2

National Output, Expenditure

and Income
2.1 Overview

I
n 2016, Sri Lankan economy grew by external front, slow global economic recovery,
4.4 per cent in real terms compared to sluggish global trade, tightening interest rates in
4.8 per cent in 2015, in the midst of the US and heightened policy uncertainty from
headwinds from both domestic and external unanticipated outcomes of global economic and
fronts. On the domestic front, recommencement political developments that took place throughout
of a few large scale government infrastructure 2016 hindered the expected recovery in external
projects and private sector investment activities demand.
supported economic growth. However, continuation
On the basis of production side estimates,
of fiscal consolidation measures specifically related
growth was mainly driven by expansion in
to revenue enhancement, increase in inflationary
Industry and Services related activities amidst
pressure towards the latter part of 2016 driven by
the contraction recorded in Agriculture
supply side impediments and tax policy measures,
activities due to unfavourable weather
tightening of the monetary policy stance of the
conditions that prevailed throughout 2016.
Central Bank and adverse weather conditions that
Growth in Services, the major contributor to the
prevailed throughout the year dampened the growth
GDP, was buoyed by a significant increase in
momentum. Moreover, uncertainty that arose from
frequent policy changes during the beginning of financial services activities and transportation

2016 also impacted the overall economic activity services. Industry activities recorded a noteworthy

and was highlighted as a major impediment to growth in 2016 largely boosted by the recovery in
sustain a higher pace of growth by the respondents construction activities and mining and quarrying
to Business Surveys conducted by the Central activities. Destructive weather conditions, fragile
Bank. Further, structural constraints, such as the demand and low prices for Sri Lanka’s major
shortage of skilled labour and low female labour agricultural commodity exports from destinations
force participation rate, are beginning to weigh such as Russia and some of the Middle Eastern
on continuous expansion in economic activities countries, also explained the contraction in
as highlighted by the survey participants. On the Agriculture activities.
 CENTRAL BANK OF SRI LANKA | ANNUAL REPORT 2016

As per the expenditure approach estimates, in imports compared to exports. Demand for
growth was bolstered by the investment drive, imports was fuelled by an increase in expenditure
both in nominal and real terms. Investment on intermediate and investment goods in line
growth was spurred by government infrastructure with the increase in investment activities in the
activities and the consequent expansion in private country. Although exports of goods and services
sector involvement in construction activities. recorded an expansion in nominal terms, this

2
Meanwhile, private consumption registered a was not sufficient to compensate for the growth
slowdown due to the increase in interest rates in imports, which resulted in a worsening of net
and taxes, gradual increase in import prices external demand.

of consumer goods and depreciation of the Sri Domestic savings increased significantly
Lankan rupee. Government consumption also as a result of improved private savings in
witnessed a slowdown with the fiscal consolidation the backdrop of a gradual tightening of
measures. Further, net external demand monetary policy and a decline in government
worsened during 2016 in nominal terms. This dis-savings. Further, net current transfers
was mainly attributable to the impact of increase from the rest of the world continued to grow
Table 2.1
Gross Domestic Product by Industrial Origin at Constant (2010) Prices (a) (c)
Rate of Change Contribution to Change As a Percentage of GDP
Economic Activity (%) (%) (%)
2015 (b) 2016 2015 (b) 2016 2015 (b) 2016
Agriculture, Forestry and Fishing 4.8 - 4.2 7.6 - 7.4 7.8 7.1
Growing of cereals (except rice) 7.3 - 10.5 0.3 - 0.4 0.2 0.1
Growing of rice 25.0 - 31.0 3.8 - 6.2 0.9 0.6
Growing of vegetables 2.7 - 2.1 0.4 - 0.3 0.7 0.6
Growing of sugar cane, tobacco and other non-perennial crops - 15.0 13.4 - 0.1 0.1 0.0 0.0
Growing of fruits 17.5 - 3.7 1.8 - 0.5 0.6 0.5
Growing of oleaginous fruits (coconut, king coconut, oil palm) 5.2 - 0.6 0.8 - 0.1 0.8 0.7
Growing of tea (green leaves) - 2.6 - 11.2 - 0.5 - 2.1 0.8 0.7
Growing of other beverage crops (coffee, cocoa, etc.) - 18.1 7.5 - 0.1 0.0 0.0 0.0
Growing of spices, aromatic, drug and pharmaceutical crops 6.9 6.4 1.0 1.0 0.7 0.7
Growing of rubber - 10.1 - 10.7 - 0.7 - 0.7 0.3 0.3
Growing of other perennial crops 9.3 - 2.2 0.4 - 0.1 0.2 0.2
Animal production 8.1 6.3 1.0 0.9 0.6 0.6
Plant propagation and support activities to agriculture 6.7 - 4.7 0.2 - 0.1 0.1 0.1
Forestry and logging 1.9 5.5 0.2 0.7 0.6 0.6
Fishing - 2.6 1.6 - 0.8 0.5 1.4 1.3
Industries 2.1 6.7 11.5 40.1 26.2 26.8
Mining and quarrying - 5.2 14.4 - 2.6 7.3 2.2 2.4
Manufacturing 4.9 1.7 16.0 6.3 15.7 15.4
Electricity, gas, steam and air conditioning supply 5.9 8.4 1.2 1.9 1.0 1.0
Water collection, treatment and supply 4.4 7.9 0.1 0.3 0.1 0.1
Sewerage, waste treatment and disposal activities 24.9 17.8 1.1 1.0 0.3 0.3
Construction - 2.7 14.9 - 4.2 23.4 6.9 7.6
Services 5.7 4.2 66.5 54.0 56.6 56.5
Wholesale and retail trade, transportation and storage, and
accommodation and food service activities 4.8 3.4 23.1 17.9 23.1 22.9
Information and communication 10.9 8.0 1.2 1.0 0.6 0.6
Financial, insurance and real estate activities including ownership of
dwellings 13.3 8.4 31.3 23.5 12.3 12.8
Professional services and other personal service activities 1.8 0.7 4.5 1.8 11.9 11.4
Public administration, defence, education, human health and social
work activities 3.6 4.9 6.5 9.7 8.7 8.7
Equals Gross Value Added (GVA) at Basic Price 4.6 4.2 85.7 86.6 90.6 90.4
Taxes less subsidies on products 7.5 6.2 14.3 13.4 9.4 9.6
Equals Gross Domestic Product (GDP) at Market Price 4.8 4.4 100.0 100.0 100.0 100.0
Net primary income from rest of the world - 18.1 - 14.0
Gross National Income at Market Price 4.5 4.1
(a) The data is based on the base year 2010 GDP estimates of the Department of Census and Statistics. Source: Department of Census and Statistics
(b) Revised
(c) Provisional

46
 NATIONAL OUTPUT, EXPENDITURE AND INCOME

significantly supported by improved remittances from its 0.8 per cent growth in 2015. Meanwhile,
contributing positively to national savings. the GDP increased at constant market prices
Meanwhile, net primary income from the rest of to Rs. 9,012.0 billion in 2016 in comparison to
the world contracted in 2016 albeit at a slower Rs. 8,633.9 billion in 2015 recording a 4.4 per
pace compared to the previous year. As a result, cent growth in real terms in 2016 compared to
national savings grew substantially during the 4.8 per cent growth in 2015.

2
year and it increased as a percentage of GDP GDP per capita was estimated at
compared to 2015. However, the significant Rs. 558,363 in 2016 compared to Rs. 522,355
increase in investment resulted in a marginal recorded in 2015. Accordingly, GDP per capita
broadening of the savings-investment gap grew by 6.9 per cent in 2016 in comparison to
compared to the previous year. Under the 4.7 per cent growth posted in 2015 supported
income approach, the gross operating surplus by the increase in nominal GDP. However, the
continued to be the main component of income per capita GDP in US dollar terms marginally
generation of the economy while the household decreased to US dollars 3,835 in 2016 compared
sector contributed to the majority of the income to US dollars 3,843 in 2015, mainly attributable to
as an institutional sector in 2016. the weakening of the domestic currency against
the US dollar.
2.2 GDP, GDP Per Capita and GNI, which is derived by adjusting GDP
Gross National Income (GNI) for the net primary income from the rest of
GDP at current market prices was the world, increased to Rs. 11,506.2 billion in
estimated at Rs. 11,839.0 billion (US dollars nominal terms in 2016 resulting in a growth of
81.3 billion) in 2016, while it stood at 7.8 per cent compared to 5.4 per cent growth
Rs. 10,951.7 billion (US dollars 80.6 billion) in recorded in 2015. This growth in GNI was largely
2015. Accordingly, GDP in nominal terms grew due to the increase in nominal GDP growth and
by 8.1 per cent in 2016 compared to 5.7 per the slowdown in negative growth of net primary
cent growth recorded in 2015. This increase was income in 2016, which recorded a contraction
largely attributable to the upturn in GDP implicit of 18.3 per cent during the year compared to
deflator which increased to 3.6 per cent in 2016 19.2 per cent contraction recorded in 2015.

Chart 2.1
Annual Growth Rate (a) 2.3 Contribution from
12 Institutional Sectors
10

8 According to the institutional sector

6 classification of economic activities, the
Per cent

2
Households and Non-Profit Institutions
0 Serving Households (HH and NPISH) sector
2012 2013 2014 2015 2016

continued to be the major sector that

-2

-4

-6 contributed to the value added of the economy.

Agriculture Industry Services GDP

(a) The data is based on the base year 2010 GDP estimates
Accordingly, the HH and NPISH sector accounted
of the Department of Census and Statistics
Source : Department of Census and Statistics
for 50.7 per cent of the total gross value added

47
 CENTRAL BANK OF SRI LANKA | ANNUAL REPORT 2016

Table 2.2
Gross Value Added by Institutional Sector at Current Prices (a) (c)

As Percentage of GVA (%)

2015 (b) 2016
Households and Households and
Item Non- Non-Profit Non- Non-Profit
Financial General Financial General
Financial Institutions Financial Institutions
Corporations Government Corporations Government
Corporations Serving Corporations Serving
Households Households

2
Agriculture 16.9 - - 83.1 18.6 - - 81.4
Industries 60.4 - 4.3 35.3 61.1 - 2.2 36.6
Services 23.8 7.0 15.3 53.9 23.9 7.6 15.1 53.4
Gross Value Added at Basic Price 34.0 4.3 10.7 51.0 34.5 4.7 10.1 50.7

(a) The data is based on the base year 2010 GDP estimates of the Department of Census and Statistics. Source: Department of Census and Statistics
(b) Revised
(c) Provisional

of the economy at current market prices in 2016. Agriculture activities, the contribution from HH and
Further, the gross value added of HH and NPISH NPISH sector was significant in fishing, vegetables,
sector grew by 6.2 per cent in nominal terms in spices and rice. Meanwhile, NFC sector contributed
2016 compared to 5.4 per cent growth recorded in mostly to animal production and tea. With respect
2015. Meanwhile, the Non-Financial Corporations to Industry activities, the NFC sector accounted for
(NFC) sector remained the second largest sector of 61.1 per cent of the total gross value added in 2016,
the economy accounting for a 34.5 per cent share
while HH and NPISH, and GG sectors represented
of the total gross value added in 2016. NFC sector
36.6 per cent and 2.2 per cent shares, respectively.
value added recorded a substantial growth of 8.3
NFC sector accounted for the highest contribution
per cent in 2016 compared to 1.4 per cent growth
to the manufacturing activities, followed by HH and
recorded in 2015. In the meantime, the General
NPISH sector, while the contribution of the GG sector
Government (GG) sector which represents the
was limited to construction activities. Meanwhile, all the
contribution from the economic activities of the
four institutional sectors contributed to the gross value
government grew marginally by 0.2 per cent in
added of the Services activities. The HH and NPISH
2016 representing 10.1 per cent of the total gross
sector being the major contributor, accounted for a
value added of the economy. Moreover, the gross
value added of the Financial Corporations (FC) 53.4 per cent share, while NFC, GG and FC sectors

sector represented 4.7 per cent of the economy represented 23.9 per cent, 15.1 per cent and
growing by 17.3 per cent in 2016 compared to 3.5 7.6 per cent of the gross value added of Services
per cent growth recorded in 2015. activities, respectively. Further, the HH and NPISH
sector mainly contributed to transportation and other
The HH and NPISH sector primarily contributed
personal services activities, while the contribution
to the gross value added of Agriculture and
from NFC sector was mainly visible in wholesale and
Services activities of the economy while Industry
activities were mainly driven by the NFC sector. retail trade, and transportation activities. Meanwhile,

Accordingly, the HH and NPISH sector accounted the FC sector had its major presence in financial and

for 81.4 per cent of the gross value added of insurance services, whereas the GG sector primarily
Agricultural activities, while NFC sector contributed contributed to the public administration, defence
to the balance 18.6 per cent in 2016. Within and compulsory social security activities.

48
 NATIONAL OUTPUT, EXPENDITURE AND INCOME

2.4 Output, Policies, Institutional Table 2.3

Agriculture Production Index (2007-2010 =100)
Support and Issues
Growth Rate (%)
Item
Agriculture 2015 (a) 2016 (b) 2014/15 (a) 2015/16 (b)
Agriculture and Fisheries 127.3 124.2 4.4 -2.4
1 Agriculture 121.2 116.9 5.3 -3.5
The value added of Agriculture activities 1.1 Agriculture Crops 117.8 111.9 4.3 -5.0
Paddy 128.9 118.2 4.3 -8.3
contracted by 4.2 per cent in 2016 as opposed Tea 105.5 93.9 -3.3 -11.0

2
Rubber 66.0 59.0 -32.1 -10.6
to 4.8 per cent growth recorded in 2015. Coconut 107.9 106.3 21.6 -1.5
The adverse weather conditions that prevailed Other Crops
Vegetables
140.7
136.1
140.8
141.2
12.3
0.7
0.1
3.7
throughout the year, particularly the floods due Fruits 152.8 145.8 33.4 -4.6
OFC 144.6 138.5 11.6 -4.2
to heavy rainfalls in the second quarter and the 1.2 Livestock 147.2 154.6 11.4 5.0
2 Fisheries 155.9 159.1 1.4 2.1
prolonged drought conditions negatively affected (a) Revised Source: Central Bank of Sri Lanka
(b) Provisional
Agriculture performance. Accordingly, the value
added of rice, tea, rubber and fruits contracted
the previous year. Although, the livestock activities
mainly dampening the growth in Agriculture
increased considerably during the year, the growth
activities while cereals, vegetables, oleaginous
decelerated from 2015 as reflected by the API. The
fruits, and plant propagation and support activities
growth in fisheries activities remained marginal
to agriculture also contracted in value added terms
during 2016, as in the previous year.
during the year. However, animal production,
forestry and logging, fishing, sugar cane and other Paddy
beverage crops contributed positively to the growth,
Paddy production for the year 2016
offsetting the overall contraction in Agriculture
declined by 8.3 per cent to 4.4 million metric
activities to a certain extent. The moderation in
tons following the record bumper harvest in
the agricultural activities was also witnessed in
2015. The net extent of land harvested during
the sub-indices of the Agriculture segment of the
the year decreased by 7.1 per cent to 1,010,989
Business Outlook Survey (BOS) conducted by
the Central Bank on quarterly basis. Accordingly, hectares, while the paddy yield decreased to

Business Condition, Demand, Production and 4,372 kilogramme per hectare in 2016 from

Sales sub-indices on average remained below the 4,428 kilogrammes per hectare in 2015. This is

neutral level. a combined outcome of the increase in 2015/16

Maha production and the decline in 2016 Yala
Agriculture Production Index production. Paddy production in the 2015/16
The Agriculture Production Index (API), Maha season at 2.9 million metric tons was
which measures the movement of agriculture 0.9 per cent higher than the production in the
and fisheries sector output, recorded an overall previous Maha season. The marginal increase
decline of 2.4 per cent in 2016 in comparison in the Maha production can be attributed to
to an overall growth of 4.4 in 2015. Within API, the favourable rainfall experienced during the
the sub-indices of paddy, tea, rubber, coconut and latter part of 2015 along with the increased
other crops (fruits and other field crops sub sectors) extent harvested in major producing areas.
decreased, while the vegetables sub sector in the The extent harvested during the 2015/16
other crop sub index increased in comparison to Maha season increased marginally by

49
 CENTRAL BANK OF SRI LANKA | ANNUAL REPORT 2016

1.2 per cent to 667,483 hectares. However, paddy Paddy prices in the open market remained
yield per hectare during the 2015/16 Maha low during the first half of the year, supported by
season declined slightly by 0.3 per cent to the increased paddy supply and the reduction
4,349 kilogrammes, from 4,364 kilogrammes in the guaranteed paddy purchasing price.
in the corresponding season in the previous As proposed in the Budget 2016, the guaranteed
year, partly owing to the effect of blights and purchasing price of paddy was reduced with a view
to stabilising rice prices in the domestic market.

2
leaf-roll diseases in certain paddy producing
The guaranteed purchasing prices of paddy for
areas. Meanwhile, paddy production during the
Keeri Samba remained unchanged at Rs. 50.00
2016 Yala season declined considerably by
per kilogramme, while that of Samba varieties
21.9 per cent to 1.5 million metric tons
were reduced to Rs. 41.00 per kilogramme from
compared to that of 2015, largely due to the
Rs. 50.00 per kilogramme and Nadu from
severe tropical storm that caused widespread
Rs. 45.00 per kilogramme to Rs. 38.00 per
flooding and landslides during the second
kilogramme. However, prices of all paddy varieties
quarter of 2016, which delayed paddy escalated in most of the paddy producing areas
cultivation of the Yala season and necessitated during the latter part of 2016, largely due to the
re-cultivation in major producing areas. As a limited supply of paddy to the market, caused by
result, the extent harvested during the 2016 the low production in the 2016 Yala season. In
Yala season decreased significantly by 20.0 line with the increase in paddy prices, the average
per cent to 343,506 hectares. The paddy yield retail prices of Samba and Nadu, the most used
per hectare during the season too declined by varieties, increased in 2016 by 1.7 per cent and
2.4 per cent to 4,417 kilogrammes, from 4,527 2.0 per cent, respectively.
kilogrammes in the corresponding Yala season The importation of rice in 2016 witnessed a
in 2015. The annual paddy production of both the significant decline in response to the upward
Maha and Yala seasons, which was equivalent to revision of taxes on rice imports imposed
2.8 million metric tons of rice, was estimated to during 2015 and 2016, and the buildup of
be adequate to meet the domestic demand for rice stocks in 2015 as a result of the bumper
rice for approximately 14 months. harvest. The quantum of rice imports commenced

Table 2.4
Paddy Sector Statistics

2015 (a) 2016 (b)

Item Unit
Maha Yala Total Maha Yala Total

Gross Extent Sown hectares '000 773 481 1,254 756 358 1,114
Gross Extent Harvested hectares '000 735 476 1,211 743 380 1,123
Net Extent Harvested hectares '000 659 429 1,088 667 344 1,011
Production mt '000 2,877 1,942 4,819 2,903 1,517 4,420
bushels '000 137,882 93,091 230,973 139,114 72,722 211,836
Average Yield (c) kg/ hectare 4,364 4,527 4,429 4,349 4,417 4,372
Credit Granted Rs.mn 3,261 2,321 5,582 3,401 2,450 5,851
Rice Imports mt ‘000 - - 286 - - 30
Paddy Equivalent of Imported Rice mt ‘000 - - 409 - - 43

(a) Revised Sources: Department of Census and Statistics

(b) Provisional Sri Lanka Customs
(c) Yield per hectare for Maha and Yala are calculated using data from the Department of Census Central Bank of Sri Lanka
and Statistics, which are based on crop cutting surveys while average yield is calculated by dividing
total production by the net extent harvested.

