 0955333 o66631901 -45 au0 WZAusII UWFiW6

2*ble .0ts1: f2hRo U1D S 1975-86

1975 1976 1977 1978 1979 1980 1932 1a 1984 1985 1i6 d/value (US$ mil.)

Cwudo an1 132.6 135.9 139.2 143.7 201.6 435.8 448.4 48B.9 332.9 373.4 335.2 175.1ssomli.. - - 0.3 0.6 1.2 - - - 4.4 - - -Artur 0.5 - 3.3 8.2 22.3 22.5 16.4 1.8 3.2 -KereGGAoe - 1.3 4.9 3.6 12.1 - - 15.2 15.8 2.5 11.5 3.4Avtmetiva DieseI - 1.1 2.8 10.7 51.9 14.8 35.5 56.6 102.0 30.7 31.7 18.7other 8.6 5.8 6.4 8.3 8.6 20.3 14.9 11.4 10.2 13.3 - -T0D?N 141.7 144.1 156.9 175.2 297.7 493.4 515.2 573.9 468.5 420.1 378.4 197.2 ,

WoJ ('000 tenow)

Crado aul 1.464.6 1.447.1 1,529.6 1,443.9 1,444.0 1.961.1 1. 710.5 1,940.5 1,492.0 1,733.3 1,657.5 1,639.1Coseline - - 2.2 3.7 6.5 - - - 15.0 - - -Atrbu 4.2 - 15.8 S5.7 65.3 58.4 45.0 5.4 10.9 - - -Keronesm - 9.8 32.2 25.4 41.9 - - 43.4 55.8 8.8 44.6 1S.4Autawev* Diogel - 9.2 26.7 82.7 19.6 42.6 110.9 183.9 405.9 131.2 136.8 131.6

A/ Pnvld03^a.

nots 1. Totalm, not a" up da to rmitu..2. Data NW 4fftor with CbatB data usd elsewhre in this report.

BMW Cbplolen fotres Cespetatimo.

Table 9.02: D!OlTS OF CRUDI OIL BY COURTlY OF ORIG,IN 1975-86('000 to".)

1mS l9t6 ma ma 11 1m_2 1M9 1M 1M 18

SGadi Arabia 1,14.53 796.6 849.0 939.1 787.0 950.0 1,248.8 866.3 346.0 1,38t.9 782.4 -

Ires 319.3 650.5 680.7 504.8 293.4 629.7 432.2 838.7 969.1 126.2 800.1 249.4

IT" - - - - 304.7 18.5 - - - - - -

Liby- 5.9 - - - - - -

nalayi - - - - - - 29.4 235.5 177.0 94.4 14.6 126.8

Qa_ar _ - - - - -124.7 - -

United ArabEmirate - - - - - - - - - - 60.3 961.8

Egypt _ - - 157.8

On - - - - - - - - - - - 33.3

Source: Ceylon Petroleum Corporation.

Table 9.03: PETROLEJu PRCOUCS WORTS. 1975-86

1975 1976 1977 1978 1979 1980 1981 1982 1983 1984 1985 1986 sJAVIATIOC AND 14AR! SALES

Value (US$ million)Avtur 7.8 7.5 12.5 14.6 27.5 43.0 47.7 41.9 31.1 28.1 23.9 19.9Marine Ga0 1.8 1.8 2.9 3.7 7.7 7.7 6.8 7.9 6.0 5.0 4.3 4.7Marine Diesel 3.4 3.2 7.1 6.1 10.9 12.3 7.3 8.9 7.2 9.5 9.3 6.7Furnace Oil 12.8 12.3 27.2 20.9 42.9 55.8 42.1 39.4 35.0 50.3 46.0 28.6Otber 0.3 0.3 1.0 0.1 0.6 0.8 0.8 0.8 0.8 0.5 0.2 0.1TOTAL 26.1 25.1 50.7 45.3 89.6 119.6 104.7 98.9 80.1 93.4 83.7 60.0Volume ('000 tons)Avtur 84.7 68.2 68.1 81.1 73.8 193.0 104.0 91.7 74.1 72.3 63.9 65.3Marine Gas 24.5 20.2 22.1 25.3 26.2 19.1 17.8 20.8 16.8 16.5 15.9 26.2Marine Diesel 45.2 47.9 52.3 43.0 33.5 30.7 19.0 24.2 21.4 32.7 35.3 37.4Furnace Oil 340.9 316.4 359.7 263.2 316.6 306.9 203.3 219.0 194.6 293.7 293.0 357.3

DIR1C! EXPORTS

Value (tS$ aillicu)Naphtha 7.2 7.5 10.6 9.2 28.1 38.2 28.4 20.7 14.2 16.9 29.4 15.3Gasoline ne8. 0.1 0.1 0.1 0.2 0.2 0.2 0.2 0.3 0.4 0.4 0.3Furnace Oil - 3.3 4.4 5.8 8.0 30.1 41.2 34.9 11.2 15.4 27.2 7.4Other 0.1 0.3 0.1 Le ne net ne. 0.1 0.1 0.7 0.7 0.6 1.0TOTAL 7.3 11.2 15.2 15.1 36.3 68.5 69.9 55.9 26.4 33.4 57.6 24.0Volume ('000 tons)Naphtha 127.7 108.8 101.0 75.0 99.3 130.3 91.2 75.6 54.6 71.6 124.7 130.8CGsoline 0.1 0.3 0.3 0.4 0.3 0.3 0.4 0.4 0.7 1.0 1.0 0.8Furnace Oil - 92.5 59.1 87.5 55.5 182.9 236.5 212.1 121.5 92.6 185.1 99.3

TOTA 8XPO! (US$ million) 55.1 60.1 95.8 60.4 125.9 188.1 174.6 154.8 106.5 126.8 141.3 84.0

&/ Provisioal.

