Name of the [Lecturer]:

MN 4001 ASSIGNMENT 02
01. External trade: Imports, Exports, Major 10 items in each category, trade
surplus/deficit as a percentage of GDP compared to the year 2010. :

In 2010 :

The external sector of the country further improved in 2010 with favourable developments on both
domestic and external fronts. Sri Lankas graduation to the status of a middle-income economy by
the International Monetary Fund (IMF) in January 2010, enabled the country to project itself strongly
in international financial markets. Upgrading of the sovereign credit rating of the country by
international rating agencies, the successful continuation of the Stand-by Arrangement (SBA) with
the IMF, increased long term capital flows to the government including the successful issuance of the
third international sovereign bond in October 2010 as well as increased inflows to the private sector
helped strengthen the performance of the external sector. Further relaxation of restrictions on foreign
exchange transactions also helped improve investor confidence and the external sector. External trade
rebounded strongly in 2010, reversing the sharp contraction observed during the global recession of
2009. Earnings from exports increased by 17.3 per cent, reflecting higher earnings from the industrial
and agricultural sectors. Expenditure on imports grew by 32.8 per cent, led by intermediate goods
imports. As a result, the trade deficit expanded to US dollars 5,205 million in 2010. Although export
earnings were volatile in the early part of the year amidst uncertainties regarding the global recovery,
they improved towards the latter part of the year, indicating a new growth path, despite the
withdrawal of GSP+ concessions. This reflected the peace dividend and the dynamism of local
exporters.
In 2015 :

The external sector reflected a moderate growth in 2015 with the marginal improvement in current
account deficit as a percentage of GDP to 2.4 percent in 2015 and a widening of a deficit in the
Balance of Payments (BOP). However, in nominal terms, the current account deficit widened to US$
2,009 million in 2015 with an unexpected moderation of workers remittances amidst a notable
increase in tourism earnings. The BOP recorded a deficit of US$ 1,489 million in 2015, compared to
a surplus of US$ 1,369 million recorded in 2014 reflecting increased current account deficit coupled
with the reduction of inflows, such as FDI, foreign investment in equity market and government
receipts etc to the financial account. As such, gross official reserves declined to US$ 7.3 billion
which is sufficient for 4.6 months of imports by end 2015. The trade deficit expanded by 1.7 percent
to US$ 8,430 million from US$ 8,287 million in 2014 due to a sluggish demand for exports in the
international market and significant domestic demand for vehicle imports. Meanwhile, Sri Lanka
rupee depreciated against the US dollar by 2.42 percent up until the CBSL accommodated a greater
flexibility in exchange rate on 04th September 2015. With these developments, the rupee depreciated
against US dollar by 6.64 percent during the period from 4th September to end December 2015.
Overall, the rupee depreciated by 9.03 percent against the US dollar during the year.

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02. Labour Force :
The labour force, which is defined as the economically active population aged 15 years and above,
increased by 1.9 per cent during 2015 compared to a 0.03 per cent increase in 2014. As per the
Quarterly Labour Force Survey (QLFS)conducted by the DCS, the labour force increased from 8.805
million in 2014 to 8.973 million in 2015. Within the labour force, the number of both employed and
unemployed persons increased in the midst of moderation in economic activities. The availability of
productive labour in the economy, during the period under review, provides for capacity expansion
possibilities in the future, as reflected through the findings of business sentiment surveys conducted
by the Central Bank. Along with the increase in Labour Force, the Labour Force Participation
Rate(LFPR) also increased marginally to 53.8 per cent during 2015 from 53.3 per cent recorded in
2014. This increase in LFPR is mainly caused by the increase in rural LFPR from 54.2 per cent to
54.9 per cent, mainly due to increased labour force participation by rural sector females. Urban LFPR
declined by 0.1 percentage points, due to the decline in the urban male LFPR by 0.4 percentage
points in 2015. Urban female LFPR increased by 0.5 percentage points, which was not sufficient to
surpass the decline in urban male LFPR, as the female LFPR in Sri Lanka usually languished around
50 per cent of the male LFPR. Nevertheless, these developments culminated in an overall notable
increase in female LFPR from 34.7 per cent in 2014 to 36.0 per cent in 2015, and an overall marginal
increase in male LFPR from 74.6 per cent to 74.7 percent during the period.