50
 NATIONAL OUTPUT, EXPENDITURE AND INCOME

declining in the second quarter of 2015 in response Tea

to an upward adjustment of the Special Commodity
Tea production in 2016 witnessed a
Levy (SCL) on rice imports, and this trend continued
substantial decline due to both supply and
in the first 10 months of 2016. To curtail rice imports
demand factors. Total tea production in 2016
further, a new tax structure was implemented with
declined by 11.0 per cent to 292.6 million
effect from 01 November 2016, consisting of a
kilogrammes from 328.8 million kilogrammes

2
customs duty of Rs. 50, Value Added Tax (VAT)
in 2015. Low grown tea production, which
of 15.0 per cent, Port and Airport Levy of 7.5 per
accounted for around 63.0 per cent of the total
cent and Nation Building Tax of 2.0 per cent per
tea production, declined by 9.3 per cent to 183.6
kilogramme of imported rice. As a result of the
million kilogrammes, whilst high grown and medium
increase in the tax imposed over a period, rice
grown tea recorded declines of 14.6 per cent and
imports during 2016 recorded a significant decline
12.7 per cent, respectively, to 64.4 million
of 89.7 per cent to 29,524 metric tons from 285,604
kilogrammes and 44.5 million kilogrammes,
metric tons imported during the previous year.
respectively. Both supply side and demand side
Towards the end of the year however, the shortage
factors contributed to this decline. On the supply
in the supply of paddy caused an increase in retail
side, the prolonged drought in tea growing areas
rice prices and the government took measures to during early 2016, the changes in weather patterns
stabilise rice prices by augmenting the supply with with overcast conditions in mid-2016 and the
imported rice. The government reduced taxes on severe drought condition experienced during the
imported rice varieties such as Samba, Nadu and third quarter of 2016 had an adverse impact on the
brown raw rice with effect from 09 January 2017 production of tea. On the demand side, low global
by removing the taxes imposed in November 2016 commodity prices and the decline in oil and gas
while introducing a SCL of Rs. 15.00 per kilogramme revenues of key tea importing countries adversely
for imported rice. The government further reduced affected the demand for tea in 2016. Meanwhile,
SCL on imported rice to Rs. 5.00, from Rs. 15.00, the tea smallholder sector continued to play a
with effect from 27 January 2017. These measures major role, contributing 74.5 per cent to the total
were introduced with a view to discouraging traders tea production of the country in 2016.
from creating an artificial shortage in the market.
The prices of high, medium and low
Chart 2.2 grown teas at the Colombo Tea Auction
Rice : Supply and Demand
(CTA) throughout the year were above
3,600 90

3,200 80
the corresponding prices recorded in
2,800 70 2015. Accordingly, the average price of tea
Quantity (mt '000)

2,400 60
at the CTA increased by 17.8 per cent to
Price (Rs./kg)

2,000 50

1,600 40 Rs. 473.15 per kilogramme in 2016, from

1,200 30

800 20
Rs. 401.46 per kilogramme recorded in the previous
400 10 year. The highest year-on-year increase in average
0 0
2012 2013 2014 2015 2016 tea prices at CTA was recorded for medium grown
Domestic Supply of Rice Average Retail Price of Rice (Right Axis)
Total Supply of Rice Average Producer Price of Paddy (Right Axis) tea (17.6 per cent), followed by low grown tea
Total Demand for Rice
Source : Central Bank of Sri Lanka
(17.4 per cent) and high grown tea

51
 CENTRAL BANK OF SRI LANKA | ANNUAL REPORT 2016

(16.5 per cent). The average export price (FOB) of tapping. Although local rubber prices improved
increased marginally by 0.6 per cent to US during the latter part of the year, production did not
dollars 4.39 per kilogramme in 2016 from US respond immediately to improved prices owing to the
dollars 4.37 per kilogramme in 2015. However, degraded condition of some rubber lands. However,
local tea exporters benefitted from the depreciation yield per hectare increased by 3.9 per cent to 851
of the Sri Lankan Rupee against the US Dollar kilogrammes in 2016, mainly due to the reduction of

2
by 3.8 per cent during 2016, whereby the the extent under tapping in marginal lands. Domestic
export price in rupees registered an increase of consumption of rubber in the industrial sector, which
7.9 per cent, from Rs. 593.08 per kilogramme in 2015 has stagnated during the last few years, increased
to Rs. 639.88 per kilogramme in 2016. The average marginally to reach 69 million kilogrammes,

price received by smallholders for a green leaf accounting for 87.2 per cent of the domestic rubber

increased to Rs. 68.53 per kilogramme in 2016 from production. Natural rubber exports declined by

Rs. 58.80 per kilogramme in 2015. Even if global 55.8 per cent to 16.2 million kilogrammes and the
cost of production of rubber increased by 5.9 per cent
market conditions improve, rigidities in the domestic
to Rs 180.00 per kilogramme in 2016. Prices at the
supply and rising costs of production could make it
Colombo Rubber Auction decreased during the year,
challenging for the domestic tea industry to reap
as a result of a slowdown in global demand owing
the full benefit of such an improvement in 2017.
to high inventories in major consuming countries,
Rubber including China and Japan, and the subdued global
prices caused mainly by low international crude oil
The decline in production of rubber in 2016
prices. The average price of Ribbed Smoked Sheet 1
was due to the reduction of both the extent
(RSS1) at Rs. 239.28 per kilogramme at the Colombo
under tapping and the number of tapping
Rubber Auction in 2016 witnessed a 3.6 per cent
days, in response to lower prices mainly in
decline over the average price recorded in 2015.
the smallholder sector. Rubber production at
Meanwhile, the price of latex rubber also decreased
79.1 million kilogrammes in 2016 declined by
by 13.0 per cent to Rs. 262.31 per kilogramme
10.7 per cent to record the lowest production during the year. The average price of natural
volume reported in the past 50 years. The rubber per kilogramme declined by 30.1 per cent to
production of sheet rubber, which accounts for US dollars 1.6 in 2016 from US dollars 2.2 recorded
nearly 50 per cent of the total production, declined in 2015. As a result of the decrease in prices, the
by 10.4 per cent to 39.8 million kilogrammes, while profit margin available to the producer remained low,
the production of crepe increased by 35.1 per cent making rubber cultivation less attractive.
to 15.0 million kilogrammes and other categories of
rubber decreased by 25.6 per cent to 24.6 million Coconut
kilogrammes in 2016. The extent under tapping has The supply of coconut and coconut
declined over the years as a result of competition products experienced a slowdown during the
for land for more lucrative agricultural crops such year. Coconut production in 2016, estimated at
as oil palm and for real estate development. The 3,011 million nuts, declined by 1.5 per cent over
low prices over a considerable period of time has the output recorded last year. The decrease in
led to the abandonment of tapping in marginal the coconut production was mainly due to the low
lands, as proceeds could not even cover the cost rainfall received in main coconut growing areas in

52
 NATIONAL OUTPUT, EXPENDITURE AND INCOME

Table 2.5 High domestic prices for coconut, amidst

Trends in Principal Agricultural Crops
the low production, were partly attributed to

Category Unit 2015 2016

Change (%) the increased demand from coconut based
2014/15 2015/16
(a) (b) (a) (b)
industries and high export prices. In 2016, the
1. Tea
1.1 Production (c) kg mn 328.8 292.6 -2.7 -11.0 average retail price of fresh nuts decreased by
1.2 Total Extent hectares '000 203 203 - -
1.3 Extent Bearing hectares '000 195 195 - - 8.3 per cent to Rs. 45.82 per nut. During the year,

2
1.4 Cost of Production (d) Rs/kg 458.84 469.24 -3.4 2.3
1.5 Average Price domestic prices for desiccated coconut decreased
- Colombo Auction Rs/kg 401.46 473.15 -12.5 17.9
- Export (FOB) Rs/kg 593.08 639.88 -8.7 7.9 by 8.7 per cent, from Rs. 290.65 per kilogramme in
1.6 Replanting hectares 1,226 1,044 2.6 -14.8
1.7 New Planting hectares 495 115 23.4 -76.8 2015 to Rs. 265.27 per kilogramme in 2016. The
1.8 Value Added as % of GDP (e) 0.8 0.7 -11.1 -12.5
2. Rubber
average FOB price of kernel products declined
2.1 Production
2.2 Total Extent
kg mn
hectares '000
88.6 79.1
137 136
-10.1
2.2
-10.7
-0.7
by 25.4 per cent to Rs. 328.30 per kilogramme,
2.3 Area under Tapping (f) hectares '000 108 93 -2.7 -13.9
against Rs. 439.94 per kilogramme in the previous
2.4 Cost of Production Rs/kg 170.00 180.00 6.3 5.9
2.5 Average Price year. In the local market, the price of coconut oil
- Colombo Auction (RSS 1) Rs/kg 248.17 239.28 -13.2 -3.6
- Export (FOB) Rs/kg 342.03 294.33 -5.7 -13.9 increased by 4.3 per cent to Rs. 215.34 per bottle
2.6 Replanting (f) hectares 621 591 -70.4 -4.9
2.7 New Planting (f) hectares 769 592 -46.1 -23.9 of 750 millilitres. The three kernel product exports,
2.8 Value Added as % of GDP (e) 0.3 0.3 - -
3. Coconut namely, desiccated coconut, copra and coconut oil,
3.1 Production nuts mn 3,056 3,011 6.5 -1.5
3.2 Total Extent hectares '000 455 466 3.2 2.4 increased by 38.5 per cent, with export earnings
3.3 Cost of Production Rs/nut 16.39 16.70 19.9 1.9
3.4 Average Price from these products increasing by 4.5 per cent.
- Producer Price Rs/nut 33.88 32.13 7.5 -5.2
- Export (FOB) (g) Rs/nut 54.54 41.16 39.6 -24.5
Exports of fresh nuts increased by 130.5 per
3.5 Replanting / Under Planting (h) hectares 4,919 5,000 -15.1 1.6
3.6 New Planting (i) hectares 14,408 10,996 -53.2 -23.7
cent, coconut cream increased by 27.1 per cent,
3.7 Value Added as % of GDP (e) 0.8 0.7 - -12.5
coconut milk exports increased by 38.9 per cent
(a) Revised Sources:
(b) Provisional Sri Lanka Tea Board while exports of coconut milk powder decreased by
(c) Including green tea Tea Small Holding Development Authority
(d) Includes green leaf suppliers’ profit
margin
Ministry of Plantation Industries
Department of Census and Statistics
32.5 per cent.
(e) In growing and processing only Rubber Development Department
(f) Extent covered by cultivation Coconut Cultivation Board
assistance schemes of the Rubber
Development Department .
Coconut Development Authority
Plantations Companies
Minor Export Crops
(g) Three major coconut kernel products Sri Lanka Customs
only
(h) Extent covered by cultivation
Central Bank of Sri Lanka
The production of minor export crops
assistance schemes of the Coconut
Cultivation Board (CCB). recorded a decline due to adverse weather
(i) The extent newly planted is calculated
based on the amount of coconut conditions and cyclical seasonal patterns.
seedlings distributed by CCB at a
conversion rate of 158 seedlings for
one hectare.
According to the provisional estimates provided
by the Department of Export Agricluture, the
2016. In line with the increased industrial demand, production of minor export crops in 2016
desiccated coconut production, which reported a contracted by 9.5 per cent, compared to
17.1 per cent contraction in 2015, rebounded with 12.9 per cent growth that was recorded in 2015. The
a growth of 22.3 per cent, recording the highest production of cinnamon, cardamom, coffee, cocoa
quantum of desiccated coconut production in the and nutmeg registered a growth in 2016, while the
last decade. Meanwhile, coconut oil production production of pepper, clove and arecanut declined.
decreased by 7.5 per cent, caused mainly by the Production of cinnamon increased considerably by
increased prices of fresh nuts. Desiccated coconut 7.0 per cent to 18,945 metric tons in 2016 from
exports of 72,000 metric tons, recorded a significant 17,707 metric tons in 2015. Production of cocoa
growth of 56.7 per cent from the previous year. grew by 42.2 per cent to 650 metric tons, nutmeg by

53
 CENTRAL BANK OF SRI LANKA | ANNUAL REPORT 2016

51.1 per cent to 4,155 metric tons and coffee by increased by 2.5 per cent to 215,593 metric tons
7.0 per cent to 2,824 metric tons. Severely affected supported by low international prices. Although the
by the continuous drought during the flowering production of potatoes decreased by 1.6 per cent
and fruiting seasons, the pepper harvest declined to 95,805 metric tons in 2016, the importation of
by 34.4 per cent in comparison to the previous potatoes increased by 4.2 per cent. The production
year. Farm gate prices of pepper increased by of raw ginger and turmeric also rose due to an

2
14.3 per cent, reflecting the high demand in 2016. increase in the extent cultivated with the support
Meanwhile, the significant decline of 65.3 per cent extended by the Ministry of Agriculture. According
in clove production was mainly due to the cyclical to provisional estimates of the Department of
harvesting patterns, which produces a bumper Census and Statistics, the total extent of land used
harvest every other year. The export volumes for the cultivation of OFCs in 2016 declined by
of cloves and pepper declined significantly by 4.6 per cent to 144,892 hectares, owing to adverse
71.2 per cent and 52.7 per cent, respectively, in weather conditions.
2016. Cashew kernel production increased by
4.9 per cent to 3,192 metric tons and the
Vegetables
extent cultivated increased by 7.6 per cent to Supply of vegetables continued to increase
20,102 hectares in 2016. The increase in in 2016. Total vegetable production increased
production was achieved amidst the unexpected marginally by 1.3 per cent to 1,648,501 metric
heavy rainfall experienced during the flowering and tons in 2016, compared to 1,627,592 metric tons
fruiting season in cashew growing areas. Despite in 2015. Although this was mainly due to the
the increase in production, the farm gate prices of impact of the increase in vegetable production
cashew increased by 5.3 per cent during the year. in 2016 Yala season by 10.4 per cent over the
corresponding period in 2015, the 4.9 per cent
Other Field Crops decline in the 2015/16 Maha production, as a result
The production of other field crops of the prolonged dry weather conditions in the first
(OFCs) observed a decline due to the impact four months of the year, reflected the marginal
of adverse weather conditions during the increase observed during the year. The increased
year. The production of OFC declined by 6.4 production during 2016 Yala season is mainly
per cent to 339,253 metric tons in 2016 from due to the increase in the extent of land used for
362,452 metric tons in 2015. The production of finger vegetable cultivation, following the failing of paddy
millet (kurakkan), maize, green gram, soya beans, cultivation in the Yala season, due to the drought
black gram, chilli, potatoes, big onion and ground that prevailed during the end of 2016. Responding to
nuts declined in 2016 mainly due to the drop in the the reduced vegetable supply in the Maha season,
extent under cultivation. Meanwhile, the production both up-country and low-country vegetable prices
of sorghum, cowpea, gingelly and red onions increased in May 2016. In addition, crop damages
increased in 2016, in comparison to 2015, largely and interruptions of supplies caused by the heavy
due to the higher production in Jaffna and Puttalam rain and flood in May 2016 further aggravated the
districts. Notably, the output of big onions declined level of vegetable prices. Meanwhile, vegetable
by 26.7 per cent to 65,223 metric tons during the cultivation in the intermediate season also declined
year, and consequently, imports of big onions due to weather related setbacks. Nevertheless,

54
 NATIONAL OUTPUT, EXPENDITURE AND INCOME

the supply of vegetables increased considerably between producers and exporters, and further
in the Yala harvesting period, resulting in prices development of the contract farming system are
decreasing from August onwards. Further, the important to improve the fruit and vegetable export
significant improvement of vegetable supply from market.
the Northern Province, as a result of increased
extent under cultivation, helped reduce price Sugar

2
pressures in the vegetable market throughout Sugar production recorded a considerable
the year. Towards the end of the year, however, increase in production during 2016. Sugar
following the seasonal pattern, vegetable prices production that rose remarkably to 55,972 metric tons
increased again. During 2016, 21.1 million in 2015, recorded a further increase of 10.9 per cent to
kilogrammes of vegetables with a value of 62,048 metric tons in 2016. Cultivation of high yielding
Rs. 3.9 billion were exported. To protect farmers and sugar cane varieties, access to proper irrigation
consumers, strong policy measures are necessary systems and field maintenance, and the expansion
to educate farmers on Good Agricultural Practices in planting activities of out-growers were the main
(GAP) at the nurseries, and popularise improved contributory factors to the increased production in
technologies on crop cultivation and processing, 2016. The Pelwatte and the Sevanagala factories
which can help increase the productivity of the contributed to this improvement in production, amidst
sector. the negative performance of the Gal Oya factory. The
Pelwatte factory reported a 23.8 per cent increase
Fruits
in production, to 34,188 metric tons in 2016. The
Fruit production continued to decline in 2016 Pelwatte factory, which accounted for 49.3 per cent
although it was in high demand by exporters. Fruit of the total sugar production in 2015, consolidated
production declined further by 6.0 per cent in 2016 its position further during the year by increasing its
following the 15.6 per cent decline observed in the share to 55.1 per cent. The Sevanagala factory
previous year. Variety wise, orange, lime, mango, recorded a 19.9 per cent increase in production to
avocado and passion fruit production increased 17,234 metric tons in 2016. Meanwhile, for the
during the year, while banana, papaw, pineapple, second consecutive year, the production of the
rambutan, guava and melon registered a decline. Gal Oya factory declined by 24.0 per cent to
Sri Lanka imported 54,107 metric tons of fresh fruits, 10,626 metric tons in 2016. Reduced availability
incurring a cost of Rs. 7.3 billion during 2016. This and the poor quality of sugar cane, resulting mainly
was an increase of 19.8 per cent over the quantity from adverse weather conditions, appeared to have
imported in 2015. As in the preceding year, apples,
contributed to the poor production performance
oranges, mandarins and grapes were the main
at the Gal Oya. Given these developments, the
varieties of fresh fruit imported. Meanwhile, Sri Lanka
Sugar Recovery Rate,1 which is an indicator of
exported 33,300 metric tons of fresh fruits worth
productivity, marginally increased to 7.6 per cent
Rs. 5.0 billion during 2016, resulting in a trade deficit
in 2016, from 7.5 per cent in the previous year.
of Rs. 2.3 billion in 2016. Even though there is a good
It is estimated that the overall domestic sugar
export demand for local fruits and vegetables, the
production in 2016 was sufficient to meet around
inability to supply large quantities on a continuous

1 Sugar Produced
Sugar Recovery Rate = x 100
basis is a major constraint. Establishing direct links Quantity of Cane Crushed

55
 CENTRAL BANK OF SRI LANKA | ANNUAL REPORT 2016

9.5 per cent of the total sugar requirement of the Table 2.6
Fish Production
country. The increased demand, along with the low
mt ‘000
SCL on sugar imports, led to an increase in sugar Change (%)
Sub-Sector 2015 2016 (a)
2014/15 2015/16(a)
imports by 4.4 per cent to 651,181 metric tons.
Marine 453 457 -1.4 0.9
Recognising the vast potential as well as the need for Coastal and Lagoon 269 274 -3.5 1.9
Off-shore 184 183 1.9 -0.6
the promotion of sugar cultivation of out-growers, the Inland Fisheries 67 74 -11.2 9.9

2
Capture 57 58 -17.1 2.4
Pelwatte and the Sevanagala factories accorded high Aquaculture 3 9 77.0 201.3
Shrimp Farms 7 6 37.7 -15.0
priority to the expansion of the existing out-grower Total 520 531 -2.8 2.1

schemes. (a) Provisional Source: Ministry of Fisheries and Aquatic Resources

Development

Fisheries harvest losses in the fisheries sector due to poor

handling, estimated at around 25 per cent of the
The fisheries sector expanded moderately
catch, is vital in harnessing the full potential of the
in 2016. Fish production in 2016 increased by
2.1 per cent over 2015 to 530,920 metric tons. The industry.

marine sector production, consisting of coastal

Livestock
and off shore sub sectors, which accounted for
86.0 per cent of total fish production, increased by The total national milk production continued to