Notes: 1. Individual columns ma not add up due to rounding.2. Data ma differ from Customs figure used elsewhere in this report.

Sources Ceylon Petroleum Corporation.

Table 9.04: DOMIESTIC PRODUCTION 0? PETROLIUM IRKOUCTS. 1975-86(tons)

1975 1976 1977 1978 1979 1980 1981 1982 1983 1984 1985 1986 *

Gasoline 86.788 f9.448 103.348 120.623 97.843 109.371 99.553 113.927 94.800 115,865 116.181 123.089Kerosene - - - - - - - - - - 156.948 153.629

Diesel. Automotive 255.178 276,336 276,620 242.200 2466002 384.311 309.583 336.232 175.528 358.727 364.150 406.569

Diesel, Other 87,259 88.318 91,708 117Z43 90.196 95,758 107,186 135.104 213.130 107.572 56.010 60.995

Furnace Oil 537,473 513,678 545,349 547,377 534,756 744,877 701.419 715.302 492.549 657.776 603.140 559,497

Kerosene 195,470 188.311 185,447 211,318 186,936 179,341 148.811 155,233 132.473 148.233 6 169

Naphtha 107,391 103.484 102.197 82,372 90,237 150.850 137.653 157.616 119,638 144.337 124.423 133,756

Bitumen 20,721 26,921 25,202 24,872 24,100 26.174 15.516 24.871 23.022 35.227 32,013 47.111

LPG 1,030 2,130 3,101 5,355 6.199 7.477 6.425 8.197 7.074 8,631 73.933 96.510

Avtur 54.879 76,884 71.482 34.465 31.325 62.171 83.772 114.985 65.450 115.717 2.191 3.583

Solvents 1.700 1.863 2.130 2.565 3.374 2.350 3.386 2.549 2,983 4,238 11,815 16.480

Fuel Gas - - - - - - - - 511 2.354

Total 1.347.889 1,377,373 1.406,584 1,388.390 1,310.968 1.762.680 1.626,565 1,785.479 1.345.422 1,696,834 1.543.164 1.601.388

Nemorandum Itess

Energy Products 1.218.077 1.245.105 1,277.055 1.278,581 1,193,287 1,583,306 1.457,067 1.600.443 1.199.779 1.513,032 1,382.183 1,416,938

Won-Energy Products 129.812 132.268 129.529 109,809 117.681 179,374 169.498 185.036 145.643 183.802 160.981 184.450

Light Distillates 196,051 205S968 209.782 209.629 195.954 268.986 258.292 302,279 241,529 270,745 255,534 275,043

Xiddle Distillates 593,644 630.806 626.251 606.512 556,158 722.643 651.338 743.027 588.322 733,086 652,477 719.737

Heavy Bnds 558194 540.599 570.551 572.249 558.856 771.051 716.935 740.173 515,571 693.003 635.153 606.608

I Provisional.

fsre: Cgylon Petroleum Corporation.

Table 9.05: LOCAL SALES VOLUllI OF PETX(LU3 IRWUCTS. 1975-86(metric tons)

1975 1976 1977 1978 1979 1980 1981 1982 1983 1984 1985 1985(Proiddomal)

L.PG: 582 807 3,108 2.432 6.404 7.110 6.663 8.197 7.150 8.718 11.278 16.476

Gasoline 95.057 101,065 111,491 129.994 115.146 107.691 109.028 114.217 117.477 114631 121.578 130.624

Intones. 209.764 206.591 212.886 244.5 2 229,918 188.288 168.266 174.098 159.146 150.926 153.6_5 154.182

Diesl. Autmotie 245.515 257.557 261,988 308.792 349.404 397.710 420.912 464.594 464.268 495.721 488.497 487.332

Diesel. Noting kI 5.232 5.153 S.497 5.869 3.726 3.027 2.585 5.515 7.829 3,902 778 513

Dieel. industrial 37.314 35.663 46,245 62,015 64.188 63.953 105.000 143.121 295.OSS 64.188 37.123 35.997

Furnace 01i. Domestic 143.664 125.578 135.530 162.556 13.539 259.731 240.326 247.138 253.098 218.913 342.78 129.048

1UfOc@ Oil0. Marine 20.108 20,088 14.762 21.233 16.099 12.8S7 22.8e4 26.974 26.881 9.397 85 75 1

Atwr 13.571 8,614 16.499 6.749 8,169 22,843 30.917 31.415 34.262 43.82 54.15 45.742 I'Lubricants c/ 15.648 19,696 14,933 17.345 18.899 21,312 20.430 20,614 20715 21.039 20,635 20,516

sitn 22.444 26.023 25.132 26.190 24.265 10.259 16,477 21.116 24.423 33.099 32.661 43.690

N89btb - - - - - 33,642 6.063 98.021 75.044 7tS431 7.486 Di

aie MArc 1977, relects tranfers to Csl*o Ga & Water CPgry.bl lcides Marine a"s oil. %Brine,D iesl on an aw Diesel.cI Otbe than ne a" aviation lubricants.

