The civil war continued to rage with no signs of abatement resulting in massive physical and human destruction. The Government Budget for 2009 was presented to and approved by the parliament in November 2008 (a critical review is at the end of this report). Civil war was compounded by the global financial crisis during the last quarter of 2008; the combination of which stimulated the significant deceleration of the quarterly economic growth in the fourth quarter.
The Gross Domestic Product (GDP) declined in the third quarter 2008 in comparison to the previous quarter as well as the same quarter in 2007. While the industrial and services sector growth declined considerably, the agriculture sector recorded a historically highest quarterly growth, which is suspect. For the first time in the past three years agriculture growth has surpassed the growth of the other two sectors and the overall GDP growth, which is not supported by the crop-wise production data.
The Eastern Province veered towards democratic polity with the conclusion of the first-ever provincial council elections there in May, though marred by claims of foul play by some quarters. Moreover, the national economy veered towards higher growth in the second quarter compared to the previous quarter as well as the corresponding quarter last year. Foregoing are silver linings amidst relentless individual and collective violence and usual political haranguing at the national level.
The New Year started on an ominous note as an opposition Member of Parliament was gunned down in a Hindu temple near the heart of the City of Colombo in the morning of January 01st. Another Member of Parliament from the opposition and a Minister were assassinated outside of Colombo during the course of the quarter. Moreover, couple of days prior to the sixtieth anniversary celebration of Independence a suicide bomber blew herself up at the Fort railway station killing thirteen civilians. Thus, the spiral of violence continued unabated in and outside the theatres of war (in the North) during the quarter under review.
The Central Bank increased the threshold of rupee denominated treasury bills and bonds foreigners could purchase in order to encourage foreigners to invest in government securities and thereby earn foreign currency. Rising fuel and food prices in the global market and the consequent burgeoning trade deficit were straining the current account of the balance-of-payments. Since the response of foreign investors to purchasing government securities was low, the government went in for a syndicated loan of USD 300 million from private international banks in March in order to plug the growing trade deficit.
Temporary political instability during the fourth quarter 2007 was caused by the joint opposition’s determination to defeat the government in the votes on the Budget 2008, which took place in November and December. However, the government scraped thorough with a wafer thin majority at the second reading and by abstentions at the third reading. The debut sovereign bond issue in October also created acrimonious relationship between the government and the main opposition party, which caused the country dearly by way of higher interest rate and shorter-term repayment. The government stealthily introduced the new Colombo Consumer Price Index as the official measure of inflation in November in order to underestimate the rise in cost of living, which had surpassed 20% in the last quarter of 2007.
The government security forces completed taking full control of the Eastern province in July 2007. Nevertheless, there is a long way to go to establish democratic rule in the province.
The quarterly growth rate increased consecutively for the second time in 2007 after four consecutive drops between the second quarter 2006 and first quarter 2007. Agriculture sector recorded positive growth for the first time in the third quarter 2007. Industrial and services sectors were the main driving force of the 7% GDP growth rate recorded during the quarter under review.
Air strikes by the LTTE, defection of two key ministers, and the pullout of the second largest political party from the coalition government have created political uncertainty during the second quarter of this year. However, continued military successes in the East have boosted the morale of the government.
Amidst escalation of the conflict, the growth of the economy slowed down during the first quarter of 2007. This was the fourth consecutive drop in quarterly growth rate. The first quarter GDP growth was negligibly lower than the preceding quarter, and significantly lower than the corresponding quarter last year. While the agriculture sector recorded negative growth, industrial sector growth was lower than the preceding quarter. Services sector growth was lower than the corresponding quarter last year.
The civil conflict in Sri Lanka has resumed in earnest during 2006. Over two hundred thousand people were internally displaced in the conflict region, around fifteen thousand fled to India, and around four thousand people died in conflict during 2006. Politico military situation further deteriorated during the final quarter of 2006, the east bearing the brunt of the conflict. Although the Norwegian peace facilitators arranged a meeting between the warring parties in Geneva in early October, predictably it failed to produce any results.