0.9 per cent to 456,990 metric tons. The production expand, with a growth of 2.6 per cent to 384 million

of coastal fish marginally increased by 1.9 per cent litres in 2016, mainly due to government efforts to
achieve self-sufficiency in milk. The increase in
to 274,160 metric tons, while the off shore fish
production can be attributed to a range of factors, from
production recorded a 0.6 per cent decline to 182,830
the commencement of milking from imported heifers
metric tons. Fish production of the inland fishery and
at the Ridiyagama farm, farmers receiving attractive
aquaculture sector, which accounts for the balance
prices for raw milk and growing demand for raw milk
14.0 per cent of the total production, increased
from large milk collectors with increased capacity at
significantly by 9.9 per cent compared to 2015.
milk factories. Cattle milk production, which accounted
Growth in the inland fishery and aquaculture sectors
for 82.8 per cent of total milk production, increased by
was due to the increase in the release of fingerlings
4.1 per cent, year-on-year, to 317.9 million litres, whilst
to inland reservoirs as well as improvements in the
buffalo milk production decreased by 4.2 per cent to
aquaculture sector. Total fish imports decreased by
66.1 million litres. The domestic milk production is
3.6 per cent to 115,693 metric tons, while dried or
sufficient to meet 42.0 per cent of the total demand
salted fish imports increased by 5.8 per cent to 34,978 at present. Meanwhile, milking cows decreased by
metric tons during the year. Meanwhile, canned fish 5.6 per cent to 284,400 and the number of buffalo
imports decreased considerably by 24.3 per cent to milking cows decreased by 9.2 per cent to 83,150.
37,089 metric tons. With the lifting of the European Until 2015, the cattle population had been given as an
Union (EU) ban on Sri Lankan sea food exports, with estimate. In 2016, a headcount was conducted with
effect from 21 June 2016, the demand from the EU the participation of Livestock Development Instructors
for Sri Lankan fish varieties expanded. Accordingly, attached to the Department of Animal Production and
fish exports to the EU increased significantly Health, which listed the cattle population by collecting
by 23.1 per cent to 2,540 metric tons in 2016. data from the smallest service delivery units across
Going forward, addressing the large scale post- the country. As a result of this headcount, the cattle

56
 NATIONAL OUTPUT, EXPENDITURE AND INCOME

population figures for 2016 reflect the actual number The poultry sector continued its growth
of cattle in Sri Lanka and the percentage change in the momentum in 2016. According to provisional
herd number reflects the reconciliation of the earlier estimates of the Department of Animal Production
estimated figure with the current headcount. Milk and Health, chicken production recorded a growth
production at the National Livestock Development of 5.7 per cent to 173,830 metric tons. Increased
Board (NLDB) increased to 17.9 million litres in chicken production was mainly driven by the increase

2
2016 from 11.0 million litres, while MILCO (Pvt) in imports of broiler parents and layer parents by
Ltd. increased its milk collection by 9.4 per cent to 88.7 per cent and 107.7 per cent, respectively.
70.0 million litres. The modernisation of factories However, the cost of production of chicken increased to
managed by MILCO (Pvt) Ltd. located in Polonnaruwa Rs. 306.74 per kilogramme of dressed weight in 2016,
and Digana, with a view to increasing the processing from Rs. 291.16 per kilogramme in 2015. In spite of
capacity, was completed and the Ambewela factory the increased production, prices of chicken increased
will be completed by the end of the first quarter of in 2016, with the average price of fresh chicken at
2017. The national average cost of the production Rs. 538.56 per kilogramme in comparison to
of milk reduced by Rs. 2.67 per litre to Rs. 31.99 per Rs. 507.90 per kilogramme in the previous year. The
litre due to the price reduction of coconut poonac ceiling price imposed for broiler chicken which was
compared to 2015, while the average farm gate Rs. 420.00 per kilogramme was removed with effect
price increased by Rs. 5.00 per litre to Rs. 64.00 per from 14 March 2017. Meanwhile, egg production
litre, leading to higher earnings for farmers. Despite increased by 8.5 per cent to 2.0 billion,
increased production, milk powder imports valued at whereas the average cost of production of
Rs. 33.6 billion in 2016 increased by 15.0 per cent eggs increased from Rs. 10.07 to Rs. 12.41.
to 94,011 metric tons. The government continued to The average price of an egg increased to
pay attention towards upgrading the quality of cattle in Rs. 16.10 in 2016 from Rs. 14.80 in 2015. The
the country by implementing numerous programmes production of pork and mutton increased by
such as the heifer calf rearing project, which registered 1.4 per cent and 3.7 per cent to 7,280 metric tons
16,577 calves in 2016. These measures can lower the and 1,400 metric tons, respectively, while beef
amount of milk powder imported and enhance the production declined by 2.0 per cent to 31,540
quality of milk produced in local dairy farms to meet metric tons. The cost of production of pork was
international standards. Rs. 264.58 per kilogramme, while that of mutton
and beef was Rs. 281.15 per kilogramme and
Table 2.7
Livestock Sector Statistics Rs. 357.37 per kilogramme, respectively. The
average prices of pork increased by 8.2 per cent,
Change (%)
Sub-Sector 2015 2016 mutton by 12.2 per cent and beef by 18.5 per cent.
(a) (b) 2014/15(a) 2015/16(b)
1. National Herd (No.) (million) 1.4 1.2 -8.9 -14.1
Neat Cattle 1.1 0.9 -6.9 -13.1 Forestry
Buffalo 0.3 0.3 -15.1 -17.4
2. National Milk Production (million litres) 374.4 384.0 13.7 2.6
Cow Milk 305.4 317.9 15.2 4.1
The forest cover of Sri Lanka is 1,951,472
Buffalo Milk 69.1 66.1 7.9 -4.2
hectares according to the Forest Cover
3. Milk Products (million litres) '(c) 33.5 36.9 14.0 10.1
4. Producer Price - Cow Milk (Rs./litre) 58.91 64.03 -1.7 8.7 Estimation Survey conducted by the Forest
5. National Egg Production (No.) (million) 1,898.9 2,059.7 16.0 8.5
6. National Poultry Meat Production (mt '000) 164.5 173.8 13.8 5.7 Department. This survey however, is conducted
(a) Revised
(b) Provisional
Sources: Ministry of Rural Economic Affairs
Department of Census and Statistics
once in every ten years and as a result the
National Livestock Development
(c) Includes Products of National
Livestock Development Board and Board latest information available is from the last
MILCO (Pvt) Ltd.
MILCO (Pvt) Ltd only.
survey conducted in 2010. Due to illegal logging,

57
 CENTRAL BANK OF SRI LANKA | ANNUAL REPORT 2016

settlements and chena cultivation, the extent Agriculture Policies and

of natural forest cover has deteriorated over Institutional Support
time. Hence, a methodical survey needs to
The government Food Production National
be conducted at higher frequencies, making
Programme (FPNP) for the period 2016 – 2018
use of the latest technologies available to
focuses on several targets. These include targets to
assess the changes in the forest cover of the
make the country self sufficient in maize, soya beans,

2
country in a timely manner. During the year,
chilies, onions, and potatoes by 2018 through crop
the extent deforested for timber extraction was
diversification and productivity improvements, while
781 hectares, compared to 423 hectares in 2015,
facilitating the movement of subsistence farming into
and the extent reforested under hilltop planting, agri-business by 2020. Further, the FPNP focuses on
enrichment planting and buffer zone planting was achieving food security, ensuring higher and more
100 hectares. The United Nations Programme sustainable income and remunerative prices for
on Reducing Emissions from Deforestation and farmers, uninterrupted access to competitive markets,
Forest Degradation (UN-REDD) continued to both in Sri Lanka and abroad. In addition, the FPNP also
function in Sri Lanka during 2016 and supported aims at introducing farm mechanisation, expanding the
the development of a national strategy for extent under cultivation, reducing wastage in transit
REDD++2 implementation, the designing of and ensuring environmental conservation, introducing
National Forest Inventory for Sri Lanka, the efficient farm management techniques and using high
development of a National Forest Monitoring yielding seeds and improved water management.
System and submission of a National Forest Accordingly, since 2016, the Ministry of Agriculture
Reference Level (FRL) to the United Nations instigated the home gardening promotion programme
Framework Convention on Climate Change under FPNP, aimed at developing 500,000 home
(UNFCC). The Sri Lanka Community Forestry gardens. This programme will be helpful not only to
programme, which is being implemented since fulfil the food and nutrition requirement of a household,
2012, continued in 2016 by providing training on but also to augment the overall food production of
skill development and providing material support the country. While the government has taken steps
to establish micro enterprises. Under the forest to improve food security and ensure environment
enhancement programme that commenced in sustainability in relation to the agricultural sector, the
2014 with a view to increase the forest cover of country needs to adopt a comprehensive approach
the country up to 32.0 per cent of the land area by towards increasing productivity of all food categories
2019, from 29.7 in 2016, the Forest Department instead of merely concentrating on achieving food
carried out activities aimed at the rehabilitation security.
of degraded forests and protection of existing The government introduced several measures
forests during 2016. Meanwhile, under the private to enhance paddy production and stabilise
sector reforestation programme, the extent of paddy prices. To mitigate health and environmental
commercial scale private forest plantations was issues such as water pollution due to the excessive
413 hectares in 2016. use of fertilizer, the government initiated a National
2 REDD++ is the programme on Reducing Emissions from Deforestation and Forest Programme named "A Wholesome Agriculture -
Degradation (REDD) and all transitions in land cover that affect carbon storage, whether
peatland or mineral soil, trees outside forest, agro forest, plantations or natural forest. A Healthy Populace - A Toxin Free Nation", with

58
 NATIONAL OUTPUT, EXPENDITURE AND INCOME

Table 2.8
Food Balance Sheet with Regards to Major Food Commodities

2010 2015 2016 (a)

Item Unit Per Capita Per Capita Per Capita

Production Imports Availability Production Imports Availability Production Imports Availability
(kg per Year) (kg per Year) (kg per Year)
Rice (b) mt’000 3,011 126 152 3,373 286 175 3,094 30 147
Maize mt’000 162 16 9 261 79 16 244 51 14
Wheat mt’000 - 1,051 51 - 1,208 58 - 948 46

2
Big Onion mt’000 59 158 10 89 210 14 65 216 13
Sugar mt’000 31 548 28 56 624 32 62 651 34
Potatoes mt’000 52 130 9 97 142 11 96 148 12
Fresh Fish mt’000 385 14 19 520 34 26 531 39 27
Cow Milk mn litres 192 - 9 305 - 15 318 - 15
Coconut Oil mt’000 65 3 3 53 6 3 49 3 2
(a) Provisional Sources: Department of Census and Statistics
(b) 1 mt of paddy = 0.7 mt of rice Sri Lanka Customs

the intention of preventing the use of highly toxic improved method (parachute method) for sowing
agrochemicals in the farming sector. The three year paddy, which significantly reduces the requirement
programme will focus on increasing the use of of seed paddy as well as labour costs.
traditional varieties of rice (30.0 per cent over
The Sri Lanka Tea Board (SLTB), Tea
3 years through 2016 - 2019), phase out chemical Research Institute (TRI) and Tea Small Holdings
fertiliser and pesticide usage, and promote organic Development Authority (TSHDA) continued
agriculture. The Paddy Marketing Board (PMB) their development activities with a focus
purchased a stock of 131,981 metric tons of paddy on improving productivity, competitiveness
from the 2015/16 Maha harvest, in comparison to and technological enhancement, while
160,000 metric tons in the 2014/15 Maha season promoting the adoption of best practices for
and was able to purchase only 25,447 metric tons the development of the tea sector in 2016. The
of paddy from the market in the 2016 Yala season, SLTB took strategic marketing action to promote
compared to 175,270 metric tons purchased in the generic tea under the brand of “Pure Ceylon Tea
2015 Yala season. The purchased amount in the packed in Sri Lanka” across the tea markets and
2016 Yala season was equivalent to 21.2 per cent attended international trade fairs and exhibitions.
of the targeted volume. This was in addition to the The SLTB also undertook the task of evaluating
reduced harvest and the result of the private sector and implementing Good Manufacturing Practices
paddy millers speculatively purchasing paddy from (GMP) standards at tea factories and warehouses
farmers at higher prices. It is necessary to rationalise and a GMP assessment was carried out for
the paddy purchasing programme by purchasing upgrading tea factories. The “B Leaf 60” programme
and releasing paddy stocks at the correct time. carried out by SLTB with the aim of upgrading the
This will benefit all the stakeholders; farmers, average best leaf standard from 33.0 per cent to
consumers as well as the PMB. Meanwhile, the 60.0 per cent, to minimise post-harvest losses,
Rice Research and Development Institute (RRDI) continued to be implemented through awareness
developed several new hybrid short-duration rice programmes, regulatory activities and monitoring
varieties with drought resistant and flood proof quality. In order to reduce the risk of safety hazards
modifications, which produce 20.0 per cent more in food, factories continued to obtain the Hazard
potential yield levels. The RRDI also introduced an Analysis and Critical Control Point (HACCP)

59
 CENTRAL BANK OF SRI LANKA | ANNUAL REPORT 2016

Certification and during the year 2016, 40 factories The Rubber Development Department
obtained the HACCP Certification. The subsidy (RDD) and the Rubber Research Institute (RRI)
scheme under the tea factory modernisation steered the development strategy for the rubber
granted a total of Rs. 26.1 million to 21 factories. sector to improve productivity and explore
The TRI, as the national institute for generating new ventures to increase the local production
and disseminating new technologies related to tea of rubber and mitigate the effect of volatile

2
cultivation and processing, undertook research and prices for rubber in the global market. The main
development strategies, and extension activities strategic plan of RDD was focused on increasing
as per the TRI Strategic Plan 2013 – 2017, to the national rubber production up to 200,000 metric
address the present needs of the tea industry. New tons by year 2020, from 79,100 metric tons as of
tea cultivars such as TRI 5000 series with higher now. Productivity improvements and the expansion
tolerance to stresses such as climate change, of rubber cultivation to non-traditional areas are
blister blight and more adaptive to all major tea the main strategies implemented in 2016 to move
growing regions were developed under crop
towards the target. The subsidy scheme for rubber
improvement. An integrated approach was adopted
replanting and new planting for smallholders
towards soil fertility management by validating the
continued in 2016 as well, disbursing around
soil quality index, which will facilitate the decision
Rs. 193.0 million for the replanting of 538.0
making process of soil rehabilitation practice in
hectares and Rs. 179.9 million for new planting of
replanting lands. Integrated crop management
592.5 hectares, during the year. Ampara, Mullaitivu
and protection approaches were introduced to
and Vavuniya districts have been identified with the
minimise damage and address health, safety and
intention of expanding rubber cultivation into non-
environmental issues. Mechanical harvesters and
traditional areas. During the year, 212.6 hectares
devices were introduced among tea small holders
in the Ampara district were newly planted. The
to increase labour productivity and ensure industry
RDD implemented the Rubber Fertiliser Subsidy
sustainability. Sustainable farming systems
Programme since May 2016 and disbursed
with organically cultivated experimental blocks
Rs. 91.1 million over 38,472 beneficiaries. An
continued. The TSHDA implemented the Tea
expert group has been set up by the Association
New Planting and Crop Rehabilitation Subsidy
Programme and the Tea Replanting Subsidy of Natural Rubber Producing Countries (ANRPC)

Programme in collaboration with SLTB. Throughout to develop recommendations on stabilising global

the year 2016, 108 hectares were newly planted at rubber prices. The RRI expanded its research
a cost of Rs. 48.3 million, while around 741 hectares and development efforts for the benefit of the
were replanted at a cost of Rs. 484 million under the rubber industry in 2016. Major decisions taken by
above subsidy schemes. The TSHDA implemented RRI to support the rubber sector in the midst of
the National Fertiliser Subsidy Scheme where declining rubber prices included, promoting value
Rs. 15,000.00 per hectare was given for tea addition in raw rubber, promoting methodologies
smallholders who owned between less than one to reduce the cost of production in raw rubber
hectare and over 20 perches of land cultivated for such as low intensity harvesting, promoting
tea. In 2016, 204,554 beneficiaries received the intercropping systems for increased income and
subsidy, amounting to Rs. 1.3 billion for 83,864 improved growth of rubber, and promoting rubber
hectares of tea cultivated land. cultivation in participatory forestry programmes.

60
 NATIONAL OUTPUT, EXPENDITURE AND INCOME

Major research highlights of the year included, maintain the buffer zone of the Weligama Coconut
identifying a suitable slow release fertiliser for Leaf Wilt Disease (WCLWD) and acquired land
rubber nursery plants, to reduce overall fertiliser from CCB to commence a seed garden in the
application, promoting soil fertility management Weligama area, to produce seedlings resistant
in rubber cultivations with the combined use of to WCLWD. The “Kapruka” programme was
bio fertiliser with inorganic fertiliser for long term strengthened to organise coconut smallholders as

2
sustainable yields, popularising new high yielding community based organisations to engage them in
extension programmes, pest and disease control
clones in the smallholder sector, identifying
programmes and establish coconut cultivation
disease resistant rubber clones to avoid sudden
models to demonstrate inter cropping and promote
disease outbreaks and promoting environmental
animal husbandry in coconut cultivations to
friendly agro management practices. Rubber
increase land productivity. Approval has also been
smallholders, united through “Thurusaviya”
granted to establish two new factories engaged
societies, were trained on improving their
in desiccated coconut production. Coconut fibre
knowledge on producing high quality rubber sheets,
millers and processors were encouraged to obtain
and machines and equipment were distributed GMP Certifications and new market opportunities
among them as per the standards specified by the were explored in 2016 to make the coconut industry
RRI, with the expectation of obtaining high quality more profitable and attractive.
rubber sheets.
Although commercial sugar production in
The Coconut Cultivation Board (CCB), Sri Lanka commenced several decades ago, the
the Coconut Research Institute (CRI) and industry is still plagued with several structural
the Coconut Development Authority (CDA) problems. Given that Sri Lanka has not been able
focused on improving the productivity of to create an enabling environment for the sugar
coconut palm and coconut land, expanding industry, it is essential to create a favourable
coconut cultivation and engaging in research legal, institutional and regulatory framework for
and development activities to produce disease the development of the industry. Low sugarcane
resistant seedlings and promote coconut availability and yields, high cost of production,

exports in various forms. During 2016, CCB weather related disturbances, poor recovery rates
and labour problems have adversely impacted the
implemented strategies to increase coconut
industry. Considering these issues, the government
production, coconut land area and coconut land
initiated a programme for Scientific Cooperation
productivity. Subsidy schemes were initiated to
between the Sugarcane Research Institute, Sri
increase the productivity of coconut palm through
Lanka and Vasantdada Sugar Institute, India, to
providing fertiliser for coconut plantations, establish
develop sugarcane cultivation and processing.
husk pits and soil conservation, implement low cost
hose irrigation, moisture conservation and inter- Meanwhile, in 2016, the Sugarcane Research

cropping. The CRI monitored the developments Institute identified five new varieties of sugarcane
in the sector together with CDA and CCB, and for commercial testing. Arrangements have been
provided policy recommendations, including the made by the government to re-establish the Kantale
promotion of fresh nut exports, the regularisation Sugar Factory as a public-private partnership
of CDA Auction and the increasing of tariffs (PPP). As proposed in the Budget 2017, on
on imported edible oils. The CRI continued to 01 January 2017, a minimum purchasing price

61
 CENTRAL BANK OF SRI LANKA | ANNUAL REPORT 2016

of Rs. 5,000.00 per metric ton of sugarcane was project of the five great reservoirs in the Mahaweli
imposed to encourage local farmers to cultivate Master Plan, was completed. The Moragahakanda
sugarcane, and to establish a Sugar Stabilisation reservoir, which spreads over 460,000 acres, is
Fund to protect the sugarcane farmers from the the fourth largest reservoir in Sri Lanka.The sluice
adverse impact that may arise from fluctuations in gates of the Moragahakanda reservoir closed in
price and loss of crop, due to attacks of pests and January 2017, enabling the filling up of the reservoir

2
wild elephants. for the first time. Meanwhile, the Kalu Ganga

During the year, institutions under the reservoir was constructed as a twin project with the

Department of Agriculture (DOA) continued Moragahakanda reservoir and water was brought

to conduct programmes in line with the to Moragahakanda through a canal that spans nine

government policy to improve the domestic kilometres. The objective of the overall project is to

agricultural sector in the country. The Rice collect water at the basin of the Amban River and

Research Institute introduced three new high to distribute that water to Matale, Anuradhapura,

yielding rice varieties namely, BG 252, LD 253, Polonnaruwa and Trincomalee districts for

and BG 374, with realisable yield potential of agricultural needs. In addition, the project will add

4.5 – 5.0 metric tons per hectare, which are more 25 megawatts of electricity to the national grid.
resistant to pests and diseases. Since chemical Meanwhile, Budget 2017 proposed to develop
control is costly and pollutes the environment, several irrigation schemes. Accordingly, Rs. 600
developing resistant varieties for pests and million was allocated to merge two existing tanks
diseases is the best option as it is environmentally “Kithul” and “Rugam”, and create a bigger reservoir
friendly and cost efficient. In the OFC sector, the for irrigation and flood mitigation in the Batticaloa
releases of a new maize variety, MI Maize Hybrid district for the Kumbukkan Oya Reservoir Project,
02 with an average yield around 5.5 - 6.5 metric which is a multi-purpose project in the district of
tons per hectare and a new green gram (mung) Monaragala, and to rehabilitate the Tharapuram
variety, MI 7, of which over 80.0 per cent of the Tank in the Mannar district. Further, Rs. 1 billion
yield can be obtained from the first harvest, were for the Yan Oya Project and Rs. 300 million for
the significant improvements reported in the year. the Lower Malwathu Oya Irrigation Project were
Further, seed paddy production programmes under allocated during the year. Rs. 200 million was
DOA also showed a significant improvement in allocated to expand the Dam Safety and Water
2016. Accordingly, 3,863 metric tons of registered Resource Planning Project (DSWRP) to establish
and certified seed paddy, 855.6 metric tons of an automated monitoring system to collect real-
registered, certified and commercial seeds of other time data from farming fields, to facilitate the
field crops and 9.8 metric tons of standard vegetable monitoring of the impact of agrochemicals on water
seeds were produced in government seed farms, quality and quantity, with external pressures, in an
under DOA and under contract growing. area covering eight districts.