3s Ceylon lefteam Corporation.

Table 9.06s tIROWCTX. STRAE AND APPARMT Omvi@O OF =IMM PEU111 f CTS 1975-86(1000 s#tCi tons)

1975 1976 1977 1978 1979 1980 1981 1982 19J2 1984 1985 1986

ftoductlou 1.218 1.245 1.27 1,279 1.193 1.583 1.470 1.600 1,200 1,513 1.38 1.417Imports 6 20 78 168 312 102 156 270 4U8 140 tll 147Expoets 129 203 160 163 155 314 328 288 e79 161 la6 100

unkhete 412 38S 435 332 377 357 241 264 233 343 347 424Aviation 85 69 68 81 74 93 104 92 74 72 tl8 IIIApparent consmption 598 608 692 871 899 921 953 1,226 1,202 1,071 912 929

- Per Caitaconstmption 3/ 44.31 44.32 49.63 61.38 62.12 62.41 63.58 80.72 77.97 68.66 57.6 57.6

I In kilogram.

Source: Ceylon Petrolem Corporation.

Table 9.07: PEKRCLEUWE PRODUCT PRICE QUWGES. 1970-86 a/(Re per Liter: Rs per Imperial Gallon in Parentheses) kI

d/ eGasoline Automotive Industrial Diesel Furnsce OilSuper Regular c/ Kerosene Diesel Low Sulphur f/ High Sulphur 500 Seconds 800 Seconds 1.000 SecondsPrevailing Price

January 1. 1970: 0.78 (3.56) 0.70 (3.16) 0.16 (0.80) 0.37 (1.66) - - 0.22 (1.00) - - 0.15 (0.70)

Subsequent Changes:

1970 - October 26 0.84 (3.81) 0.75 (3.41) - - - - - - - -

1971 - Marcb 1 0.90 (4.10) 0.82 (3.75) 0.20 (0.92) 0.40 (1.81) - - 0.25 (1.15) - - 0.19 (0.85)- October 28 1.10 (5.00) 1.00 (4.55) - - - - - - - - -

1972 - February 22 1.15 (5.25) 1.06 (4.80) 0.24 (1.08) - - 0.29 (1.30) 0.26 (1.20) 0.21 (0.95) 0.20 (0.90) 0.14 (0.65)- December 31 1.26 (5.75) 1.17 (5.30) 0.29 (1.32) 0.47 (2.14) 0.36 (1.63) 0.34 (1.53) 0.28 (1.28) 0.27 (1.23) 0.26 (1.18)1973 - August 24 1.44 (6.55) 1.34 (6.10) 0.42 (1.92) 0.60 (2.74) 0.49 (2.23) 0.47 (2.13) 0.41 (1.88) 0.40 (1.83) 0.39 (1.78)1974 - January 9 2.75 (12.50) 2.64 (12.00) -- - - - - - - - 0.84 (3.80)- January 10 - - - - 0.79 (3.60) 1.06 (4.80) 1.08 (4.90) 1.01 (4.60) 0.88 (4.00) 0.86 (3.90) -

1975 - October 3 2.93 (13.30) 2.82 (12.80) 0.90 (4.08) 1.17 (5.30) 1.19 (5.40) 1.12 (5.10) 0.99 (4.50) 0.97 (4.40) 0.95 (4.30)1977 - March 15 - - - 0.77 (3.48) - - - - - - - -

1978 - December 21 4.40 (20.00) 4.07 (18.50) - - - - - - - - -

1979 - June 13 6.60 (30.00) - - - - 2.31 (10.50) 2.64 (12.00) 2.27 (10.30) 2.13 (9.70) 2.09 (9.50) 1.98 (9.00) *- September 1 - - - - 2.35 (10.68) - - - - - - - - - I

1980 - January 26 8.25 (37.50) - - 3.01 (13.68) 2.97 (13.50) 3.41 (15.50) 2.93 (13.30) 2.79 (12.70) 2.75 (12.50) 2.64 (12.00)- June 20 8.80 (40.00) - - 3.34 (15.18) 4.62 (21.00) 5.06 (23.00) 4.58 (20.80) 4.44 (20.20) 4.40 (20.00) 4.29 (19.50)1981 - January 19 9.35 (42.50) - - 3.89 (17.68) 5.94 (27.00) 6.60 (30.00) 5.68 (25.80) - - - - - -Aptil 4 10.00 (45.50) - - - - - - - - - - - - - -

1983 - March 2 12.00 (54.58) - - 5.20 (23.68) 6.75 (30.69) 7.90 (35.91) 6.45 (29.32) - - -July 22 13.50 (61.40) - - 6.58 (29.97) 8.13 (36.98) 9.28 (42.20) 7.83 (35.61) 4.89 (22.22) 4.84 (22.00) 4.72 (21.45)December 5 - - - - - - - - - - 5.22 (23.73) 4.87 (22.15) - -

1986 - April - - - - - - - - - - 4.22 (19.18) 3.87 (17.59) 3.72 (16.91)

1 Prices are Colombo spot prices: a margin to cover transport costs is added to out-station prices for all products except gasoline.which as of April 1981. sells at a uniform price island-_ide._/ Although Sri Lanka has officially gone metric. prices for petrolem products continue. for the time being. to be specified inimperial galons terms. Liter prices have been obtined by dividing imperial gallon prices by 4.5461.c Marketing of regular rade gasoline ws discontinued in early 1979.