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Unemployment :
The unemployment rate increased to 4.6 percent during 2015 from 4.3 per cent recorded in 2014.
During 2015, an increase in the number of employed persons was observed, while the number
unemployed also increased at a much higher rate, triggering an overall increase in the unemployment
rate. The number employed increased by 1.5per cent in 2015 while the number unemployed
increased by a considerable 10.0 per cent during the period under consideration. During the period
under review, although the LFPR increased, the new economic activities or the expansion of existing
economic activities were not sufficient to absorb this addition of new labor into the labor force
resulting in a sizable number of persons to remain unemployed. Female unemployment rate increased
notably to 7.6 per cent in 2015 compare to 6.5 per cent in 2014. Male unemployment rate declined
from 3.1 in 2014 to 3.0 in 2015. During the period under consideration, unemployment rates by the
level of education increased across all categories. Unemployment rate among the GCE (A/L) and
above qualified category increased to 9.2 per cent during 2015 from 8.1 per cent recorded in the
previous year. Unemployment rate among the GCE (O/L) qualified category was 6.4 per cent during
2015 while those who have passed years 6-10 recorded the lowest unemployment rate of 3.5 per cent
for the sameperiod .Age-wise, unemployment rates of all age categories except for those between 20-
24 years of age increased during 2015 compared to 2014.

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Foreign Employment :
The total number of departures for foreign employment declined significantly by 12.4 per cent during
2015. This decline could be partly attributable to the slowdown of economic activities in the Middle
East, the continuous deceleration in the aggregate demand across major oil and other commodity
exporting countries and also due to the restrain in the departures of female workers from Sri Lanka
for low-skilled employment categories. Accordingly, total departures for foreign employment was
recorded at 263,307 in 2015, compared to 300,703 in 2014. Female departures declined by 17.9 per
cent, from 110,486 in 2014 to 90,677 in 2015, while male departures also declined by 9.2 per cent
from 190,217 in 2014 to 172,630 during 2015. Current developments in labor markets where Sri
Lankan migrant labour share is substantial, further affirm the importance of continuous efforts in
enhancing the migrant worker profile to higher skilled categories, while targeting countries other than
the Middle East in order to have a diversified market segment to minimize the effects of any
unfavorable economic developments arising in one region. In terms of departures for foreign
employment by skill levels, Professional, Skilled labor and Semi-skilled labor categories recorded
increases, while all other skill categories recorded declines in 2015. Approximately 57 per cent of
total departures comprised of Unskilled workers and Housemaid categories. Only 2.4 per cent of
worker departures were under the Professional category. Nevertheless, the skilled labor category
contributed to 31.2 per cent of total departures, which is an encouraging development in the drive to
enhance the migrant employment profile of the country. Total departures to Middle Eastern countries
decreased by 13.5 per cent to 242,431 in 2015. Continuing the recent decreasing trend, housemaid
departures to Middle Eastern countries decreased by 14,591 in 2015. Notable decreases were
observed in departures of housemaids to Saudi Arabia, Kuwait, United Arab Emirates (UAE) and
Jordan. Consequently, male migrant worker departures, as a share of total migrant worker departures
increased to 64.3 per cent, amid a decline in aggregate male migrant departures in 2015.