The government invested heavily on The Department of Animal Production

expanding irrigation facilities in recent times. In and Health (DAPH) implemented several
2016, the Moragahakanda reservoir, which is the programmes in line with the government
largest multi-functional irrigation project and the last policy framework for the development of the

62
 NATIONAL OUTPUT, EXPENDITURE AND INCOME

dairy sector based on the Livestock Sector As a result of the measures taken by the
Master Plan. Although the local milk production is government on restricting illegal, unreported
still unable to meet the domestic demand in full, and unregulated fishing activities, the ban
several measures have been taken to increase the imposed against Sri Lanka by the EU prohibiting
domestic milk production through upgrading the fish exports to the EU countries, over a period of
cattle, buffalo and goat population by improving one and half years commencing from January

2
the artificial insemination centres, progeny testing 2015, was lifted with effect from 17 June 2016.
of bull calves for natural breeding programmes The ban on fisheries product exports came into
and pasture development. The Heifer Calf Rearing effect due to Sri Lanka's failure to address the
Project, wherein support is given to farmers to feed shortcomings in the implementation of control
and manage artificially born female heifer calves measures, a lack of deterrent sanctions on the
continued in 2016 as well. Institutional support high seas fleet, as well as the failure to comply with
for livestock development was strengthened international and regional fisheries rules. Although,
by the Field Veterinary Service Improvement the fishing industry is highly capital intensive,
Programme, establishing four new veterinary the inflow of capital is not at a desired level, and
offices in Arachchikattuwa in the Puttalam district, considering this deficiency, the Ministry of Fisheries
Welioya in the Mullaitivu district, Nachchaduwa in and Aquatic Resources Development continued to
the Anuradhapura district and Soranatota in the provide various subsidies to the fishing industry to
Badulla district. The government encouraged the support the modernisation of the fishing fleet and
establishment of Dairy Development Zones to fishing gear. Under the producer subsidy schemes,
support backward integration in selected districts 13,150 fishing gear units and 664 traditional
through PPPs, especially on idle or underutilised craft were issued in 2016 when compared to 990
land of the National Livestock Development fishing gear units and 253 traditional craft in 2015.
Board (NLDB). Assistance is to be provided to Recognising the issue of the lack of large fishing
self-employed farmers through a gap financing vessels, the government decided to provide a
scheme, by giving ten cattle each, from imported 50.0 per cent grant for manufacturers of boats
milk producing cattle breeds to increase the supply longer than 55 feet, enabling fishermen to catch
of liquid milk within the country. The decision to better quality fish, which attract high prices in
regulate the price of a packet of 400g of milk powder the international market. The Budget 2017 also
at Rs. 295, in spite of the increase in international proposed several measures to uplift the fisheries
prices, continued to help both the local milk sector. Accordingly, to encourage the introduction
producers and the consumers. The government of new technology to multi day boats, with the aim
also proposed to allow millers to import maize, of improving operational efficiency and reducing
which is a key ingredient in producing poultry post-harvest losses, Rs. 100 million was allocated
feed, whenever there is a shortage of domestic to develop the Gandara fishery harbour and
production of maize, subject to a payment of Cess anchorage. Further, it was proposed to allocate
which is to be reimbursed as a rebate on the export Rs. 1,200 million to improve the fishery villages
of chicken. Also the private sector investors were focusing on housing and livelihood development
encouraged to invest in out-grower systems and in 10 coastal districts, including Hambantota,
provide extension services to improve productivity. Batticaloa and Jaffna and also lagoon and coastal

63
 CENTRAL BANK OF SRI LANKA | ANNUAL REPORT 2016

areas of the country. Identifying the potential to Bay, Ambupuram, Valaipadu and Nachchikuda by
increase export proceeds through the export of value the private sector. A leading private sector company
added products, Rs. 500 million had been allocated commenced commercial scale sea weed farming,
to establish an Aquaculture Industry Zone in the with the participation of around 1,000 farmers in the
Mannar district. Rs. 300 million had been allocated Northern Province. Under a MOU signed between
to establish 100 Integrated Inland Fishery Villages
the NAQDA and Vietnam, expertise was provided

2
under the “Wewak Sahitha Gamak” programme
to breed sea cucumber in a private hatchery, and
with the view of developing the inland fishery
in 2016, 435,000 sea cucumber juveniles were
industry, addressing the nutritional deficiencies, and
produced and 61.4 metric tons were harvested.
promoting of industries and creation of employment.
Under the “Diyawara Diriya” loan scheme Stage Industries
II, which is operated by Ministry of Fisheries and
Aquatic Resources Development together with the The value added of Industry activities

Bank of Ceylon, Rs. 42.2 million were released recorded a significant growth of 6.7 per cent

to 62 applicants in 2016. Having identified the in 2016 in comparison to 2.1 per cent growth
potential for developing the inland fisheries and recorded in 2015. The Industry activities which
aquaculture sector, 39.6 million post larvae of fresh comprise construction, mining and quarrying,
water prawn were produced at Natation Aquaculture manufacturing, electricity, water and waste
Development Authority (NAQDA) hatcheries treatment activities positively contributed to the
and the private hatcheries in 2016. Meanwhile, overall growth. Construction, and mining and
38.0 million fresh water prawn post larvae and quarrying activities grew significantly during the
64.3 million fingerlings were stocked in water bodies.
year recovering from the contractions recorded
The NAQDA implemented several programmes
in 2015. Moreover, manufacturing activities also
under the Food Production National Programme
grew positively in 2016. Further, electricity, water
(2016-2018), with the objective of increasing local
and waste treatment activities continued to register
fish products both in quality and quantity. Various
a positive growth. Meanwhile, the BOS sub-indices
activities were implemented during the last few years
related to the Industry segment largely remained in
to rehabilitate the shrimp farming industry, which was
devastated by the White Spot disease. Accordingly, the positive territory during the year.

regulating shrimp hatcheries and screening of post Chart 2.3

larvae of shrimp and brood stock were continued. In Gross Value Addition in Industries (2010 Constant Prices)

addition, services are being provided at the Shrimp 3,000

Farm Monitoring and Extension Unit at Battuluoya for 2,500

shrimp farmers to detect shrimp diseases. A shrimp 2,000

Rs. billion

hatchery has been established at Batticaloa in order 1,500

to support shrimp farming in the Eastern Province 1,000

and this shrimp farm is managed as a public private 500

partnership (PPP). The NAQDA facilitated sea weed 0

2010 2011 2012 2013 2014 2015 2016

farming in Jaffna, Kilinochchi and Mannar and Sea Mining and Quarrying Manufacturing Electricity, Gas & Water Construction

cucumber fattening in Thewanpitti, Mannar South Source : Department of Census and Statistics

64
 NATIONAL OUTPUT, EXPENDITURE AND INCOME

Mining and Quarrying Chart 2.4

Purchasing Managers' Index (a)
Mining and quarrying activities grew by 14.4 80.0

per cent in 2016 in value added terms recovering

70.0

from 5.2 per cent contraction recorded in 2015.

60.0
The significant recovery in construction activities
50.0
stimulated the expansion in mining and quarrying

2
activities. Further, this recovery was reflected in 40.0

the mineral exports volume index which increased 30.0

Jun

Aug

Nov

Jun

Aug

Nov
May

Jul

Oct

May

Jul

Oct
Sep

Jan

Feb

Sep
Dec

Dec
Mar

Apr
by 7.9 per cent in 2016 recovering from 48.1 per 2015 2016

cent contraction in 2015. Moreover, gem exports PMI - Manufacturing PMI - Services

(a) PMI is based on a perception survey which captures monthly developments compared to the
increased by 8.4 per cent in quantity during the previous month. This is a diffusion index ranging from 0-100 where an index value above the
neutral level of 50 denotes an expansion, while a value below 50 denotes a contraction in the
respective activity in general.
year against 17.1 per cent decline in 2015. The Source : Central Bank of Sri Lanka

production of rutile and zircon expanded during the

year, while that of ilmenite contracted. On the other growth, buoying the overall growth in manufacturing

hand, phosphate production contracted during the activities. Considering the behavior of the Purchasing

year mainly driven by the low demand for fertiliser Managers’ Index (PMI) for manufacturing activities
compiled by the Central Bank on a monthly basis, the
manufacturing.
index witnessed an expansion during the year except

Manufacturing for the months of April and May. On average, all sub-
indices, namely, Production, New Orders, Stock of
The value added of manufacturing activities
Purchases, Employment and Suppliers’ Delivery
grew at a slower pace by 1.7 per cent in 2016
Time expanded during the year. Meanwhile, the
compared to 4.9 per cent growth in 2015. This Index of Industrial Production (IIP, 2015=100)
slowdown was mainly attributable to the contraction compiled monthly by the Department of Census
in the manufacture of food, beverages and tobacco and Statistics (DCS) increased by 3.3 per cent in
products, the major manufacturing category, which 2016.
contracted by 2.5 per cent in 2016 as opposed
to 3.7 per cent growth recorded in 2015, in value Factory Industry Production Index3
added terms. Further, value added of manufacture
The factory industry output, the largest
of other non-metallic mineral products, and
contributor to the manufacturing subsector,
manufacture of textiles, wearing apparel and
recorded a decline of 2.7 per cent in 2016 due to
leather related products also contracted by
weak global demand and subdued international
13.1 per cent and 0.2 per cent, respectively, during
commodity prices, coupled with supply side
the year. However, value added of all the other
disruptions caused by adverse weather
manufacturing categories remained positive with
conditions. The Factory Industry Production Index
main contributions from the manufacture of rubber
3 The weights in the FIPI are assigned for each industry using 2010 as the base year and
and plastic products with 17.9 per cent growth, is computed using the International Standard Industrial Classification (ISIC), Revision 4.
At the same time, the Department of Census and Statistics has compiled the Index of
manufacture of basic metals and fabricated metal Industrial Production (IIP) as a composite indicator that measures short-term changes in
the volume of industrial production during a given period, on the basis of a representa-
tive basket of industrial products, compared to the chosen base year of 2015. IIP is
products with 28.7 per cent growth, and manufacture expected to be used for National Accounts compilation purposes from 2017 onwards.
Accordingly, the analysis of the manufacturing sector in the Annual Report 2017 will be
of machinery and equipment with 14.1 per cent carried out using IIP.

65
 CENTRAL BANK OF SRI LANKA | ANNUAL REPORT 2016

(FIPI), which reflects the trends in the manufacturing Table 2.9

Factory Industry Production Index (FIPI)
sector in terms of production, indicated a mixed 2010 = 100
performance in 2016. The production of key Change (%)

subsectors such as food products, wearing Division 2015 2016 2014/15 2015/16
(a) (b) (a) (b)
apparel, beverages, tobacco products, chemicals
1 Food products (23.7%) 107.3 103.9 4.9 -3.2
and chemical products, fabricated metal products 2 Beverages (8.1%) 123.1 106.6 10.1 -13.4

2
and electrical equipment were adversely affected. 3 Tobacco products (8.4%) 95.4 92.4 8.9 -3.2

Notwithstanding, the output of textiles, other non- 4 Textiles (1.6%) 131.0 134.4 -1.4 2.6
5 Wearing apparel (23.1%) 173.4 169.2 16.0 -2.4
metallic mineral products, rubber and plastic
6 Leather and related products (0.8%) 86.4 107.0 -10.9 23.8
products, refined petroleum products, leather and 7 Wood and products of wood, except furniture (0.1%) 121.7 129.0 11.7 6.0

related products and basic metal products have 8 Paper and paper products (0.1%) 126.6 126.6 0.0 0.0

9 Printing and reproduction of recorded media (0.7%) 112.4 112.4 0.0 0.0
improved during 2016.
10 Refined Petroleum Products (2.2%) 82.6 84.3 -3.9 2.1

The food products subsector, the largest 11 Chemicals and chemical products (6.3%) 88.3 77.4 7.5 -12.4
12 Pharmaceuticals, medicinal chemical and
subsector in FIPI, indicated a contraction botanical products (0.1%) 142.2 145.4 -0.4 2.3

of 3.2 per cent during 2016, reversing the 13 Rubber and plastic products (10.5%) 131.3 138.5 -2.2 5.4
14 Other non-metallic mineral products (7.2%) 118.8 132.0 15.4 11.1
positive performance observed in 2015. The
15 Basic metals (1.0%) 115.0 148.0 1.8 28.7
manufacturing of dairy products, processed and 16 Fabricated Metal Products, except Machinery and
Equipment (3.8%) 109.8 72.9 13.0 -33.6
preserved meat products, vegetable and animal 17 Electrical Equipment (2.3%) 130.6 118.4 31.3 -9.3
oil products and value added tea decreased during Factory Industry Production Index 125.4 122.0 9.2 -2.7
the period. However, the manufacturing of bakery (a) Revised Source: Central Bank of Sri Lanka
(b) Provisional
products, sugar, macaroni and noodles, prepared Notes: 1) Weight in the FIPI (2010=100) is given within parentheses.
2) Industrial Production Index (IPI) has been renamed
meals and dishes reported an increase during as Factory Industry Production Index (FIPI) in 2013.

the year. The global turnover of healthy foods is

drinks, mineral and bottled water improved during
estimated to reach US dollars 1 trillion in 2017 and
the year, as a result of high demand due to drought
expected to grow further given the global trend
conditions during the latter part of 2016.
of consumers increasingly seeking healthy food
options. With the abundance of marine resources, The tobacco products subsector recorded
fruits and vegetables, Sri Lanka should explore the a decline of 3.2 per cent during 2016. This was
opportunities in the packaged foods industry to take primarily due to the lower consumer demand
advantage of the growing demand for packaged arising from higher cigarette prices caused by the
foods in the global market. increase in excise duties during the latter part of

The beverages subsector declined by 13.4 2015 and further price increases during 2016. The

per cent mainly due to the lower production of price of cigarettes rose between 45.0 to 100.0 per
liquor, the largest category of this subsector. cent, depending on the brand, in 2016. The last
The disruption to the operations of the largest beer increase in November 2016 was as a result of
manufacturer due to floods was the primary cause the application of a 15.0 per cent VAT on tobacco
of this decline in liquor production. Manufacturing products. It should be noted that higher cigarette
of malted milk products also experienced a setback prices may lead to an increased demand for
during the year. However, the production of soft smuggled cigarettes or cheaper substitutes such

66
 NATIONAL OUTPUT, EXPENDITURE AND INCOME

as beedi that cause severe health hazards. In The wearing apparel subsector, which is the
fact, during the first two months of 2017, Sri Lanka second largest subsector in FIPI, also witnessed
Customs has seized over ten million illicit cigarettes a slight contraction, reporting a decline of 2.4
entering Sri Lanka, in comparison to around four per cent during 2016. Decline in export demand
million illicit cigarettes seized by Sri Lanka Customs from traditional markets in the USA and EU was
in 2016. Although import duty was increased on the the key reason for the poor performance in this

2
importation of Tendu leaves as a measure to curb subsector. However, a growth in garment exports
the production of beedi, the beedi producers in Sri to non-traditional markets, such as Canada, China,
Lanka rely on local substitutes for Tendu leaves. This Australia and the United Arab Emirates (UAE)

indicates that stringent measures should be adopted was observed during 2016. It is expected that the

to curtail the spread of unauthorised and illicit tobacco potential restoration of the GSP+ facility would
make a significant contribution towards the
products in the country.
development of the apparel industry of the country
The output of the textile subsector grew by
with increased exports to EU. However, once a
around 2.6 per cent during 2016. The growth of country attains and remains in the upper middle
this subsector was mainly fuelled by the increase in income country category for three years, the GSP+
domestic market demand for textiles. In 2016, around facility is terminated. Given the current projected
US dollars 2.7 billion was spent on textiles and textile growth rates, Sri Lanka may reach this status in
articles imports into Sri Lanka. This highlights the the medium term. Therefore, it is imperative that
need for exploring the possibility of improving capacity industry should gear to exploit the full potential
in both the manufacture of domestic handlooms and of GSP+ benefits within this short period.
factories producing textiles. Given the fact that some Simultaneously, it is necessary to consider an
garment exporters require specific materials, the expansion of trade agreements with potential
industry may focus on producing high value-added partner countries to help local apparel exporters
textiles helping the garment industry to benefit from diversify export destinations for existing products.
backward linkages in the industrial sector. Such Further, it is necessary to promote industrial
initiatives, while enhancing domestic industrial relocation into more remote areas, in particular the
activities, would contribute to save the country’s North and East provinces, to address the labour
foreign exchange as well. shortages faced by the industry. Moreover, given
Sri Lanka’s niche positioning as a high-quality
Chart 2.5
Factory Industry Production Index (FIPI) supplier, Sri Lanka should consider to position itself
(2010=100) as a regional apparel trade hub, taking advantage
140
of logistics infrastructure, geographical location
130 and the highly skilled labour force.

The production of leather and related products

120
Index Value

110
exhibited a favourable growth of 23.8 per cent in
100 2016. This subsector was positively impacted by the
90 renewed demand for footwear and finished leather
Jan

Feb

May

Jun

Jul

Aug

Sep

Oct

Nov

Dec
Mar

Apr

products in the domestic market, thus reversing the

2014 2015 2016
Source : Central Bank of Sri Lanka negative performance reported since 2014.