/ Industrial diesel is often referred to 4s heavy diesel; the two tems are used interchangeably in Sri La1ka. Prior to 1972.low sulphur industrial diesel was not marketed.*/ Differentiated furnace oil was not marketed prior to 1972.f/ As of January 1981. low sulphur industrial diesel is *arketed as Super diesel.

Sourcesi Ceylon Petroleou CorporationS and Central Bank of Sri LanA.

/usrO3/asadc/bagai/SLcem87/9series/9.8/4-587

Table 9.08: CEB ELECTRICITY GENERATION, 1970-85

Generation Capacity (MI) -- Energy Generated (GM h)O---Thermal Energy ComponentsInstalled Effective Hydro Thermal Total Kelanitissa GIs

Steam Turbines Other a/ Saugaskanda

1970 262 243 740.3 41.6 781.9 2.0 - 39.6 -1971 262 243 825.2 23.8 849.0 17.9 - 5.91972 262 243 848.3 93.7 942.0 87.5 - 10.21973 262 243 698.3 281.9 980.2 260.9 - 21.01974 362 339 997.9 14.3 1,012.2 12.5 - 1.81975 362 339 1,077.8 1.2 1,079.0 1.2 - 0.11976 402 377 1D108.5 24.3 1D132.8 23.9 - 0.41977 402 365 1,214.5 2.1 1,216.6 1.7 - 0.31978 402 .365 1.365.7 19.3 1.385.0 14.0 - 5.21979 402 365 1.461.2 64.0 1.525.2 58.0 - 6.0 -1980 422 399 1,479.4 188.8 1.668.2 140.1 18.4 30.3 -1981 522 519 1,571.3 300.3 1,871.6 98.0 182.7 19.6 -1982 562 539 1,608.1 457.6 2.065.7 89.1 352.6 16.01983 592 569 1.217.2 897.2 2.114.4 147.1 734.5 15.51984 812 799 2,090.7 170.0 2,260.7- 11.1 116.9 2.8 39.21985 1.016 936 2,394.6 69.4 2,464.0 - 8.9 0.1 60.41986 b/ 1,016 n.a. 2,630.6 7.8 2,638.4 - 0.6 - 7.2

e/ Primarily Chunnakam (14.0 NI) and Pettah (6.0 Ni) diesel plant and Sapugaskanda diesel (80 NI)from May 1984.

b/ Provisional.

Note: Capacity figures are end-year.

Sources: Ceylon Electricity Board; and Central Bank of Sri Lanka.

-126-

Table 9.09: CB BELCTRICITY SALES, 1970-05(in GM)

StreetDomestic Industrial Comercial Authorities Lighting a/ Total

1970 62.5 343.0 88.0 167., 10.5 671.5

1971 64.6 373.2 92.8 180.5 11.0 722.1

1972 72.5 436.4 96.8 193.1 11.5 810.3

1973 81.5 466.6 107.6 198.4 12.) 866.1

1914 82.6 477.2 118.1 201.9 12.5 892.3

1975 84.9 522.6 122.5 222.2 13.0 965.2

1976 95.2 516.3 137.4 237.3 13.5 999.7

1977 106.5 519.4 147.9 252.8 14.0 1,040.6

1978 119.2 592.0 158.9 275.9 15.0 1,161.0

1979 153.2 629.9 203.0 296.3 16.0 1,298.3

1980 190.8 625.6 223.2 335.5 16.5 1,391.6

1981 216.6 647.5 219.9 380.6 8.5 1,503.1

1982 258.3 739.2 262e5 417.5 8.6 1,686.1

1983 304.8 752.0 291.8 433.0 9.0 1,790.6

1984 316.9 790.9 299.6 457.1 11.4 1,876.5

1985 346.4 850.4 350.0 502e1 11.8 2,060.7

1986 377.0 922.0 377.0 545.0 13.0 2,234.0

B/ Estimated.

Sourcet Ceylon Electricity Board.

-127-

Table 10.01: IIIUIIIl WAGE RATE9 1977-86(December 1978 a 100)

Year Private Publiclonqe Real Ma oney Real a/

1977 66 78 87 1031978 95 99 100 1051979 120 113 117 1111980 147 111 129 971981 152 97 146 931982 176 101 188 108983 188 96 216 1091984 229 98 247 1071985 248 106 284 117

1986 lot Qtr. 257 110 284 1202Ad Qtr. 260 111 284 1183rd Qtr. 264 113 284 1174th Qtr. n.a& nfla 284 114

a/ lMoney wage deflated by Colombo Consumer Price Index.

