Sri Lanka’s export share to GDP seen falling for ten years, says IMF

A senior International Monetary Fund (IMF) official says Sri Lanka’s export earnings as a percentage of gross domestic product (GDP) has been falling over the years, and the island nation needs to diversify export markets and products and integrate more with Asia in order to bring back export earnings to where they were ten years ago.

Asia is leading the global economic recovery and some of the emerging economies such as China are being called upon by the IMF to boost its domestic demand as the global rebalancing required for a smoother recovery calls for less export dependence.

"But in Sri Lanka the problem is different. This is because export earnings, as a percentage of GDP, have been falling for years. So the first thing for Sri Lanka is to boost its exports to where it was 10 years ago," IMF Director Asia Pacific Department Anoop Singh said delivering the 60th anniversary oration of the Central Bank of Sri Lanka recently.

He said Sri Lanka would have to diversify its export basket and also break free from an overdependence on markets in the US and UK, still struggling to recover from the global financial crisis.

According to the IMF, Asia is emerging as a dominant global region with GDP exceeding that of the G7 by 2030 and with western economies retrenching, emerging Asian economies are expected to boost their domestic consumption, thus creating opportunities for exports of countries like Sri Lanka.

Singh said 59 percent of Sri Lanka’s exports reached western markets, whereas its exports to China, India and developing Asian counties was a small proportion of total exports. He also suggested a shift in export products, from garments and tea to a more sophisticated range.

"Restoring export share should be a policy priority for Sri Lanka," Singh said. "Greater regional integration will help Sri Lanka capitalise on Asia’s growth while export diversification and sophistication would give scope and lift market share."

Sri Lanka has entered into several bi-lateral and multi-lateral trade agreements with the region, but many of them are heavily under utilized, according to the country’s trade economists, who have been voicing this concern for years.

Even the GSP Plus trade concession for exports to the EU, now lost, was underutilised by Sri Lanka.

Export earnings are expected to grow by 13.3 percent in 2010.

Export earnings made a strong recovery in November 2010 growing 36 percent from a year ago to US$ 834 million, the highest monthly increase since October 2004, the Central Bank said.

However, on a cumulative basis, export earnings for the January to November period of 2010 was still below pre global financial crisis levels. Export earnings for the period January-November 2008 amounted to US$ 7,456.06 million. It fell 14.7 percent during the corresponding period of 2009 to US$ 6,361.1 million picking up 15.4 percent in 2010 to US$ 7,339.1 million, still a marginal 1.56 percent below 2008 levels. Total export earnings in 2009 amounted to US$ 7084.5 million, a 12.7 percent decline from US$ 8110.6 billion in 2008.

While the Central Bank is optimistic that export earnings would show stronger growth this year, the National Chamber of Exporters recently said it would not be able to deliver half of the Central Bank’s expectations with energy costs mounting and the rupee gaining in the strength.

source - www.island.lk