67
 CENTRAL BANK OF SRI LANKA | ANNUAL REPORT 2016

BOX 03
Towards a Manufacturing Sector Development Strategy
Manufacturing to Drive Growth sector and the non-manufacturing industrial sectors
(i.e. construction, mining and quarrying, electricity,
Sri Lanka has achieved substantial economic and social
water and waste management) increasing substantially
progress since the economic liberalisation in 1978, in
(Table B 3.1). The share of the manufacturing sector in
terms of national wealth and improved living standards.
GDP remained low and stagnated since 1978 (Table
However, economic growth in the last few years has been

2
B 3.1), while growth rates of the manufacturing sector
constrained at around 3.0 to 5.0 per cent levels, while
remained below GDP growth rates throughout most of
exports relative to GDP have declined. The contribution
the last 15 years (Chart B 3.1). Consequently, the GDP
of the manufacturing sector to economic growth has
growth rates that Sri Lanka recorded during the last few
remained low during the last two decades, due to the
years emanated mainly from non-tradable services and
inability to remain competitive in both domestic and foreign
construction, constraining growth to 3.0 to 5.0 per cent
markets, and evolve towards producing high value added
levels, which is inevitable given the limited size of the
products while increasing productivity. The accelerated
domestic economy.
development achieved by many other nations, through the
implementation of strong industrialisation policies during Chart B 3.1
the mid 20th century, demonstrates that the manufacturing Growth Rates of GDP and Its Components
sector of a country can play a major catalytic role in a
13
country’s economic and social transformation process. The
11
development of the manufacturing sector can contribute
Annual Percentage Change (%)
9
to the eradication of poverty and regional disparity, 7
create quality employment opportunities, increase export 5
income, as well as develop technological capabilities and 3
productive capacities of the economy to support growth. 1
Therefore, at this juncture of Sri Lanka’s growth path, where -1
reliance on foreign aid and government welfare transfers -3
cannot be sustained any longer, there is a crucial need -5
to revitalise the manufacturing sector, for the economy to
1979

1982

1985

1988

1991

1994

1997

2000

2003

2006

2009

2012

2015
attain accelerated sustainable growth. GDP annual growth Industrial sector annual
growth
Manufacturing sector annual Service sector annual
Table B 3.1 growth growth

Sectoral Composition of GDP Sources: Department of Census and Statistics

Central Bank of Sri Lanka
%
Sri Lanka undertook numerous attempts, since
Manufacturing
Year Agriculture Industry Services (which is a part of
economic liberalisation in 1978, to improve the
industry) manufacturing sector, through policy measures, such
as the establishment of the Export Development Board
1978 26 24 50 19 in 1978 and export processing zones, privatisation
1980 24 24 52 18
of state industrial undertakings, setting up of the
1985 26 26 49 18
1990 23 27 50 17 Industrialisation Commission in 1991 under the
1995 20 30 50 14 Industrial Promotion Act No. 46 of 1990, carrying out
2000 19 28 53 16 a “200 Garment Factories Programme” in the 1990s,
2005 17 27 56 16 announcement of an industrial policy statement in
2010 12 29 59 17 1995, launching of the “Productivity Decade 1997-
2015 1 8 26 57 16 2006”, and formulation of a National Framework for
2016 1 7 27 56 15 Small and Medium Enterprise Development in 2015.
Sources: Department of Census and Statistics
Central Bank of Sri Lanka However, the impact of all such measures on Sri Lanka’s
factory industries in maintaining competitiveness in
In contrast to nations, which developed through local and global markets has been low during recent
industrialisation, Sri Lanka has leap-frogged from years. Manufacturing activities have remained highly
an agrarian society to a service-based economy. The concentrated among apparel, food products and rubber
sectoral composition of Sri Lanka’s GDP evolved with the products and other labour intensive industries producing
share of the agricultural sector declining, and the services goods of low technological intensity. GDP growth was
less supported by growth in the manufacturing sector,
1. These percentages were calculated based on gross value added at basic price especially after 2000 when Sri Lanka lost comparative
according to the System of National Accounts 2008 Standard. The sum of gross
value added at basic price for agriculture, industries, services and taxes less advantage from cheap labour in apparel manufacturing
subsidies on products equals gross domestic product at market price. to countries with even cheaper labour. The challenges

68
 NATIONAL OUTPUT, EXPENDITURE AND INCOME

were compounded by the end of the Multifibre zones in their countries. Meanwhile, domestic small
Agreement (MFA) and the loss of the GSP+. During scale enterprises were fostered as they grew into large
the boom of the apparel manufacturing era, Sri Lanka enterprises and protected from dumping (competition
failed to effectively strategise on diversification into through cheap imports). The technological development
other product categories or for shifting manufacturing that took place in the manufacturing sector triggered
to more technologically intensive, high value-added transformation in other sectors, such as services and agri-
and complex products. Sri Lanka's development pattern business. The contribution of the manufacturing sector
corresponds to a concept referred to as “premature to GDP in these countries increased substantially and is

2
deindustrialisation” in academic literature. This is shown much higher than Sri Lanka (Table B 3.2), while a greater
to be caused by globalisation forces, which force growth percentage of merchandise exports are manufactured
in countries with open economies and a lack of a goods. At present, lower-middle income nations such
“head-start” in industrialisation, to be based on capital as Vietnam and the Philippines are striving to follow a
inflows, foreign aid, remittances and commodity price similar growth path through industrialisation. India, which
booms, making only moderate growth possible through has leap-frogged to services from agriculture has made
a services-based economy.2 This further highlights that a commitment to develop the manufacturing sector via a
Sri Lanka needs to undertake an urgent commitment campaign named "Make in India" which commenced in
to develop the manufacturing sector and integrate into 2014.
global value chains even as a late-entrant, in order to
Table B 3.2
accelerate growth.
Percentage Contribution of the Manufacturing
International Experience Sector to GDP of Selected Countries
Many countries that shared a similar economic %
background to Sri Lanka during the 1950s, undertook 1975 1980 1985 1990 1995 2000 2005 2010 2013 2015
government led policy measures to enhance the Sri Lanka 13.1 18.3 18.2 17.4 20.4 15.8 16.3 17.3 15.7 1 15.4 1
productive capacities of their manufacturing sectors Japan n/a 27.2 27.5 25.9 21.5 20.4 19.1 18.9 17.7 n/a
aimed at increasing exports during the mid 20th century.
Rep. of Korea 20.3 22.8 25.2 25.0 25.3 29.0 28.3 30.7 31.0 29.5
It is widely stated that, countries in Asia followed a “flying
geese pattern” (a tilted V-shape) in adopting government Rep. of China
(Taiwan) n/a n/a 35.1 31.2 25.6 25.7 27.9 29.0 28.6 29.9
led industrialisation policies, with Japan in the lead,
followed initially by South Korea, Hong Kong, Taiwan and People's Rep.
of China 37.6 39.9 34.4 32.3 33.4 31.8 32.1 31.5 29.7 n/a
Singapore (“the four tigers”) and subsequently by many
other nations including China, Indonesia, Malaysia and Thailand 18.7 21.5 21.9 27.2 26.5 28.6 29.8 31.1 27.7 26.9
Thailand. The services sectors of these countries deepened Indonesia 10.3 14.0 16.4 22.3 24.1 27.7 27.4 22.0 21.0 20.8
later in the development process. Their Latin American Malaysia 18.7 21.9 19.7 24.2 26.6 30.9 27.5 23.4 22.8 22.8
counterparts were Brazil, Chile, Peru and Mexico. All these
countries have now surpassed Sri Lanka in GDP and social Vietnam n/a n/a 20.5 12.3 15.0 17.1 18.8 12.9 13.3 13.7
development. The Philippines 25.7 25.7 25.2 24.8 23.0 24.5 24.1 21.4 20.4 20.1

The above countries adopted clearly stated “industrial India 15.2 16.2 16.0 16.2 17.3 15.3 15.4 17.5 16.5 16.2
policies” at the beginning of their development process. Sources: World Development Indicators, World Bank
Most countries with subsistence farming simultaneously National Statistics, Rep. of China (Taiwan)
Department of Census and Statistics
adopted policies to improve productivity in agriculture Central Bank of Sri Lanka
through land reforms and other farming techniques. Thus,
larger-scale agricultural production evolved, releasing Some of the above nations experienced difficulties at
underemployed labour in agriculture to the manufacturing times in maintaining their industrial policies due to the
sector until the “Lewisian turning point”3 of full absorption of failure of selected industries, inflation in consumer goods
surplus labour in the traditional sectors to the modernised markets, macroeconomic volatility caused by reduction in
manufacturing sector was reached. Most of these countries global demand etc. but were successful in achieving rapid
manufactured low value-added consumer goods, such economic and social development in the long run because
as apparel, in the first phase of their development, but of their continuously evolving manufacturing bases. It is
progressed on to complex products with technological evident that focused and committed policy support from
skills gained from the previous phase. With the exception the government for the overall sector, including targeted
of Japan, the other countries adopted the strategy of infrastructure development, research and development,
obtaining direct investment from advanced nations to capacity building of human resources and broad fiscal
set up manufacturing plants within special economic incentives helped to increase the overall manufacturing
output. This provides a development lesson for Sri Lanka
2. Rodrik, Dani. "Premature deindustrialization." Journal of Economic Growth 21.1
(2016): 1-33. regarding the importance of the manufacturing sector to
3. Lewis, W. Arthur. "Economic development with unlimited supplies of labour." The development as well as the need for the state to support
Manchester School of Economics and Social Studies 22.2 (1954): 139-191.
industrialisation through policy action.

69
 CENTRAL BANK OF SRI LANKA | ANNUAL REPORT 2016

Implementation of the Necessary Strategies harness advantages provided by each location for each
production stage. Despite this global development, most
Successive Sri Lankan governments implemented of the FDI to Sri Lanka in the last ten years comprised
various measures to increase industrial production.
investment into the tourism and real estate sectors and
Recently, plans have been made to set up industrial
investors seeking the Sri Lankan market. Therefore, the
zones in regional areas, along the new expressways,
future manufacturing sector development strategy must
and around the Hambantota and Trincomalee Ports.
include measures to attract manufacturing based export
These initiatives, together with all other plans to develop
focused FDI to Sri Lanka.
infrastructure, promote research and development,

2
upgrade skills of the human resources, and establish In order to attract FDI, the manufacturing sector
new small and medium enterprises (SMEs), which are development strategy should identify factors driving such
to be implemented by various government agencies, flows and create an environment conducive for them. The
will help attract Foreign Direct Investment (FDI) and FDI flows occur due to push and pull factors relating to
increase manufacturing. Meanwhile, having recognised the source country and the recipient country, respectively.
the importance of policy support for development, In general, pull factors include low cost labour, raw
the Government has also put in place an overall material, access to markets, competitive exchange rates,
development strategy and is formulating trade and low tax regimes, availability of land for setting up factories
export related policies. However, there still remains etc. Factors that create a conducive environment for FDI
a need for a comprehensive manufacturing sector include political stability, consistent support by public
development strategy, which aligns various government institutions, sound macroeconomic and legal frameworks,
efforts to increase manufacturing activities with the efficient logistics, minimum trade barriers, agglomeration
government’s overall development agenda, and economies and low-cost and highly efficient human
provides due prominence to the whole manufacturing resources. Since global value chain producers need
sector while addressing its structural issues. to transport product components from one location to
Therefore, in order for Sri Lanka to effectively provide another expeditiously and with low transaction costs,
broad-based support to the manufacturing sector and efficiency of road and sea transport, access to ports, speed
address structural issues, the establishment of one of customs clearance, warehousing and the existence of
practical manufacturing sector development strategy minimum tariff and non-tariff barriers are critical. In the
is necessary. Such a clearly stated policy, which is past, firms in advanced nations invested in developing
developed through a collaborative process with all nations seeking cheap labour and natural resources (North-
stakeholders, will be a tool for the government to provide South FDI). However, during the last decade, South-South
long term direction for local and foreign investors as FDI, which involve emerging market economies (EMEs)
well. This manufacturing sector strategy needs to be a such as China, Malaysia, India and Russia, investing in
part of Sri Lanka’s overall development strategy. The similar economies has increased. Such countries are more
trade policy and export strategies should be a part of focused on market access and raw materials and have
the attempts to industrialise through a manufacturing different perceptions about the quality of institutions than
sector development strategy such that the development firms of advanced nations. Therefore, Sri Lanka needs to
process will spur international trade. This is essential cater to the requirements of different FDI sources.
for the country to achieve a higher trajectory of growth The FDI alone cannot uplift the manufacturing base of
and development. Furthermore, this strategy must the economy in the long-term, and development of the
encompass the interplay between the manufacturing capabilities of local manufacturers is critical. Local firms
sector with the agriculture and service sectors as well. need to provide support services required by the foreign
Importantly, productivity enhancement in the agriculture investors and develop the capacity to absorb technology
sector will not only transfer under-utilised labour to transfer from the foreign investors. Some Sri Lankan
the manufacturing sector, but also reduce the share of companies, particularly in the tea and apparel sectors,
income spent on food. The resultant increase in real have been able to achieve global excellence standards, but
income spendable on other goods will increase the most firms are stricken by low productivity and restrained
demand within the economy for manufactured products. growth. Data on capacity utilisation in factory industries
The manufacturing sector development strategy should compiled by the Central Bank of Sri Lanka indicate that
categorically address the needs of local investors as well not more than 83.0 per cent of installed capacity were
as foreign investors. Similarly, the needs of large scale utilised from 2011 to 2016. Meanwhile, economic value
firms as well as micro, small and medium enterprises added in the industrial sector as well as the agricultural
be addressed. FDI is crucial as domestic savings are sector, in terms of the proportion of the labour force
low and fiscal space is constrained. FDI is also an employed gradually declined from 1981 to 2016. This
avenue to address low technological know-how in Sri suggests that an increasing proportion of the workforce
Lanka. FDI relating to technologically intensive and high was used to generate a declining proportion of the total
value adding products, which Sri Lanka seeks to gain value added of the country. This indicates that labour
competence in, are generally manufactured via global productivity gradually declined in both the industrial and
value chains in which manufacturers base different agricultural sectors. Meanwhile, total factor productivity
stages of the production process in various locations, to of Sri Lankan manufacturing firms has also declined, as

70
 NATIONAL OUTPUT, EXPENDITURE AND INCOME

identified through academic research that studied firm the Anti-dumping Bill should be enacted into Law
performance between 1990 and 2010.4 Therefore, the expeditiously. However, a healthy level of competition
country's development strategy needs to identify means needs to be encouraged within industries, and
of allocating under-employed labour in less productive bankruptcy and employment termination regulations
agriculture as well as service sector segments (such as need to allow efficient reallocation of resources from
petty trade, personal services and public service) to the firms that restructure or exit to more productive uses.
manufacturing sector. Policies aimed at transforming small In addition, the proposed trade adjustment package is
scale farming to larger scale agri-business is important an important complement to the economic partnership

2
(to transfer labour from the agricultural sector). Policies agreements which are being negotiated. It should
should also aim to improve total factor productivity in the be well-designed to increase the competitiveness of
manufacturing sector through worker skill enhancement, domestic firms and provide retraining for workers
management practices, and removal of impediments to affected by trade liberalisation.
restructuring.
The manufacturing sector development policy should promote
Meanwhile, there is a prevalence of a large number of cluster based industrial policies and enhance opportunities for
small firms, which neither grow nor exit for a long period of agglomeration economies. This is achieved by encouraging
time in Sri Lanka. This results in labour and other resources similar manufacturers to locate geographically close to each
being locked in less productive activities, as suggested by other and their support service providers to cluster around
a World Bank study.5 Small enterprises that do not grow, them. In such a context, the government can provide the
do not contribute to long term productivity enhancement of necessary infrastructure, fiscal incentives and facilities for
the country, as they do not engage in product or process employees in a more focused manner, while firms can gain
innovation or provide quality employment opportunities. through economies of scale in inputs, interaction with each-
This study estimates that firms with less than 19 workers other, larger pools of employees and access to capital goods.
make up 76.0 per cent of enterprises in Sri Lanka which The provision of large tracts of land enabling factories and
is a much higher percentage compared to India, China, their support service providers to cluster together is a main
Bangladesh, Pakistan, Philippines and Vietnam. Further, pull factor for FDI as well. By locating industrial zones in less
firms aged 25 years or more are only 50.0 to 90.0 per
urbanised areas, the government can spread the benefits of
cent larger than firms aged 5 years or less. Larger firms
industrialisation to many regions of the country. The effective
tend to be more productive due to economies of scale,
implementation of the new industrial zones that have been
access to finance, ability to attract better quality managers,
planned at present will contribute significantly in this regard.
maintenance of better networks of market access and
better record-keeping etc. Therefore, it is important to Although the literacy rate and education level of the average
remove barriers for small and medium scale enterprises to factory worker is higher in Sri Lanka than competitor nations,
grow by improving access to finance, increasing project- their technical competencies and innovative capacities needed
feasibility based lending rather than physical collateral- for the production of complex products are lower. Therefore,
based lending, modernising labour regulations that technical and vocational training, as well as qualifications in
hinder termination of employment, upgrade poor science and engineering, should be offered to more students
accounting and record-keeping, rationalising taxes at the secondary and tertiary education levels together with
that deter firms from expanding operations etc. Strong industry exposure. Further, the social stigma against factory
collaboration needs to be built between research and employees and the undesirable incentives in society for youth
development (R&D) institutions and SMEs such that to seek public sector employment and turn away from the
product development needs of SMEs are identified by manufacturing sector need to be corrected.
the R&D institutions, while their findings are used by
the SMEs. R&D institutions need to explore avenues to The manufacturing sector development strategy should
utilise minerals, herbs and other natural resources in Sri not be confused with a strategy to pick a few industries
Lanka to increase manufactured exports of domestic to promote for producing export goods. Though countries
industrialists. At present, a lot of such resources are like South Korea succeeded in "picking winners", most of
exported in raw or low value-added forms at present. the countries which did so had to continue with protection
Fostering small enterprises until they grow into large for a long period of time. Such an approach should be
enterprises and protecting them from dumping (by cheap avoided, as governments lack the capacity to predict high
imports) are necessary to uplift domestic manufacturing performing industries in the medium to long-term in the
and gear the sector towards exports. In this connection, global markets, as well as to avoid rent seeking behaviour
by firms. Therefore, government attention should be
4. Chandrasiri, Sunil, and Nuwan Indika. "Industrial Productivity for Sustained Growth:
The Case of Sri Lankan Manufacturing Industries". Way Forward For Sustained
focused on providing wide-ranging support to the whole
Growth. A D V de S Indrarathna, S Widanagama and A Wijesinghe. Colombo: Sri sector and for all present and future stakeholders through
Lanka Economic Association, 2014. 139-164. Print. providing clear, consistent and broad based policies while
5. Varela, Gonzalo, Antonio Martuscelli, and Apoorva Gupta. "Improving
competitiveness is about raising productivity rather than keeping costs low".
ensuring an enabling private-sector-friendly environment.
South Asia’s Turn: Policies to Boost Competitiveness and Create the Next Export The manufacturing sector development strategy needs
Powerhouse. Gladys Lopez-Acedevo, Denis Medvedev and Vincent Palmade. The to be holistic and encompass all impacting aspects. The
World Bank, 2017. 17-35. Web. 28 Mar. 2017.
6. Altenburg, Tilman, and Wilfried Lütkenhorst. Industrial policy in developing countries: success of this strategy will be determined by the timely
Failing markets, weak states. Edward Elgar Publishing, 2015. execution of the actions proposed.