Source: The Central lak of Sri Lanka.

-128-

Table 10.02: COLOMBO CONSUMER PRICE INDEX NUMBERS, 1977-86(By Commodity Group)

All Items Food Clothing Fuel Rent a/ Misc.

weights 100.0 61.9 9.4 4,3 5.7 18.7

Indez (1978 u 100)

1977 89.2 85.6 98.9 98.3 100.0 92.71978 100.0 100.0 100.0 100.0 100.0 100.01979 110.8 153.0 102.2 125.3 100.0 112.31980 139.7 143.0 106.1 215.1 100.0 130.71981 164.8 168.3 114.0 293.0 100.0 153.81982 182.6 189.7 121.0 311.4 100.0 167.81983 208.2 213.2 128.7 414.9 100.0 192.91984 242.9 2518 136e0 489.4 100.0 221.01985 246.4 252.0 143.3 508.2 100.0 233.31986 266.0 270e1 165.6 514.2 100.0 266.7

1985 January 247.6 255.4 139.3 500.0 100.0 231.3February 245.6 252.3 139.9 500.0 100.0 232.0March 244.9 251.2 140.3 500.0 100.0 232.0April 245.8 252.3 140.3 500.0 100.0 232.6May 248.0 255.2 140.3 505.3 100.0 232.6June 249.1 256.5 140.3 513.4 100.0 231.5July 248.3 254.8 141.7 513.4 100.0 232.7August 244,0 247.9 144.9 513.4 100.0 232.9Septcaber 240.3 242.0 147.8 513.4 100.0 233.4October 241.4 244.0 147.8 513.4 100.0 231.8November 248.9 254.2 148.9 513.4 100.0 235.1December 252.6 258.1 148.9 513.4 100.0 241.5

1986 January 257.5 264.6 151.5 513.4 100.0 243.5February 259.7 266.2 156.1 513.4 100.0 248.4March 261.3 266.6 157.8 513.4 100.0 255.9April 262.5 266.1 158.3 513."% 100.0 265.3may 263.7 267.3 161.2 513.4 100.0 266.2June 266.7 270.6 167.5 513.4 100.0 267.6July 266.2 268.8 169.4 514.9 100.0 270.6August 267.9 270.1 171.0 514.9 100.0 275.1September 268.2 270.1 171.1 514.9 100.0 277.4October 269.5 271.8 174.0 514.9 100.0 276.6November 273.8 278.5 174.0 514.9 100.0 275.2December 275.5 279.9 175.0 514.9 100.0 279.3

a/ This index reflects controlled rents.

Source: The Central Bank of Sri Lanka.

Table 10.03: 1WELESALE PRICE INDZE 1977-86(1978 = 100)

1977 1978 1979 1980 1981 1982 1983 1984 1985 1986let 2nd 3rd

Weithts Qtr. Qtr. Qtt.

All Ite_ 100.0 86.4 100.0 109.5 146.5 170.2 180.7 225.9 283.8 240.7 231.0 225.5 227.4

Av commodity:Food 67.8 90.6 100.0 103.8 137.8 160.7 169.6 220.5 293.2 223.1 206.0 197.0 198.5Alcoholic drinks 2.9 92.4 100.0 114.8 148.4 185.7 196.5 206.5 227.7 246.3 285.8 285.8 285.8Textile and footwear 4.0 70.7 100.0 103.0 104.7 117.1 129.6 121.9 124.1 127.3 127.3 127.5 129.5Paper products 1.4 77.0 100.0 127.0 182.6 188.7 189.2 223.0 265.0 282.2 280.6 280.6 270.7Chemicals and chemical

products 5.1 77.9 100.0 113.7 134.8 215.1 227.6 ;56.8 305.8 306.9 297.6 293.4 293.8Petroleum products 6.4 99.7 100.0 167.4 325.1 427.2 432.6 556.5 626.2 626.2 626.2 626.2 626.2don-metallic products 1.8 68.0 100.0 111.1 160.3 162.0 175.0 203.5 249.2 256.3 249.9 247.3 243.3Metal products 0.9 81.4 100.0 129.6 148.9 176.2 196.7 210.5 265.3 277.9 271.8 269.6 272.7Transport equipment 0.8 90.0 100.0 104.6 120.8 136.9 141.7 177.2 208.3 216.5 216.0 216.7 217.7Electrical appliances

and supplies 1.0 94.9.100.0 111.9 124.5 149.9 188.0 205.4 223.2 236.6 236.7 238.1 237.1Machinery 1.3 94.0 100.0 113.7 127.5 148.1 153.5 169.2 180.9 182.7 182.8 192.1 210.9Fuel and light 1.8 70.7 100.0 125.9 153.2 158.6 161.2 168.6 201.6 247.3 n.a. n.s. n.s.Miscellaneous 4.8 67.7 100.0 117.0 147.5 151.6 161.3 197.5 202.7 222.4 272.9 272.9 272.9

BY sector:-Domestic 50.5 86.2 100.0 107.9 132.9 162.1 178.9 189.5 210.9 226.4 243.8 246.5 242.9Imports 27.2 67.0 100.0 118.8 171.2 217.2 212.7 234.4 249.2 256.8 257.9 257.3 254.5ERports 22.5 100.0 100.0 105.0 146.6 149.7 160.4 267.5 404.4 247.6 194.6 174.8 187.6

BY sector:Cousneer 75.3 89.5 100.0 107.6 144.5 160.9 170.6 220.0 288.5 229.2 216.9 208.3 211.3Intermediate 20.5 76.6 100.0 120.8 163.6 208.5 216.3 250.6 275.8 283.5 282.9 287.6 285.6Investment 4.2 .77.2 100.0 115.4 156.4 180.3 192.1 217.0 235.8 242.0 237.4 237.3 238.4

Source: The Central Bank of Sri Lanka.

Table 10.04: OOST flDICIS FOR SU.CTWD BUILDING M&TBRIAS NID DIFPERNT OONSTRUCrITZ ACTVITIES. 1977-86(1969 = 100)

Item 1977 1978 1979 1980 1981 1982 1983 1984 a/ 1985 b/ 1986 bh

Cement 164 199 292 636 723 E14 824 930 1.005 983

Stee (M.S. Bars) 255 274 458 504 572 573 632 844 877 877

Bricks (laud molded) 156 268 285 393 388 442 461 562 540 556

Asbesto Sheet (Corrugated) 286 327 411 607 627 706 799 835 843 832

Timber (Sam) 129 217 378 634 814 814 833 w8 964 964

Metal (3/4') 168 338 533 617 551 557 632 703 786 799

P.V.C. Pipes (3/4') 284 362 459 520 520 520 562 618 620 613

mouing Construction 173 252 347 519 617 645 691 772 831 837

Non-Residential Bvildinga 199 254 320 463 548 586 631 706 739 740 1

Other Constructiot Works 187 220 278 386 457 493 534 607 637 644 L

All Construction Activities 186 247 327 469 558 592 637 715 758 761

2/ Revisd.k/ Estimates.

Sources 1lnistry of Local Government. Rousing and Construction.

Table 10.05s ADMINISTERED PRICES OF BASIC GOUSUMER GOODS. 1977-86(Rs)

Dec. Dec. Dec. Dec. June Dec. June Dec. June Dec. June Dec. June Dec. June Dec.Unit 1977 1978 1979 1980 1981 1981 1982 1982 1983 1983 1984 1984 1985 1985 1iV6 1986

Rice for Food Stamps kg 2.15 2.15 3.48 4.48 6.15 6.15 6.15 6.15 6.16 6.25 6.72 6.72 6.72 7.22 7.22 7.22

Ric~e (Open Market) kg 3.70 4.24 5.13 6.72 6.07 8.60 7.69 7.87 7.74 8.94 8.65 8.89 8.60 10.05 8.99 10.17

Flour kg 1,32 2.47 3.00 5.23 5.50 6.65 6.65 5.95 6.82 6.82 7.75 7.75 7.75 7.90 7.90 7.90

Bread kg 1.32 2.21 2.76 4.52 5.06 5.95 5.95 5.51 6.17 6.17 6.78 6.78 6.78 6.89 6.89 6.89

Kerosene liter 0.76 0.76 2.35 3.34 3.89 3.89 3.89 3.89 5.20 6.58 6.58 6.58 6.58 6.58 6.58 ' 6.58

Electricity unit 0.12 0.31 0.31 0.35 0.35 0.35 0.40 0.40 0.40 0.40 0.40 0.40 0.50 0.50 0.50 0.50

Bun Fare journey 0.50 0.60 0.60 1.60 1.60 1.60 1.60 1.60 2.00 2.50 2.50 2.50 2.50 2.50 2.50 2.50

Coconuts each 1.42 1.00 1.82 2.48 2.02 2.58 2.41 2.47 2.54 4.13 3.89 3.98 2.50 2.00 1.80 2.71

Coconut Oil bottle 4.58 4.24 7.06 8.38 8.43 8.50 8.23 8.07 10.00 20.80 23.70 19.75 15.06 7.25 6.50 10.00

Milk Powder kg 12.13 12.13 18.74 26.28 32.50 31.25 34.47 35.88 52.00 52.00 52.00 58.20 58.20 58.20 58.20 58.20

Sugar (Open Market) kg 6.62 6.62 6.62 14.55 16.50 13.50 12.63 11.90 12.50 13.00 12.38 12.50 12.50 14.00 14.50 14.50

Source: The Central Bank of Sri Lanka.

Table 11.01: SEECTD SOCIAL INDICATORS. 1946-86

1946 .1 1953 / 1963 a/ 1971 S/ 1975 1976 1977 1978 1979 1980 1981 2/ 1982 b/ 1983 b/ 1984 b/ 1985 b _ 1986 b/cfEDUCATION

Adult Literacy (S) .. 69.0 77.0 78.5 .. .. .. .. .. .. 87.2

HEALTH AND DBYOGRAPHY

Life Expectancy: al2e 43.9 58.8 63.3 64.2 .. .. .. .. 66.0 b/ .. 67.8 b/ .. ..realae 41.6 57.5 63.7 67.1 .. .. .. .. 70.2 b/ .. 71.7 b/ .. ..