71
 CENTRAL BANK OF SRI LANKA | ANNUAL REPORT 2016

Chart 2.6 The rubber and plastic products subsector,

Composition of FIPI - 2016 which is the third largest subsector in FIPI,
indicated a healthy performance throughout
Other Non-metallic
Tobacco Products Mineral Products
6% 8% 2016 in comparison to the previous year.
The subsector reported a growth of 5.4 per cent,
Chemical and
Chemical Products improving significantly from a contraction of 2.2 per

2
5%

cent observed in 2015. Increased export demand

Wearing Apparel
32%
Rubber and Plastic
Products
12% mainly from the USA, Germany, Brazil etc, for solid
Beverages
7% Fabricated Metal
Products
tyres and air tyres contributed to this growth. The
2%
countervailing duty that was imposed in 2016 on Sri
Food Products
Refined Petroleum
Lanka’s rubber exports to the USA is not expected
20%
Other Products
7% 1%

Source : Central Bank of Sri Lanka to cause a significant impact on export volumes,
as the current profit margins are adequate for the
The refined petroleum products subsector,
industry to compete amidst countervailing duty being
which solely reflects production in the refinery
imposed. The global demand for tyres is expected
of the Ceylon Petroleum Corporation (CPC),
to be driven by rising focus on fuel efficiency leading
grew by 2.1 per cent during the year 2016. The
to increased demand for ultra-fuel-efficient tyres.
continued refinery process without any disruptions
As a result, an increase in investments in Research
during 2016 attributed to this growth as the refining
and Development and innovation in tyre technology
process was halted for several weeks in 2015 for is warranted. Nevertheless, the countervailing duty
repairs and maintenance purposes. With the lifting may discourage new investors who are willing to
of the trade sanctions imposed by the USA on Iran setup new tyre factories in Sri Lanka. Thus, there
in January 2016, it is expected that the efficiency of remains a potential for local tyre manufactures
CPC’s refining process to increase in 2017, since to capture these emerging market opportunities.
the CPC refinery is more suited for refining Iranian Manufacturing of rubber gloves also expanded
light crude oil. considerably with higher exports to markets in the
The output of the chemicals and chemical USA and Europe, thereby supporting the growth in
products subsector declined by 12.4 per cent in the rubber and plastic subsector.
2016 largely due to lower fertiliser production. The other non-metallic mineral products
The drought conditions that affected agricultural subsector continued its growth momentum
activities during the second half of the year during 2016 as well, reporting a growth rate of
combined with lower demand due to the revision 11.1 per cent. The growth in production of cement,
of the fertiliser subsidy scheme in early 2016 were driven by the higher demand in the construction
the main reasons for lower fertiliser production. sector, was the key contributory factor towards this
However, the increased output of paints and performance. Further, manufacturing of roofing
varnishes subsector, driven by higher demand from sheets and clay tiles also expanded considerably
construction activities, contributed positively to the in 2016. Manufacturing of porcelain and other
growth in the chemicals and chemical products ceramic products marginally increased during the
subsector during the year. period under review with improved local as well as

72
 NATIONAL OUTPUT, EXPENDITURE AND INCOME

Chart 2.7 become the hub for ship manufacturing in the Asian
Year-on-Year Change in Major Divisions of FIPI region due to its strategic location, highly trained
30
skilled workforce, and quality of workmanship.
20

The electrical equipment subsector declined

10
Per cent

by about 9.3 per cent during 2016. The subdued

0

performance of this subsector was mainly due to

2
-10

-20
the drop in demand for transformers in key export
Food Wearing Rubber Tobacco Beverages Other Chemicals
Products Apparel and Products Non- and destinations such as Ethiopia, Uganda and Nepal.
Plastic metallic Chemical

The industry is highly diverse and manufactures a

Products Mineral Products
Division Products

2014 2015 2016 wide range of high and low technology products.
Source : Central Bank of Sri Lanka
However, given the high energy costs associated
overseas demand. However, the manufacturing with production, Sri Lanka’s exports face stiff
of glass products declined due to a temporary competition from China the global cost leader, and,
reduction in capacity at the single factory producing Taiwan and Vietnam. However, measures taken by
glass in Sri Lanka during a machinery upgrade. the industry to access new international markets
Although the glass packaging industry, especially and diversify product segments are expected to
in relation to food, beverages and pharmaceutical is boost the industry in the future.
expected to continue the strong growth momentum
witnessed in recent years, the high energy costs Industrial Policies and Institutional
associated with production in this industry may Support
inhibit Sri Lanka’s ability to take advantage of
The government, in line with its export-
a growing demand in the domestic and global
oriented industrialisation strategy, continued
markets.
to support the growth and development of the
The basic metals products subsector industrial sector through the implementation
exhibited a favourable growth during 2016 of numerous policy initiatives with a view to
recording 28.7 per cent growth over 2015. make Sri Lanka an export driven economic
Higher demand from the construction sector led to hub of the region by enhancing its global
increased output in this subsector. The construction competitiveness to further integrate into the
industry is expected to continue its growth global value chain. The Ministry of Industry
momentum and thus, the basic metal subsector is and Commerce continued to facilitate regional
expected to grow in the future. industrialisation by promoting investments and
The fabricated metal products subsector, provisioning of infrastructure facilities, and
which mainly comprises ship building and technical assistance at regional level. Accordingly,
repair activities, reported a contraction of the Ministry of Industry and Commerce continued
33.6 per cent. Decline in the offshore oil drilling the infrastructure development activities in 32
activities due to the drop in crude oil prices led to a industrial parks throughout the country in 18
lower demand for oil drilling vessels. This may have districts. Majority of infrastructure development
impacted the ship building operations during the activities relating to Trincomalee (Stage II) and
year. However, Sri Lanka has immense potential to Batticaloa Industrial Estates was completed in

73
 CENTRAL BANK OF SRI LANKA | ANNUAL REPORT 2016

2016. Development activities relating to the Mannar based products, footwear and leather products
Industrial Estate were completed and that of etc. The EDB is currently working with a number of
Welioya Industrial Estates, further progressed with international partners to identify new products and
the provision of necessary infrastructure facilities. new markets to promote Sri Lankan products in the
future.
The National Enterprise Development
Authority (NEDA) continued to facilitate A number of policy proposals introduced

2
and support the development, growth and in the Budget 2016 were implemented during
competitiveness of Sri Lankan enterprises, the year. The Ministry of Industry and Commerce
especially small and medium enterprises. commenced initial work relating to establishing
Activities of District and Regional Enterprise a new industrial estate in Raigama to promote
Forums were further continued to create a proper regional industrialisation. Furthermore, to promote
mechanism for providing business development the construction industry, the Construction Industry
services to the entrepreneurs at District and Guarantee Fund Levy was removed during 2016
Divisional Secretariat level. NEDA continued specifically with a view to encouraging small and
to provide technical training for selected SMEs medium scale contractors. In addition, certain
with the market linkage programme in order to initial steps were taken to set up an Innovation
integrate small and medium enterprises with super Accelerator during 2017, a platform that will
market chains as suppliers. NEDA continued to combine the National Innovation Programmes of the
facilitate capacity building among entrepreneurs Coordinating Secretariat for Science Technology
by conducting training programmes through the and Innovation and the National Thematic Research
Regional Enterprise Development Programme, Programme and the technology support schemes
Women Entrepreneurship Development of the National Science Foundation.
Programme and “Upadhidari Vyavasayake
The Budget 2017 included several policy
Udanaya” Programme. Further, an Incubator and
proposals to promote the industrial sector
Technology Transfer Centre (ITTC) is expected to
contribution to the economy and the local value
be established as a joint project of the Wayamba
addition. Skills and productivity development in the
University of Sri Lanka (WUSL) and NEDA, at
Small and Medium Enterprises (SME) were the key
Makandura. The ITTC is expected to facilitate the
focuses of the budget proposals. To address the
start-ups with required machineries and equipment
skills shortages in several industries, a scholarship
together with novel business ideas derived from
programme is proposed with a view to provide the
the research and development activities of WUSL,
necessary vocational training through the state
research institutions and SMEs in the area.
operated vocational training institutions. In addition,
The Export Development Board (EDB) a 3-month living stipend is proposed for 10,000
continued to organise trade exhibitions, youth, while they are trained by the private sector
exporter forums, technical and financial in apparel, healthcare, hospitality and construction
assistance programmes and trade delegations industries. SMEs in several identified industries are
with a view to enhancing the competitiveness of to be provided with a credit guarantee scheme and
domestic industrial products in the international subsidised interest rates for business expansion.
market, especially for apparel, jewellery, rubber To further enhance productivity of businesses,

74
 NATIONAL OUTPUT, EXPENDITURE AND INCOME

a 75.0 per cent waiver on Ports and Airports end, a Cabinet Appointed Negotiating Committee
Development Levy (PAL) on high-tech automated for obtaining necessary consultation services, and
machinery and equipment imports is proposed. technological and financial assistance from suitable
It is also proposed to form a textile cluster that agencies were also approved.
includes sizing, dyeing and finishing units and the
Whilst recognising the contribution of the
Government is expected to support by providing
SME sector in the economy and one need

2
investment relief to businesses that will invest in to enhance access of SMEs to finance, the
this venture and will also provide adequate space. Budget 2017 included a proposal requesting
The removal of 25.0 per cent CESS applicable on banks to allocate at least 10.0 per cent of their
pre-fabricated structures is also proposed to further loan portfolio to the SME sector. Accordingly,
boost the construction industry. in February 2017, the Central Bank requested all
A number of proposals were included in the licenced commercial banks to take appropriate
Budget for 2017 to enhance the contribution measures to implement the national policy
from the science, technology and innovations approved in the Budget 2017 to distribute credit
towards enhancing productivity in the to various identified sectors. A concessionary
industrial sector. The infusion of technology loan scheme was also proposed to support the
into the industry sector leads to the manufacture SMEs engage especially in agriculture, fisheries,
of high value added products resulting in higher livestock, floriculture, horticulture, light engineering,
income levels. To this end, the Innovation printing, tourism, handicrafts and apparel sectors.
Accelerator Fund, which is aimed at supporting Furthermore, a special loan scheme called
commercialisation and last stage financing, was ‘Swashakthi National Loan Scheme’ was launched
further strengthened through allocation of funds to by the Central Bank of Sri Lanka to help the SMEs
continue its work. A Biotechnology Innovation Park, to start self-employments and industries.
which will provide facilities mainly for companies Trade chambers and associations continued
engaged in the pharmaceutical industry and to facilitate industrial sector development
genomics was proposed to be established on through capacity building training programmes,
a public-private partnership basis. The Centre trade exhibitions and trade delegations. The
for Advanced Electronic Design, which supports Joint Apparel Association Forum (JAAF) in
start-up companies in electronics, The Sri Lanka partnership with Worldex Exhibition & Promotion
Institute of Nanotechnology (SLINTEC), the Centre Pvt Ltd of Mumbai organised the ‘Intex South Asia
of Excellence in Robotics Applications (CERA) 2016’, the only South Asian International Show
were further strengthened through allocation of that focused on yarns, fabric, clothing accessories
funds. It was further proposed to support robotics, and related services. This benefitted the industry
cybernetics, electronics industries through tax by offering new sourcing channels for fabric and
incentives. In March 2017, the approval of the Cabinet accessories. The JAAF also participated in a
of Ministers was given for the establishment of a Social and Labour Convergence Project initiated
National Science Centre according to international by the Sustainable Apparel Coalition, to introduce
standards and a land of seven acres has already an internationally accepted tool of measurement
been allocated at Pitipana, Homagama. To this for social and labour compliance. In collaboration

75
 CENTRAL BANK OF SRI LANKA | ANNUAL REPORT 2016

with the Sri Lanka Export Development Board, in comparison to 4.4 per cent growth recorded in
JAAF offered assistance to SME apparel 2015. The units of water distributed by the National
sector companies for the improvement of their Water Supply and Drainage Board (NWS&DB)
compliance standards. Further, in order to improve recorded an increase of 12.0 per cent in 2016
the competitiveness of the industry, JAAF, in compared to 5.7 per cent growth in 2015. The

association with the Sri Lanka Institute of Apparel total number of consumer accounts of NWS&DB

2
also increased by 7.1 per cent in 2016 compared
and Textile, facilitated the introduction of new
to 6.6 per cent growth recorded in 2015, reflecting
technologies to the Sri Lankan apparel industry.
the continuous expansion in demand for water. In
In addition, trade associations such as the Ceylon
the meantime, value added of sewerage, waste
National Chamber of Industries, Federation of
treatment and disposal activities grew by 17.8 per
Chambers of Commerce & Industry of Sri Lanka,
cent in value added terms in 2016 on top of the
National Chamber of Commerce continued to
substantial growth of 24.9 per cent recorded in
facilitate numerous trade delegations, training 2015.
programmes and trade forums to promote trade
and investment in the country. Construction
The value added of construction activities
Electricity, Water and Waste
rebounded during the year recording a
Treatment
substantial growth of 14.9 per cent in 2016
The value added of electricity, water and recovering from 2.7 per cent contraction
waste treatment activities grew by 10.0 per recorded in 2015. Large scale construction
cent in 2016 compared to 8.8 per cent growth projects such as Colombo International Financial
in 2015. Electricity, gas, steam and air conditioning City, extension of Southern Expressway, Phase
supply activities, being the major contributor to III of Colombo Outer Circular Highway project
this category, grew by 8.4 per cent in 2016 in and emerging condominium apartments largely

comparison to 5.9 per cent growth recorded in contributed to the expansion in construction
activities. This growth was reflected in the
2015, in value added terms. This growth was
significant increase in cement production and
reflected in the increase in total electricity
its imports which collectively grew by 25.3 per
generation which grew by 8.1 per cent during the
cent in 2016 compared to 5.8 per cent growth
year compared to 5.9 per cent growth in 2015. Due
recorded in 2015. Accordingly, both local
to the prolonged drought conditions that prevailed
production of cement as well as imports of
for most part of the year, hydropower generation
cement increased substantially by 17.8 per
contracted by 29.0 per cent in 2016 compared to cent and 29.5 per cent, respectively, in 2016.
35.0 per cent growth in 2015. Meanwhile, fuel oil Meanwhile, investment goods and building
based power generation increased substantially by materials imports volume indices increased by
96.1 per cent in 2016 against 47.1 per cent decline 20.0 per cent and 22.9 per cent, respectively,
recorded in 2015 and coal based power generation in 2016 indicating the positive developments
grew by 13.6 per cent in 2016 compared to 38.8 in construction activities. Furthermore, credit
per cent growth recorded in 2015. Further, the granted by Licensed Commercial Banks (LCBs)
value added of water collection, treatment and to the private sector for construction activities
supply activities increased by 7.9 per cent in 2016 significantly increased by 26.9 per cent in 2016

76
 NATIONAL OUTPUT, EXPENDITURE AND INCOME

on top of 36.1 per cent growth recorded in 2015. and Expectations for Activity expanded during
Moreover, reflecting the development in housing the year, while the Backlogs of Work sub-index
construction activities, the credit granted by LCBs decreased. Further, the development in Services
for personal housing construction activities also activities was also portrayed in the behavior
increased by 27.1 per cent in 2016. Further, the of BOS sub-indices of the Services segment.
number of completed condominium units certified Accordingly, Business Condition, Demand and

2
by the Condominium Development Authority Sales sub-indices, on average, remained above
the neutral level during the year.
increased by 24.5 per cent in 2016 recovering
from 29.5 per cent contraction in 2015. The
Wholesale and Retail Trade
Central Bank observed this emerging trend in the
condominium market and commenced compiling The wholesale and retail trade activities,

a monthly Condominium Property Price Index in value added terms grew by 2.5 per cent
in 2016 compared to 5.1 per cent growth
for Colombo District to closely monitor the
recorded in 2015. This slowdown was reflected
sustainability of the latest developments in
in the movements of import and export trade
construction activities.
volume indices. Further, the decline in agricultural
Services output and the slowdown in manufacturing output
hindered trade activities. The import volume index
Services related economic activities which
increased by 7.9 per cent in 2016 compared to
collectively account for the major share
10.6 per cent growth recorded in 2015. The
of GDP, expanded by 4.2 per cent in 2016
intermediate goods and investment goods imports
compared to 5.7 per cent growth in 2015, in increased during the year, while the importation
value added terms. Most of the services activities of consumer goods contracted. Accordingly,
contributed positively to the growth during 2016, intermediate goods imports volume index recorded
but at a slower pace compared to the previous a 10.8 per cent growth in 2016, mainly owing to the
year. The recorded growth was largely supported increase in fuel, and textile and textile articles imports.
by the significant expansion in financial services Further, investment goods imports volume index
activities together with developments in the continued to expand recording a 20.0 per cent growth
transportation of goods and passengers including in 2016 compared to 13.6 per cent growth in 2015.
warehousing activities. Further, the growth in This growth was mainly buoyed by the substantial
wholesale and retail trade, public administration, increase in machinery and equipment, and building
real estate activities, education, other personal materials imports, amidst the contraction in import
services, insurance, accommodation services, of transport equipment. However, consumer goods
telecommunication, human health services, and imports volume index contracted substantially by
IT related activities contributed positively towards 12.0 per cent in 2016 against 24.1 per cent growth
expansion in Services activities. However, recorded in 2015, due to the decline in importation of
professional services recorded a contraction food and drinks, as well as other consumer goods.
during the year. Reflecting the growth in Services Meanwhile, the exports volume index declined by 0.7
activities, the PMI for services activities compiled per cent in 2016 compared to 4.6 per cent growth
by the Central Bank on monthly basis denoted an recorded in 2015 mainly driven by the contraction
expansion throughout the year. The sub-indices of in agricultural exports as well as the slowdown in
New Businesses, Business Activity, Employment industrial exports.

77
 CENTRAL BANK OF SRI LANKA | ANNUAL REPORT 2016

Transportation and Storage Accommodation and Food Service

The value added of transportation of goods
Activities
and passengers including warehousing The value added of accommodation, food
activities grew by 4.1 per cent in 2016 and beverage service activities expanded by
compared to 5.0 per cent growth in 2015. In 4.0 per cent in 2016 compared to 1.9 per cent
growth in 2015. Considering tourism related

2
this regard, a slowdown was observed in the
passenger kilometers operated by transport activities, the number of tourist arrivals increased

services. The passenger kilometers operated by by 14.0 per cent in 2016, although at a slower

the Sri Lanka Transport Board and the private pace compared to 17.8 per cent growth in 2015.

sector bus operators increased at a slower pace by Western Europe accounted for the highest number
of tourist arrivals as a region followed by South
6.1 per cent and 2.0 per cent, respectively, in 2016
Asia. When considering the country of residence,
when compared to the respective growth rates
India remained the prime tourist sourcing country,
of 19.6 per cent and 6.1 per cent recorded in 2015.
while China was ranked second continuing their
The growth in passenger kilometers operated by
contributions to the growth momentum in tourist
the Sri Lanka Railways (SLR) also slowed down
arrivals. Meanwhile, the room occupancy rate in
to 0.1 per cent in 2016 compared to 8.3 per
graded hotel establishments approved by the Sri
cent growth posted in 2015. However, the total
Lanka Tourism Development Authority (SLTDA)
passenger kilometers flown by SriLankan Airlines
increased to 74.8 per cent in 2016 in comparison
increased by 0.8 per cent in 2016 compared
to 74.5 per cent in 2015. Further, the earnings from
to 0.2 per cent growth recorded in 2015. In
tourism activities increased to US dollars 3.5 billion,
the meantime, container traffic (Twenty Foot
recording a growth of 18.0 per cent continuing its
Equivalent Units - TEUs) and cargo handled by
expansion during the year. Increasing demand for
Sri Lankan Ports increased by 10.6 per cent and
restaurants and hotels facilities which was reflected
11.5 per cent, respectively, in 2016 in comparison by the increase in private consumption expenditure
to respective growth rates of 5.7 per cent and also contributed to the growth in accommodation
4.3 per cent recorded in 2015. Further, the freight and food services.
ton kilometers transported by SLR increased
by 7.6 per cent in 2016 recovering from 0.3 per Information and Communication
cent contraction recorded in 2015. Moreover, the The value added of information and
freight ton kilometers flown by SriLankan Airlines communication activities grew by 8.0 per cent
increased by 5.0 per cent in 2016 compared to in 2016 compared to 10.9 per cent growth
7.5 per cent growth recorded in 2015. Meanwhile, recorded in 2015. The telecommunication
the value added of postal and courier activities activities which grew by 8.3 per cent in 2016 on
recovered during the year growing by 5.1 per top of 10.1 per cent growth recorded in 2015, in
cent in 2016 from the contraction of 0.1 per cent value added terms, largely supported this growth
recorded in 2015. This recovery was reflected in within the segment. Cellular subscribers and fixed
the increase in inland and foreign mails handled access wireline connections increased further in
by the Department of Posts during the year. contrast to continued contraction in fixed access

78
 NATIONAL OUTPUT, EXPENDITURE AND INCOME

wireless connections during the period. Moreover, expanded by 8.5 per cent in 2016 in comparison to
internet and mobile broadband services increased 9.3 per cent growth recorded in 2015. This growth
at a higher pace during the year. The value added of was reflected in the premium earned plus claims
IT programming consultancy and related activities incurred by the insurance industry, which increased
expanded by 7.1 per cent in 2016 compared to by 15.1 per cent during 2016 compared to 16.6 per
14.8 per cent growth in 2015. Further, programming cent growth recorded in 2015. Further, the value

2
and broadcasting and audio/video production added of real estate activities including ownership of
activities grew by 7.7 per cent in 2016 compared dwellings grew by 4.2 per cent in 2016 compared to
to 4.4 per cent growth recorded in 2015, in value 10.2 per cent growth recorded in 2015.
added terms.
Professional Services and Other
Financial, Insurance and Real Estate Personal Service Activities
Activities including Ownership of The value added of professional services and
Dwellings other personal service activities expanded by
The value added of financial, insurance 0.7 per cent in 2016 in comparison to 1.8 per cent
and real estate activities including ownership growth in 2015. Other personal service activities,
of dwellings expanded by 8.4 per cent in 2016 the major contributor to the segment, which includes
compared to 13.3 per cent growth recorded personal services such as washing and cleaning
in 2015. All the economic activities within the textiles, arts, entertainment and recreation, hair
segment continued to grow during the year, yet at dressing and other beauty treatment, and funeral and
a slower pace compared to 2015. The value added related activities continued to expand during the year
in financial service activities and auxiliary financial by 1.3 per cent, albeit at a slower pace compared to
services grew at a healthy rate of 12.4 per cent in 3.6 per cent growth recorded in 2015, in value added
2016 compared to 17.2 per cent growth recorded terms. However, professional, scientific, technical,
in 2015, largely supporting this performance. The administration and support service activities which
gross loans and advances in banks and non-bank include services that require expert know-how,
financial institutions grew by 17.5 per cent and such as architectural and engineering activities,
20.1 per cent, respectively, in 2016 in comparison scientific research and development, advertising
to 21.1 per cent and 30.6 per cent, respectively, in and market research, legal services, and accounting
2015. In the meantime, the deposit base of banking services contracted further in value added terms by
industry and non-bank financial institutions grew 3.1 per cent in 2016 from 7.4 per cent contraction
by 16.5 per cent and 10.5 per cent, respectively, in recorded in the previous year.
2016 compared to the growth of 15.3 per cent and
16.1 per cent, respectively, in 2015. As a result,
Public Administration, Defence,
the total loans and deposit base of the banking
Education, Human Health and
industry and non-bank financial institutions grew
Social Work Activities
by 17.0 per cent and 16.6 per cent, respectively, in The value added of public administration,
2016 compared to the respective growth of 17.9 per defence, education, human health and social
cent and 24.9 per cent in 2015. The value added of work activities grew by 4.9 per cent in 2016
insurance, reinsurance and pension funding activities in comparison to 3.6 per cent growth in 2015.

79
 CENTRAL BANK OF SRI LANKA | ANNUAL REPORT 2016

BOX 04
Business Intelligence and Big Data: A New Dimension of Central Bank Statistics
Business Intelligence (BI) refers to the processes in which transactions (e-commerce), energy, transportation and
techniques and tools are employed to acquire and health (electronic records, digital health solutions) as
transform raw data consisting of statistical and non- well as entertainment and social interactions (social
statistical information for decision making purposes. networks, online gaming, streaming services, etc.).
Such BI is now in common possession of central banks
The data gathered from such sources, namely, Big

2
around the world and is useful in the process of policy
making for achieving broader objectives of central Data has four main defining attributes: volume, variety,
banking. In recent years, BI has also been used by velocity and veracity.
central banks to guide the policy path in a more • Volume – Big Data is considered to be large in
informed manner facilitating a forward looking data- volume, containing granular and micro-level
driven decision making process. Besides such progress, information compared to traditional data.
advancements in information and communication
technologies and innovations that were facilitated by the • Variety – Apart from large volume, they are also
regulatory environment have propelled many changes highly complex and multidimensional from different
in the global economic and financial landscape. The data sources created by men and machines.
present-day world places an increasing premium on • Velocity – With the support of technological
information of increasing depth and breadth, especially, developments, they are supposed to be generated
as a consequence of the global financial crisis, extremely fast in high frequencies and processed
whereby financial and economic analysts seek more rapidly.
qualitative data related to macroprudential aspects.
In this backdrop, a new data paradigm called “Big • Veracity – One of the important characteristics is
Data” is emerging, associated with the combination of the varying quality of data or data inconsistency
digital data from business transactions, social media, due to many sources. Therefore, the test of veracity/
networked computers and the ‘Internet of Things’1. While quality of the data is required. Further, accuracy
Big Data denotes large volumes of data, BI specifies and quality standards must be on par with or better
the tools and processes to engage with data to derive than the conventional statistics. Transparency in
meaningful information leading to better decisions, coverage and methodology will help improve
greater efficiencies and goal accomplishments. In other veracity.
words, BI helps find answers to questions, while Big
Data is the library that allows to look for answers. Big Data for Economic and Price Stability
In view of the rapid pace of these developments, the There are many advantages in exploiting “Big Data” in
quantity and quality of information currently available the form of vast quantities of digital information to gain
from the official sources alone may not be sufficient for fresh insights for the monitoring of economic activity
more informed forward looking policy making and also and price levels. Moreover, the timeliness of Big Data
lack time priority to focus on trends in the economy. could improve real-time decision making for monetary
Therefore, central banks globally are in search of Big policy by providing early warning indicators and an
Data and BI to fill this information gap. However, many instantaneous snap-shot of the economy whereas data
challenges still exist in terms of depth and intensity of from traditional or conservative data sources come with
data and the information central banks acquire for the a lag.
process of guiding their policy priorities. An application of Big Data for monetary policy could
New Data Paradigm: Big Data be in the form of the construction of metrics that adapt
quickly over time to calculate the daily inflation index
Big Data is a description of large volumes of data, from a continuously evolving basket. In addition, text
both structured and unstructured, that inundates policy mining techniques can be deployed to assess human
making processes on a continuous basis. Information instincts and emotions, referred by John Maynard
technology is turning out to be an integral part of Keynes as “animal spirits” that cannot be determined
everyday aspects of business and personal life, using economic equations and models. While many
reflecting the proliferation of digital transformation. The developments have taken place, the implementation of
digital economy is becoming increasingly intertwined these methodologies is still a challenge and is evolving
with sectors such as media, banking (Fin-Tech2), retail
to appropriately suit central bank policy making. The
1. It is defined as the interconnection of computing devices embedded in everyday application of Big Data does come with limitations and
objects via the internet, enabling them to send and receive data.
2. Financial technology, also known as FinTech, is a line of business based on software challenges, such as lack of easy access to the data,
to provide financial services. The term has expanded to include any technological privacy concerns and methodological constraints in
innovation in the financial sector, including innovations in financial literacy and
education, retail banking, investment and even crypto-currencies like Bitcoin. analysing data.

80
 NATIONAL OUTPUT, EXPENDITURE AND INCOME

Big Data for Financial System Stability increased rapidly over the last decade. With an aim of
gathering intelligence on the economy, these surveys
The importance of the timely financial sector information, go by many names, such as the Beige Book (Federal
which is necessary for financial system stability, has Reserve Bank), the Business Outlook Survey (Bank of
come under the spotlight since the global financial crisis Canada), the Bank of England’s Agents' Summary of
and consequently, financial stability is now seen as a Business Conditions, the Tankan Survey (Bank of Japan)
precondition for economic and price stability in many and the Business Liaison Programme (Reserve Bank of
economies. Australia). These qualitative surveys try to capture the

2
Central banks are well positioned to collect information respondents’ views of various phenomena and their
actions, given the prevailing conditions. Since the survey
on financial markets. Such information on newly
results are unique and context-specific, they are not
emerging market practices and innovations can signal
revised in the future when new data becomes available
early warnings of any risks that may develop, which
as they measure the opinion of respondents at a specific
is another kind of BI gathering in financial markets.
point in time, giving more helpful guidance than early
Additionally, innovations introduced by Fin-Tech
vintages of official data. Apart from that, these surveys
products impact the payment and settlement systems of
also bring out people’s intentions, confidence and
the economy. Therefore, the collection of high frequency
expectations that can validate the macro variables.
financial sector information that covers a broad area
helps the central bank to foresee the risks developing Central banks or the monetary authorities of these
and identify inter-linkages among financial institutions, economies pay much attention to the information
both domestically and abroad. gathered through these surveys as they provide insights
into the monetary policy decision making on current and
Based on a survey,3 conducted by the Bank for International expected developments which exert pressure on inflation
Settlements in 2015, Big Data is perceived as a potentially and their monetary policy priorities. The information
effective tool in supporting macroeconomic and financial also provides alternative indicators that allow policy
stability analyses. Most central banks surveyed expect a makers to monitor the gradual pass-through of policies
growing use of Big Data sources for macroeconomic to the economy. Overall, the information signals
and financial stability purposes, especially in the areas of the turning points of business cycles and underlying
economic forecasting, business cycle analysis and financial reasons, and provides early warnings which are not
stability analysis (Chart B 4.1). easily captured through models. It also provides a
Chart B 4.1 deeper understanding of longer-term structural changes
Outcomes expected by the central banks that are occurring within industries, and changes in the
as a result of Big Data exploration economic landscape.
70 In line with the international best practices, the Central
60 Bank of Sri Lanka (CBSL) also established the following
Per cent of respondents

50 Business Surveys in recent years with an aim to connect

40 with businesses and associations across industries of the
30
economy. The Business Sentiment Indices developed
20
through Business Outlook Survey and Purchasing
10
Managers' Index Survey are published in the CBSL
website for the information of the general public and the
0
To nowcast To nowcast Construction To nowcast Measurment of Other results of Credit Conditions Survey are used for internal
unemployment industry/retail of web-based
rate sales confidence
retail/house the impact of
prices information analysis.
indicators demand on
specific
economic
variables Purchasing Managers’ Monthly survey to assess the movement of important
Index Survey variables of manufacturing and services activities.
Source: 2015 Survey, Irving Fisher Committee
on Central Bank Statistics

Business Outlook Quarterly survey to capture the business sentiment

International Best Practices and Initiatives by the Survey from the leading industry players.

Central Bank of Sri Lanka

Credit Conditions Semi-annual survey to assess credit conditions of
Survey the economy.
In a move towards aligning with the changing paradigm
of Big Data and high frequency indicators, the number
of central banks that employ business surveys has New Dimensions of Central Bank Statistics
3. In January 2015 the Irving Fisher Committee on Central Bank Statistics (IFC)
BI and Big Data have become a topic of increasing
launched an online survey on central banks’ use of and interest in big data, with the
collaboration of the Bank for International Settlements (BIS), the Central Bank of the
interest to the central banks in the current policy circle. It
Republic of Turkey (CBRT) and the European Central Bank (ECB). The survey was is probable that the informational inputs brought in by BI
answered by 69 IFC member central banks and monetary authorities worldwide,
representing a response rate of 83 per cent. and Big Data can shape the central bank policy making in

81
 CENTRAL BANK OF SRI LANKA | ANNUAL REPORT 2016

the future. Therefore, the policymakers should be aware, decision making landscape of the future. In the age of
take advantage of these developments and stay ahead unprecedented volume, availability and access to data,
of the curve for forward looking policy making. As such, the role of statisticians in central banks is changing;
BI gatherers at central banks should broaden the range no longer representing a simple compiler of past and
of contacts in order to improve their understanding of straightforward statistics, the role in the future will
the economy. The CBSL has initiated various projects in evolve to become an intelligence agent, a data analytic
analysing such high frequency information in addition specialist or a data scientist with the ability to foresee
to the business surveys, which provide a rich collection any changes that may affect the economy in the future.

2
of qualitative data, significantly in line with the central References
banks of developed countries. IFC Report, Central banks’ use of and interest in “big data”, Irving Fisher Committee on
Central Bank Statistics (IFC), October 2015.
These new information evolutions will need to be Markets Committee, “Market intelligence gathering at Central Banks”, Bank of
International Settlements, December 2016.
continuously assessed and BI must be broadly utilised Nii Ayi Armah, 2013. "Big Data Analysis: The Next Frontier," Bank of Canada Review,
for forecasting turning points in business cycles. Bank of Canada, vol. 2013(Summer), pages 32-39.
Organisation for Economic Cooperation and Development (OECD). 2015. OECD
Therefore, understanding the potential value and the Digital Economy Outlook 2015. Paris: OECD Publishing.
limitations of the developments will ensure that the Per Nymand-Andersen 2016. “Big data: the hunt for timely insights and decision
central bank is on the right path in facing the challenging certainty”, Irving Fisher Committee on Central Bank Statistics, IFC Working Papers No 14.

The public administration, defence and recorded a substantial growth of 18.1 per cent
compulsory social security activities which during the year in constant prices when compared
account for the largest share within the segment to 1.2 per cent growth in 2015, while consumption
expanded in value added terms by 5.2 per cent expenditure recorded a lower real growth rate of
in 2016 compared to 6.9 per cent growth in 2015, 0.9 per cent in 2016 indicating a higher price impact
mainly contributing to this growth. Meanwhile, on consumption, compared to 8.8 per cent growth
the value added of education services also in the previous year. Meanwhile, the net external
increased by 7.5 per cent in 2016 recovering demand contracted by 9.6 per cent in nominal
from 8.1 per cent contraction recorded in 2015. terms during the year against 1.4 per cent growth in
Further, human health activities, residential care 2015. The rupee value of the export of goods and
and social work activities expanded by 1.5 per services and import of goods and services grew by
cent in 2016 in comparison to 8.1 per cent growth 10.3 per cent and 10.1 per cent, respectively, in 2016
in 2015, in value added terms. compared to 5.3 per cent and 3.5 per cent growth
recorded in 2015. With respect to constant prices,
2.5 Expenditure exports contracted by 0.7 per cent during the year
Gross Domestic Expenditure (GDE) which against 7.9 per cent growth in imports, resulting
is generated through domestic consumption in a deterioration of net external demand in real
and investment expenditure amounted to terms, as well. The terms of trade also increased by
Rs. 12,742.8 billion in nominal terms in 2016 3.7 per cent in 2016 compared to 2.7 per cent in 2015
recording an 8.2 per cent growth compared to indicating that the export prices remained relatively
5.2 per cent growth in 2015. This was mainly driven higher than import prices. This trend was reflected
by 19.6 per cent growth in investment expenditure by the import and export indices. With regard to
supported by 4.1 per cent growth in consumption imports, both value and volume indices increased.
expenditure. In constant terms, the growth in GDE However, export volume index contracted, while
was 6.2 per cent in 2016 compared to 6.3 per value index increased. The growth in values and
cent in 2015. Expenditure on investment activities volumes of imports was mainly driven by investment

82
 NATIONAL OUTPUT, EXPENDITURE AND INCOME

and intermediate goods imports on par with the expenditure (PCE), which accounts for 88.7
increase in investment, while consumption goods per cent of the total consumption expenditure,
imports contracted during the year. All major export grew by 4.3 per cent in 2016 compared to 10.0
categories namely agricultural, industrial and per cent growth in 2015. The slowdown in PCE
mineral export indices, grew in value terms during was also reflected by the decline in consumer
2016. However, when considering volume terms, goods import indices in both value and volume

2
agricultural exports recorded a contraction, while terms. However, the volume decline in consumer
industrial and mineral exports reported positive goods was significant compared to the decline in
performances. Accordingly, GDP at current market value terms which reflects the impact of increase
prices, which is GDE adjusted to the net external in import prices related to consumer goods.
demand, registered a value of Rs. 11,839.0 billion Further, on the domestic front, the increase in
growing by 8.1 per cent with a real growth of government duties and levies partially contributed
4.4 per cent and a GDP implicit deflator of 3.6 per to this slowdown in PCE. Meanwhile, government
cent in 2016. consumption expenditure (GCE) grew by 3.1 per
cent in 2016 compared to 13.4 per cent growth
Consumption in 2015. Accordingly, individual final consumption
Consumption expenditure increased in expenditure of the government on education and
nominal terms to Rs. 9,018.9 billion contributing health, and collective final consumption expenditure
to around 76.2 per cent of the aggregate of the government grew by 2.7 per cent and
expenditure and recording a 4.1 per cent growth 3.3 per cent, respectively, in 2016 compared to the
in 2016 compared to that of 10.3 per cent in respective growth rates of 22.6 per cent and 9.5 per
2015. This slowdown in consumption expenditure cent in 2015. This slowdown was mainly attributable
was attributable to the decline in both private to the fiscal consolidation measures implemented
and government consumption in 2016 compared by the government during the year. Accordingly,
to 2015. Accordingly, private consumption the recurrent expenditure of the government on
Table 2.10
Aggregate Demand (a)

Current Market Prices (Rs.mn) Constant (2010) Prices (Rs.mn)

Item
2014 (b) 2015 (b)(c) 2016 (c) 2014 (b) 2015 (b)(c) 2016 (c)
A. Domestic Demand
Consumption 7,850,006 8,661,886 9,018,895 6,109,435 6,645,230 6,704,462
(% Change) 8.6 10.3 4.1 3.9 8.8 0.9
Gross Domestic Capital Formation 3,347,638 3,114,674 3,723,875 2,896,597 2,931,967 3,463,352
(% Change) 5.0 -7.0 19.6 11.5 1.2 18.1
Total Domestic Demand 11,197,644 11,776,561 12,742,771 9,006,032 9,577,198 10,167,814
(% Change) 7.5 5.2 8.2 6.2 6.3 6.2
B. External Demand
Export of Goods and Services 2,185,039 2,301,065 2,538,695 1,533,668 1,605,147 1,593,861
(% Change) 12.1 5.3 10.3 4.3 4.7 -0.7
Import of Goods and Services 3,021,531 3,125,931 3,442,490 2,304,271 2,548,455 2,749,649
(% Change) 8.9 3.5 10.1 9.6 10.6 7.9
Net External Demand -836,493 -824,865 -903,795 -770,603 -943,307 -1,155,787
(% Change) -1.2 1.4 -9.6 -21.9 -22.4 -22.5

C. Total Demand 10,361,151 10,951,695 11,838,975 8,235,429 8,633,890 9,012,026

(% Change) 8.0 5.7 8.1 5.0 4.8 4.4
(a) The data is based on the base year 2010 GDP estimates of the Department of Census and Statistics. Sources: Department of Census and Statistics
(b) Revised Central Bank of Sri Lanka
(c) Provisional

83
 CENTRAL BANK OF SRI LANKA | ANNUAL REPORT 2016

salaries and wages grew only by 2.6 per cent in 2016 was partially attributable to the upward revisions
compared to 27.4 per cent growth in 2015, while the in government duties on alcoholic beverages, and
other purchases of goods and services contracted by tobacco and narcotic products during the year.
19.5 per cent during the year compared to 64.9 per The inflation of alcoholic beverages and tobacco
cent growth in 2015, reflecting the decline in GCE. (NCPI, 2013=100) increased to 22.1 per cent in 2016
from 17.5 per cent in 2015, reflecting the increase in
PCE on food and non-alcoholic beverages

2
respective price levels. Accordingly, the PCE share of
which makes the highest contribution to PCE,
this category increased to 2.1 per cent in 2016 from
grew by 5.1 per cent in 2016 compared to 18.4
1.9 per cent in 2015.
per cent growth recorded in 2015. In rupee
terms, the food and beverages import index grew by PCE on clothing and footwear contracted by
7.3 per cent in 2016 compared to 3.5 per cent growth 17.7 per cent in 2016 compared to 7.7 per cent
in 2015. However, the import volume index related growth in 2015. This moderation was reflected by
to this category contracted reflecting that the nominal the slower growth of 0.4 per cent in the rupee value
increase was driven by the higher prices. Meanwhile, import index of clothing and accessories in 2016
the food inflation of the National Consumer Price compared to 43.7 per cent growth recorded in 2015.
Index (NCPI, 2013 = 100) increased at a slower pace Further, the clothing and accessories import volume
of 3.1 per cent during the year compared to 5.2 per index contracted by 13.7 per cent in 2016 compared
cent in 2015. The share of the food and non-alcoholic to 26.3 per cent growth in 2015. As a result, the PCE
beverages category in PCE was 27.9 per cent in 2016 share of this category declined to 3.0 per cent in 2016
compared to 27.7 per cent in 2015. from 3.9 per cent in 2015.

PCE on alcoholic beverages, tobacco and PCE on housing, water, electricity, gas and
narcotics grew by 16.7 per cent in 2016 compared other fuels category grew by 9.5 per cent in 2016
to 10.3 per cent growth in 2015. This increase compared to 11.5 per cent growth in 2015.