Infant Nortality (per '000) 141 71 56 45 45 44 42 37 38 34 30 31 27.4 23.1 23.5Crude Birth Rate (per '000) 37.4 30.7 34.1 30.4 27.8 27.8 27.9 28.5 28.9 28.4 28.2 26.9 26.2 24.8 24.3Cx%ade Death Rate (per '000) 20.2 10.9 8.6 7.7 8.5 7.8 7.4 6.6 6.5 6.2 5.9 6.1 6.1 6.5 6.2Rate of Natural Population

Increase CR) 1.7 2.8 2.6 2.3 1.9 2.0 2.1 2.2 2.2 2.2 2.2 2.1 2.0 1.8 1.8 ..Net Migration (per '000) 5.2 5.2 -1.0 -0.9 -2.3 -3.8 -3.8 -2.8 -3.1 -4.7 -3.4 -6.0 -6.8 -4.9 0.6 ..Average Age at Marriage:

Male 27.0 27.2 27.9 28.0 27.6 27.6 27.5 27.6 27.8 27.8 27.9 .. ..Female 20.7 20.9 22.1 23.5 23.3 23.3 23.4 23.4 23.7 23.8 24.4 .. ..

Number of New Family Planning"Acceptors* ('000) .. .. .. 42 110 88 68 76 92 171 122 114 173 160 139 d/ 115 bf

Female (Crude) Labor ForceParticipation Rate(All agee 5C) . .. 14.1 19.1 . .. . .. . .. 17.6 . . . . .

.. not available.

/ Cens years.b/ Provisionad.cl tp to October 1985.4/ Inaluding Norplant.

Sources: Department of Casus ard Statistics; Registrar General's Department; and Family Healtb Buresu.

Tsble 11.02t MRnW STAnBICs. 19S7-86

1975 1976 1977 1978 1979 1980 1981 1982 1983 1984 1985 196 /

flopitals (practicing western edicine) £/ 458 460 467 484 483 480 488 492 493 494 491

Peraon Pat 10opita 29.467 29.819 29.850 29.306 29.961 30.704 30.713 30.872 31.270 31.862 32.255

Persons per Bed 331 334 336 341 341 340 340 350 349 350 353

Central Dispenaries 355 351 356 379 369 347 340 338 353 334 338

Persons per Dispensary 38.017 39.080 39.157 37.425 39.217 42.473 44.082 44.938 43.671 47.125 46.855

Iumber of Doctort 2.138 2.248 2.168 2,258 2.263 2.051 2.233 2.036 1.939 1.951 2.150

Pesons per Doctor 6.312 6.102 6.429 6.282 6.394 7.186 6.712 7,460 7.950 7.995 7.366

Uvaber of at. Medical Practitioners 1.075 1.059 1.015 1.178 931 1.008 925 884 933 984 957

Persons per Awst. Medical Practitioner 12.554 12.953 13.733 12.041 12.284 14.621 16.203 17.182 16.523 15.853 16.549

number of Nurses 5.695 5.732 5.640 6.169 6.848 6.227 6.805 7.574 7.214 7.400 8.091

Persons per N"rse 2.369 2.393 2.472 2.299 2.113 2.367 2.182 2.005 2.137 2.127 1.957

NImber of Inpatients ('000) 2.146 2.282 2.188 2.174 2.425 2,334 2.283 2.445 2.502 2.524 2.498

Number of Outpatients (000) 27.654 31.649 25.764 28.419 29.400 31.891 30.247 31.696 30.720 31.908 29.570 ..

2NW Acceptors of Family Planning bethods _09.639 88.215 67.890 76.180 92.156 171.160 121.797 114.481 173.197 160.023 138.967 d/ 114.791 d1"'Loops 32.755 27.030 21.321 23.085 20.187 19.232 14.833 16.115 16.328 16.140 13.877 10.069 tsterilization 39.164 35.588 19.055 21.949 35.643 112.926 76.633 61.924 111.777 101.328 714772 42.856Other Methods 37.720 25.597 27.514 31,146 31.326 39.002 30.331 36.442 45.092 42.555 53.318 61.866

Recurrent Upoiture (it million) 324 386 455 S18 632 740 853 9S3 1.735 1.251 1.731

Capital hpeniture (Rs million) 86 114 43 179 381 602 141 174 711 _ 212 235

Total (Re million) 410 500 498 697 1.013 1.342 994 1.127 1.024 1.463 1.966

Rependiture per Person (is) 1/ 30.4 36.4 35.7 49.5 70.0 91.1 66.9 74.2 112.6 92.7 124.1

Total _rpeniturea as I of GDP 1.6 1.8 1.4 1.7 2.0 2.2 1.2 1.2 1S 1.1 1.3

not available.

W Provisonal.b/ Up to October (provisional).Z/ IncSlue maternity bone.d/ Including Narplgat.

/ Icudes capital expenditur. grants and contribution.

Sources: Depsrtmt of Nesth Services; Deprtent of Cesus Statiatics; ad Family lealth Bureau.