Table 2.11
Composition of Private Consumption Expenditure at Current Market Prices (a)

Share of Total PCE (%) Rate of Change (%)

Category
2014 (b) 2015 (b)(c) 2016 (c) 15/14 (b)(c) 16/15 (c)
1. Food and Non-alcoholic Beverages 25.7 27.7 27.9 18.4 5.1
2. Alcoholic Beverages, Tobacco and Narcotics 1.9 1.9 2.1 10.3 16.7
3. Clothing and Footwear 3.9 3.9 3.0 7.7 -17.7
4. Housing, Water, Electricity, Gas and Other Fuels 10.7 10.9 11.4 11.5 9.5
5. Furnishings, Household Equipment and Routine Household Maintenance 1.3 1.2 1.4 1.0 18.1
6. Health 2.6 2.9 3.1 22.1 10.4
7. Transport 22.2 21.7 21.5 7.6 3.2
8. Communication 0.9 1.0 1.0 17.9 8.5
9. Recreation and Culture 1.3 1.7 1.5 44.5 -9.8
10. Education 1.8 1.6 1.5 -0.3 -1.8
11. Restaurants and Hotels 4.4 4.1 4.2 1.7 8.0
12. Miscellaneous Goods and Services 25.3 24.2 24.9 5.0 7.2
13. Direct Purchases Abroad by Residents 2.5 2.7 2.9 16.5 15.0
14. Less: Direct Purchases in Domestic Market by Non-residents 4.6 5.3 6.5 27.4 26.3

Total Private Consumption Expenditure 100.0 100.0 100.0 10.0 4.3

(a) The data is based on the base year 2010 GDP estimates of the Department of Census and Statistics. Source: Department of Census and Statistics
(b) Revised
(c) Provisional

84
 NATIONAL OUTPUT, EXPENDITURE AND INCOME

Electricity sales to the domestic sector grew by 8.3 which are still at low levels, since the government
per cent in 2016 compared to 10.1 per cent growth substantially involves in providing basic health and
in 2015, reflecting the continuous expansion in education services for free of charge, reducing the
electricity consumption of the household sector PCE on those categories. This was reflected by the
in the country. Further, distribution of water units production approach estimates where the value
to the domestic sector increased by 12.9 per cent added of education and human health activities was

2
during the year compared to 7.1 per cent growth mainly generated by the government sector.
in 2015. Meanwhile, the tariffs of electricity and PCE on communication grew by 8.5 per cent
water, and prices of diesel and petrol remained in 2016 when compared with 17.9 per cent growth
stable during the year, while the price of liquid in 2015. The imposition of Value Added Tax (VAT)
petroleum gas was revised downwards in on telecommunication services increased the unit
November 2016. The benign price pressure cost of this category dampening demand. Further, the
on the items in this category was reflected by common floor rates of telecommunication services
0.1 per cent increase in inflation in the category were also revised upwards during the year. This was
of housing, water, electricity, gas and other fuels reflected by 6.8 per cent increase in inflation of the
(NCPI, 2013=100) in 2016 compared to 4.2 per communication category (NCPI, 2013=100) in 2016
cent increase recorded in 2015. compared to 0.1 per cent increase in 2015. Moreover,
PCE on transport activities grew by 3.2 per telephone and total internet connections slowed
cent in 2016 compared to 7.6 per cent growth down during the year growing by 6.6 per cent and
in 2015. Registration of motor cars and motor 20.3 per cent, respectively, compared to 8.8 per cent
cycles which reflects PCE on transport related and 20.9 per cent growth, respectively, recorded in
goods recorded a significant contraction during 2015. Further, import of telecommunication devices
the year. However, passenger bus fares were also slowed down during the year as per rupee value
increased from August 2016, increasing the PCE import index.

on transport. PCE on restaurants and hotels continuously

The growth in PCE on health services expanded by 8.0 per cent in 2016 compared to

decelerated to 10.4 per cent in 2016 compared 1.7 per cent growth in 2015. This growth was

to 22.1 per cent growth in 2015, while PCE on largely attributable to the changes in lifestyles with

education continued to contract by recording conducive atmosphere and rapid growth in hotels,

an 1.8 per cent contraction in 2016 compared cafes and restaurant facilities, proliferation of

to 0.3 per cent contraction recorded in previous global restaurant chains, as well as the increase in

year. The setback in PCE observed in health and tourist activities facilitating the continuous demand

education categories was partially owed to the impact for such activities.

of the indirect taxes imposed during the year curtailing GCE which includes the collective final
demand. On the other hand, the downward revision consumption expenditure and the individual final
of prices related to selected pharmaceutical products consumption of the government slowed down
might have contributed to curtail health expenditure. during the year in line with fiscal consolidation
Health and education expenditure represented measures implemented by the government.
3.1 per cent and 1.5 per cent of the PCE, respectively, Collective final consumption expenditure, the major

85
 CENTRAL BANK OF SRI LANKA | ANNUAL REPORT 2016

GCE category, accounted for 67.7 per cent of the activities, largely contributed to this growth. This
GCE in 2016. This represents the expenditure was further indicated by the significant growth in
incurred by the government for the benefit of the imports of building materials which were used for
community as a whole, which includes expenditure construction activities. Further, the expenditure
on general public services, defence, public order on machinery and equipment, and weapons
and safety, economic affairs, environmental systems, grew by 7.3 per cent in 2016 compared

2
protection, housing and community amenities, to 2.0 per cent growth in 2015. This was also
recreation, culture and religion, and social reflected by the significant growth recorded in
protection. Accordingly, the government collective the imports of machinery and equipment, both in
final consumption expenditure grew by 3.3 per value and volume terms during the year. Further,
cent in nominal terms in 2016 compared to 9.5
investment on transport equipment, information
per cent growth recorded in 2015. This slowdown
and communication technology equipment,
was mainly due to 9.0 per cent contraction in the
and intellectual property products positively
expenditure on defence during the year against
contributed to the observed growth in investment
4.2 per cent growth in 2015. Meanwhile, individual
activities, while investment on cultivated
final consumption expenditure of the government
biological resources contracted during 2016.
which is the expenditure incurred for the benefit
Moreover, change in inventories and acquisition
of individual households on education and health
less disposals of valuables significantly grew by
also slowed down to 2.7 per cent in 2016 compared
121.8 per cent in 2016 recovering from 56.1 per
to 22.6 per cent growth in 2015. Considering the
cent contraction recorded in 2015, supporting the
disaggregated data, expenditure on education
investment growth.
and health grew by 1.2 per cent and 4.5 per cent,
respectively, in 2016 compared to 28.4 per cent Inflows of Foreign Direct Investment
and 16.1 per cent growth, respectively, recorded (FDI) to companies registered under the
in 2015. Board of Investment (BOI), including loans,
amounted to US dollars 801 million in 2016
Investment as compared to US dollars 969.7 million in
Investment expenditure recovered during 2015, reflecting a year-on-year decline of
2016 recording a healthy growth rate of around 17.4 per cent. The main reason for
19.6 per cent in nominal terms against the the contraction in FDI inflows during the period
contraction of 7.0 per cent recorded during
2015. The expenditure on construction activities Chart 2.8
rebounded during 2016 recording a significant Foreign Direct Investment of BOI Enterprises (a)
(US$ million)
growth rate of 18.0 per cent, recovering from the
marginal contraction of 0.2 per cent recorded in Agriculture
3.9
1.9

2015 contributing substantially to the growth in 257.0

Manufacturing
247.7
investment. Large scale investment projects of the
255.4
government as well as private sector involvement Services
211.9

in investments, reflected by the significant growth Infrastructure

339.5
453.4

in credit granted by Licensed Commercial Banks 2015 2016

(LCBs) to the private sector for construction (a) including loans

Source : Board of Investment of Sri Lanka

86
 NATIONAL OUTPUT, EXPENDITURE AND INCOME

Table 2.12
Investment and Employment in Enterprises Registered under Board of Investment of Sri Lanka (BOI)
and Ministry of Industry and Commerce (MIC)
No. of Projects Estimated Investment (Rs.million) Employment (No.)
2015 (a) 2016 (b)
2015 (a) 2016 (b) 2015 (a) 2016 (b)
Foreign Local Total Foreign Local Total
BOI (Under Act No. 4 of 1978)
Projects Approved 241 205 337,716 257,907 595,623 1,009,516 347,838 1,357,354 38,408 27,153
Under Section 17 (c) 224 191 335,840 256,535 592,375 1,008,467 347,766 1,356,233 37,616 26,850

2
Under Section 16 17 14 1,876 1,373 3,248 1,049 72 1,121 792 303
Projects Contracted Under Section 17 (c) 155 180 147,631 141,675 289,307 528,215 226,566 754,781 23,426 27,300
Realised Investment Under Section 17 (d)(e) 1,989 1,929 1,236,251 755,557 1,991,808 1,345,715 834,098 2,179,813 n.a. n.a.
Projects in Commercial Operations (d) 2,758 2,831 446,553 4,166,703 4,613,256 477,167 4,210,416 4,687,583 414,744 424,320
Under Section 17 (c) 2,032 2,097 411,962 4,155,929 4,567,892 441,744 4,199,306 4,641,050 377,586 387,112
Under Section 16 726 734 34,591 10,774 45,365 35,423 11,110 46,534 37,158 37,208
MIC
Companies Registered (d) 2,276 2,436 - - 204,522 - - 204,975 311,698 315,681
(a) Revised Sources: Board of Investment of Sri Lanka
(b) Provisional Ministry of Industry and Commerce
(c) Includes expanded projects
(d) Cumulative as at end of year
(e) Cumulative actual investment values are given
Note: Projects approved and contracted under Sec.17 of the BOI Act are exempted from customs and exchange control regulations subject to the fulfilment of
the investment threshold or any other specified requirements.

was the decrease in inflows to infrastructure estimated investment value of projects contracted
projects, services and manufacturing by 25.1 per under section 17 was Rs. 754.8 billion, which
cent, 17.0 per cent and 3.6 per cent, respectively. was an increase of 160.9 per cent compared with
Majority of FDI during the period was on account 2015. Estimated investments of projects which
of infrastructure sector representing 42.4 per commenced commercial operations under sections
cent of FDI (US dollars 339.5 million). FDI in the 17 and 16 of the BOI Act were Rs. 4,687.6 billion as
manufacturing sector represented 30.9 per cent at end 2016. The cumulative realised investment of
of total FDI inflows (US dollars 247.7 million), the BOI by end 2016 was Rs. 2,179.8 billion.
whereas FDI in the services sector amounted
Availability and Utilisation of
to US dollars 211.9 million representing around
Resources
26.5 per cent of total FDI inflows during 2016.
The amount of resources available in the
Total estimated investments of projects
economy grew by 8.6 per cent in 2016 compared
approved in 2016 under Sections 16 and 17 of
to 5.2 per cent growth recorded during 2015
the BOI Act are estimated at Rs. 1,357.4 billion.
registering a value of Rs. 15,281.5 billion in
Investment value of project approvals in the
nominal terms. Considering the disaggregated
services, chemicals, petroleum, coal, rubber
data, both GDP and external resources increased
and plastics, non-metallic and mineral products
in nominal terms during the year in comparison
sectors increased compared to 2015. However, to 2015. Increase in prices as reflected by the
estimated investment inflows into projects approved increase in GDP deflator contributed to the nominal
in food, beverages and tobacco, textile, wearing growth in domestic resources. Growth in domestic
apparel and leather, fabricated metal, machinery resources was driven by Industry and Services
and transport equipment sectors recorded a lower activities, while Agricultural resources declined
investment value compared to the last year. The during the year. In terms of external resources, the

87
 CENTRAL BANK OF SRI LANKA | ANNUAL REPORT 2016

Table 2.13 Chart 2.9

Total Resources and Their Uses at Current The Economy in 2016 (at current market prices) (a)
Market Prices (a) (c)
Supply of Goods and Services
(Rs. 15,281 billion) Wholesale and
Percentage Share % Percentage Growth % Retail Trade
Item
2015 (b) 2016 2015 (b) 2016 Construction Taxes less Subsidies
8.3%
6.1% on Products Transportation and
A. Resources 6.5% Storage 9.4%
Gross Domestic Product 77.8 77.5 5.7 8.1 Electricity, Water
Accommodation and
Import of Goods and Services 22.2 22.5 3.5 10.1 and Waste Treatment
Food Service Activities
0.8%
Total 100.0 100.0 5.2 8.6 1.2%

2
Manufacturing Information and
12% Communication
B. Utilisation Services
0.6%
Consumption 61.5 59.0 10.3 4.1 44.0%
Financial, Insurance and
Gross Fixed Capital Formation 20.6 21.4 1.1 12.3 Mining and Real Estate Activities
Quarrying 7.9%
Changes in Inventories and 2.1%
Acquisition less Disposals of Professional Services and
Fishing
Valuables 1.5 3.0 -56.1 121.8 1.1% Imports of Goods
Other Personal Service
Activities 8.9%
Export of Goods and Services 16.3 16.6 5.3 10.3 and Services
Agriculture and 22.5% Public Administration,
Total 100.0 100.0 5.2 8.6 Forestry Defence, Education,
4.7% Human Health and
(a) The data is based on the base Sources: Department of Census and Statistics
Social Work Activities
year 2010 GDP estimates of Central Bank of Sri Lanka Demand for Goods and Services 7.9%
the Department of Census and (Rs 15,281 billion)
Statistics. Government Investment
(b) Revised Consumption 24.4%
6.6%
(c) Provisional

increase in imports in nominal terms was partially Exports of Goods and Services
16.6%
attributable to the increase in import prices due to Private
Consumption
the depreciation of the local currency. However, in 52.4%

real terms, the growth in total resource availability (a) The data is based on the base year 2010 GDP
estimates of the Department of Census and Statistics
Sources : Department of Census and Statistics
slowed down to 5.2 per cent in 2016 compared to Central Bank of Sri Lanka

6.1 per cent growth in 2015 mainly due to the slow relatively higher export prices. In real terms, resource
growth in GDP as well as in external resources in utilisation declined due to the slowdown in consumption
real terms. and the contraction in exports.
Majority of the available resources were
used for consumption purposes accounting for Savings
59.0 per cent of the total resources in 2016, Domestic savings of the economy recorded
which was a decline compared to 61.5 per cent a significant growth of 23.2 per cent in 2016 and
in 2015 owing to the slowdown in consumption reached Rs. 2,820.1 billion against 8.8 per cent
growth. The share of resources utilised for contraction recorded in 2015. This improvement
investment purposes improved to 24.4 per cent in in domestic savings recorded during 2016 was
2016 as compared to 22.1 per cent in 2015. This was driven by the healthy growth observed in private
mainly attributable to the 12.3 per cent growth in gross savings together with the significant decline in
domestic fixed capital formation in 2016 compared to government dis-savings as a combined outcome
1.1 per cent growth in 2015, increasing the share to of increase in government revenue and slowdown
21.4 per cent of the total resources utilised during the in government recurrent expenditure compared
year. Meanwhile, exports share as a percentage of total to 2015 following concerted efforts towards fiscal
resource utilisation improved slightly to 16.6 per cent in consolidation. As a result, domestic savings as a
2016 compared to 16.3 per cent share recorded in 2015, percentage of GDP increased to 23.8 per cent in
with an increase in exports in nominal terms due to the 2016 compared to 20.9 per cent in 2015.

88
 NATIONAL OUTPUT, EXPENDITURE AND INCOME

Table 2.14
Consumption, Investment and Savings at Current Market Prices (a) (c)

Rs. million % Change As a per cent of GDP

Item
2015 (b) 2016 2015 (b) 2016 2015 (b) 2016

1. Gross Domestic Product at Market Price 10,951,695 11,838,975 5.7 8.1 100.0 100.0
2. Consumption Expenditure 8,661,886 9,018,895 10.3 4.1 79.1 76.2
Private 7,677,131 8,003,789 10.0 4.3 70.1 67.6
Government 984,755 1,015,107 13.4 3.1 9.0 8.6

2
3. Investment 3,114,674 3,723,875 -7.0 19.6 28.4 31.5
4. Domestic Savings 2,289,809 2,820,080 -8.8 23.2 20.9 23.8
Private 2,536,588 2,891,799 -3.9 14.0 23.2 24.4
Government -246,779 -71,719 -93.3 70.9 -2.3 -0.6
5. Domestic Savings - Investment Gap -824,865 -903,795 1.4 -9.6 -7.5 -7.6
6. Net Primary Income from Rest of the World (d) -281,337 -332,758 -19.2 -18.3 -2.6 -2.8
7. Net Current Transfers from Rest of the World 842,082 939,782 3.6 11.6 7.7 7.9
8. National Savings 2,850,554 3,427,104 -7.7 20.2 26.0 28.9

(a) The data is based on the base year 2010 GDP estimates of the Department of Census and Statistics Sources: Department of Census and Statistics
(b) Revised Central Bank of Sri Lanka
(c) Provisional
(d) The difference with the BOP estimates is due to the time lag in compilation.

National savings of the economy grew by Employees (CE), and the taxes less subsidies on
20.2 per cent in 2016 registering Rs. 3,427.1 production which accounted for 30.6 per cent and
billion against 7.7 per cent contraction observed 0.4 per cent, respectively, of the total gross value
in 2015. This recovery was mainly attributable to added of the economy in 2016. The GOS grew by
the significant growth in domestic savings. Further, 6.5 per cent in nominal terms in 2016 compared
net current transfers from the rest of the world to 2.8 per cent growth observed during 2015. This
grew by 11.6 per cent during the year, contributing increase was mainly attributable to the increase
positively to national savings. Meanwhile, net in Net Operating Surplus (NOS), the main income
primary income from the rest of the world further category in the GOS which grew by 7.3 per cent in
contracted during the year albeit at a slower pace 2016 as compared to 2.0 per cent growth in 2015.
compared to the previous year. Accordingly, national Further, the other two sub categories of the GOS,
savings as a percentage of GDP improved to
which are Consumption of Fixed Capital and Mixed
28.9 per cent in 2016 compared to 26.0 per cent
Income, grew by 1.9 per cent and 5.8 per cent in
recorded in 2015. However, as a result of the higher
2016, respectively, compared to 5.9 per cent and
growth in investment expenditure, national savings-
5.5 per cent growth recorded in 2015, respectively.
investment gap increased marginally to 2.5 per cent
Meanwhile, taxes less subsidies on production
of GDP in 2016 compared to 2.4 per cent of GDP in
grew by 10.8 per cent in 2016 compared to 5.3 per
2015.
cent growth recorded in 2015.
2.6 Income With respect to institutional sector
The disaggregated components that classification, the highest contribution to the
generated income within the economy during income was generated by the HH and NPISH
the year are illustrated through the income sector which accounted for 50.7 per cent of
approach. The Gross Operating Surplus gross value added recording a growth of 6.2
(GOS), the major income source accounted for per cent. This was followed by the NFC which
69.0 per cent, followed by the Compensation of the grew by 8.3 per cent accounting for a share of

89
 CENTRAL BANK OF SRI LANKA | ANNUAL REPORT 2016

Table 2.15
Income Components by Institutional Sector at Current Market Prices (a) (c)

Percentage Share (%)

2015 (b) 2016

Item Households Households

Non- Non-
Financial General and Non-Profit Financial General and Non-Profit
Financial Total Financial Total
Corpora- Govern- Institutions Corpora- Govern- Institutions
Corpora- Economy Corpora- Economy
tions ment Serving tions ment Serving
tions tions

2
Households Households

Compensation of Employees 31.3 5.2 28.9 34.6 100.0 30.9 5.3 28.9 34.9 100.0
Gross Operating Surplus 34.8 3.9 2.8 58.5 100.0 35.7 4.4 1.8 58.1 100.0
Net Operating Surplus 38.2 4.6 1.8 55.4 100.0 39.3 5.3 0.9 54.5 100.0
Mixed Income - - - 100.0 100.0 - - - 100.0 100.0
Consumption of Fixed Capital 42.9 2.4 12.1 42.6 100.0 43.3 2.4 9.7 44.6 100.0
Other Taxes less Subsidies on Production 91.4 8.3 - 0.3 100.0 91.0 8.7 - 0.3 100.0
Gross Value Added at Basic Price 34.0 4.3 10.7 51.0 100.0 34.5 4.7 10.1 50.7 100.0
(a) The data is based on the base year 2010 preliminary GDP estimates of the Department of Census and Statistics. Source: Department of Census and Statistics
(b) Revised
(c) Provisional

34.5 per cent. From the total GOS of the economy, the same time, the GG sector also accounted for
the HH and NPISH sector represented 58.1 per cent 28.9 per cent of CE growing by 7.0 per cent in
that grew by 5.7 per cent, while NFC accounted for 2016. NFC contributed to the majority of the taxes
35.7 per cent and grew by 9.3 per cent in nominal less subsidies on production with a share of 91.0
terms in 2016. Meanwhile, with regard to CE, per cent and grew by 10.4 per cent in 2016. It was
the HH and NPISH, and NFC sectors accounted notable that even though HH and NPISH accounted
for 34.9 per cent and 30.9 per cent, respectively, for 50.7 per cent of the gross value added in 2016,
and recorded nominal growth rates of 8.2 per cent its contribution to taxes less subsidies on production
and 5.9 per cent, respectively, during the year. At of the year was only 0.3 per cent.

90