Table 11.03: UUCLTION STATISTICS. 1975-85

1975 1976 1977 1978 1979 1980 1981 1982 1983 1984 a/ 1985 /

Total Number of Schools 9.675 9.683 9.671 9.726 9.626 9.794 979 92901 9.947 9.914 10.051lementary 7,656 7.657 7.638 4.026 3.873 7.399 3.914 4.623 3.983 4.000 4.014Secondry 1,730 1.767 1.773 5,444 5.519 1.718 5,607 4.921 5.592 5.556 5.620Others 289 259 260 256 234 677 358 357 372 358 417Number of Goverrment Schools 9,386 8.655 8.673 9,072 9.052 9.117 9,521 9.544 9,595 9.556 9.634Total Number of Pupils 2,543,641 2.571.984 2,561,381 3,083,725 3,208.191 3.389.776 3,451.358 3,484.661 3.553,027 3.625.897 3.736.810Grades 1 to 8 2.461.503 2.462.147 2,990.105 3,135.716 .. 2.738.226 2.822.952 2.871.537Grades 9 to 12 110,481 104.234 93.620 72.475 .. 651,550 628.406 613.124Private School Teachers .. .. .. .. 3.719 2,278 4.213 4.592 2.361 2.313Govertment School Teachers 99.067 105.950 113.379 125,466 138.488 136.714 131.656 129.210 129.480 135,514 143.314Pupil/Tefcher Ratio 25 23 22 25 24 24 26 26 27 26 25Number of University Students 13.260 13.250 12,739 16,164 18.383 16.384 18.113 18.103 18.496 18.217Number of University Teacbers 2.000 2.025 2,048 2,079 1.639 1.604 1,539 .. 2,030 2,030 2.051New Admissions 3,482 3.854 4.366 4.717 4.286 4.688 4.806 5,106 5.463 5.630 5.707Number Graduated 3,146 3.350 3.802 3.850 3.372 3.252 2,893 .. 3.953 4,496 n.-.Recurrent Rpendture (Rs million) 655 788 860 982 1.132 1,386 1.599 1.995 2.543 2.797 3.608Capital Expenditures (Rs million) 53 123 116 157 259 458 421 471 408 596 908

Total (Re million) 708 911 976 1,139 1.391 1,846 2.020 2,466 2.951 3.393 4.516Total ExpBdture as S of GDP 2.7 3.2 2.8 2.7 2.7 2.8 2.4 2.5 2.6 2.5 2.3

not available.

aI Provisional.

Source: The Central Bank of Sri Lanka.

Table 11.04: TWRISN: ARRIVALS SY RWIICU, 1975-86(number)

1975 1976 1977 1978 1979 1980 1981 1982 1983 1984 1985 1986

Western Europe 60.187 72.624 103.807 125.664 160.664 213.482 245.785 232.290 176.310 191.070 153.004 143.022

As;a 24,604 25.417 27.447 38.560 58.975 74.676 88.744 135.088 124,620 89.736 79.056 66.280

North America 6.823 6.279 8.907 10.729 11,701 12.878 13.946 15,528 14.686 15.020 10.358 9.232

Estern Europe 4.957 S,825 4.480 6.102 5.496 4.906 5.311 4.160 4.488 3.270 3.080 2.764

Australia 3.683 4.199 5.415 6.629 7.374 8.724 9.584 12.834 10.554 11.970 8.090 5.788

Others 2.950 4.627 3.609 4.908 5.954 7.114 7.372 7.330 6.872 6.218 3.868 3.020

TOTAL 103.204 118.971 153.665 192.592 250.164 321.780 370.742 407.230 337.530 317.734 257.456 230.106

Memorandum Items:

Tourist Nights ('000) 1.015 1.194 1.645 2.061 2.777 3.548 3.907 4.048 3.179 2.818 2.365 2.100 9/

Guest Nights b/ ('000) 656 847 1.109 1.350 1.637 2.008 2.097 2.056 1.652 1.835 1.667 1.300 St I

Roams in GradedAccomodation 3.632 4.58I 4.851 S.347 5.599 6.042 6.891 7.539 8.852 9.627 9.826 9.600 I/

Tourist Receipts ct($ million) 22.4 28.2 40.0 55.8 77.7 110.7 132.4 146.6 126.9 105.0 74.0 70.0 j/

Estimates.b Tourist nights in Graded Accodation.c/ Data not consitent lith the foreign travel reeipts data presented in Table 3.01 which ere baed on The Central dRak ofSri Lanka data.

Sources Ceylon Tourist Board.

IBRD 3839R4

Kankesonturot SRI LANKANotional roads

datina .-.--.-.-- ~~~~~~~~~~~~~~~Railways- 0 Selected towns and villoges

* Nationtal capitalDistrict boundaries

- -Province boundarlos1Agr--cgronclimonc zonol boundaries

RiversJA F I ,A ,'Elevation (in feet):

, i:_ 5'' '. - ' =~~~~~0-100

o ,2 h u \t A I r t v iJ' _ I~~00-500

s Manwlahm -, _ S00-3000Tolaimannar i300l5000

Matilonnar 1JV\ O° H R.'N_......... _oWJTS'

(N t A N WAR X VA UNIYA Ap ,M) ~~~~~~~~~~~~MILC

c--, X 6 om -~N Vavunly

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