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03. Agriculture :
The Agriculture, forestry and fishing activities grew by 5.5 per cent in value added terms during 2015
compared to 4.9 per cent growth in 2014. Further measures were taken to strengthen agriculture
sector in the country. The government's agriculture policy is anchored to the strategy of making the
country self-sufficient in maize, soya beans, chilies, big onions, and potatoes by 2018 through crop
diversification and productivity improvement while gradually shifting from subsistence agriculture to
agri-business with access to export markets by 2020. Further, it is expected to establish 23
Agricultural Development Mega Zones under the theme of "Sri Lanka - The Global Home Garden"
to make Sri Lankas agricultural products globally competitive. As part of the Western Region
Megapolis Master Plan, 13 planning areas have been proposed, including a Plantation City and a
Forest City. The Plantation City will consist of the plantation areas around Avissawella with pockets
of residential development while the Forest City is aimed at creating certain types of residential and
tourism regions among well protected agriculture and forest area. However, in order to address the
challenges prevailing in the sector, it is highly important to undertake measures to shift the traditional
low value agriculture to modern high value agriculture accompanied by efficient water management,
introducing high yield seed varieties and utilization of modern technology while increasing the
investment on research and development activities and simplifying access to agricultural credit for
smallholders and farmers. in 2015, several measures were implemented to develop the paddy sector.
The guaranteed purchase price of paddy was increased with the view of encouraging farmers to
increase the yield and extent cultivated. The guaranteed purchase price of paddy (Samba) increased
to Rs. 50 per kg in 2015 from Rs. 35 per kg while Nadu and other varieties increased to Rs. 45 per kg
from Rs. 32 per kg in the previous year. Given the bumper harvest, the PMB purchased a stock of
335,270 MT of paddy from both 2014/15 Maha harvest (160,000 MT) and 2015 Yala harvest
(175,270 MT). PMBs limited storage facilities and financial constraints affected its ability to
purchase additional paddy stocks from farmers under the guaranteed price scheme during the year.
Meantime as proposed in the Budget 2016, arrangements were made to reduce the purchase price of
paddy of Keeri Samba and Samba varieties to Rs. 50 per kg and Rs. 41 per kg, respectively, while
Nadu and other varieties were reduced to Rs. 38 per kg in order to stabilize rice prices in the market.
With a view to discouraging rice imports on the back of a bumper harvest, the SCL on the
importation of rice was increased to Rs. 20 per kg with effect from 22 January 2015 from Rs. 1 per
kg in 2014 and further to Rs. 40 per kg from 26 March 2015. On 6 May 2015, the SCL was replaced
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with a Customs duty of Rs. 35 per kg and other taxes. Meanwhile, funds disbursed under the fertilizer
subsidy scheme in 2015 increased to Rs. 49,571 million. Initiatives have been taken to provide a cash
grant of Rs. 25,000 per hectare for a maximum extent of 2 hectares in place of the existing fertilizer
subsidy, commencing from the 2015 Yala season, allowing farmers greater flexibility in selecting
farm inputs thereby increasing productivity.

Manufacturing :
Manufacturing activities, the largest segment of the industrial activities, grew in value added terms
by 4.7 per cent during 2015 compared to 2.3 per cent growth recorded in 2014. The growth in
manufacturing was mainly driven by the manufacture of food, beverages and tobacco products,
which grew by 5.6 per cent in 2015 compared to 1.3 per cent growth in 2014. Further,sub categories
of other manufacturing, repair and installation of machinery, manufacture of furniture, and
manufacture of machinery and equipment also contributed significantly to the growth in
manufacturing activities. However, manufacture of other non-metallic mineral products contracted by
2.8 per cent in 2015.

Services :
Services activities, which account for 56.6 per cent of GDP, grew by 5.3 per cent, buttressed by the
growth in financial services (15.8 per cent), real estate activities (9.6 per cent), transport activities
(5.5 per cent) and wholesale and retail trade (4.7 per cent).This growth was largely buoyed by the
robust growth in financial service activities, supported by the transportation of goods and passengers
including warehousing, real estate activities including ownership of dwellings, and wholesale and
retail trade activities. Further, the expansion in public administration services, other personal service
activities, insurance, human health activities, telecommunication and IT programming services
positively contributed to this growth. However, professional services, education, accommodation,
food and beverage services, and postal and courier activities contracted in 2015 compared to 2014,
decelerating the overall growth in Services.

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04.Growth of GDP and GNI: year on year, comparison to 2010, 2000; nominal and real

GDP at current market prices amounted to Rs. 11,183.2 billion (US dollars 82.3 billion) in 2015
compared to Rs. 10,448.5 billion (US dollars 80.0 billion) in 2014. Accordingly, GDP recorded a 7.0
per cent growth in nominal terms in comparison to 8.9 per cent growth observed in 2014. This
slowdown was a combined outcome of the deceleration of both real GDP growth and GDP implicit
deflator. In real terms, GDP grew by 4.8 per cent in 2015 compared to 4.9 per cent in the previous
year. Accordingly, real GDP in 2015 amounted to Rs. 8,622.8 billion in comparison to Rs. 8,229.0
billion in 2014. Meanwhile, the GDP implicit deflator decelerated to 2.1 per cent in 2015 from 3.9
per cent in 2014. GDP per capita was estimated at Rs. 533,398 for 2015 compared to Rs. 503,032 in
2014, recording a 6.0 per cent growth in comparison to 7.9 per cent in 2014. This was mainly
attributable to the growth in nominal GDP in the midst of a fairly stable mid-year population growth
level. Per capita GDP denominated in US dollar terms also increased to US dollars 3,924 in 2015,
from US dollars 3,853 in 2014. Resulting growth in per capita GDP denominated in US dollars by
1.8 per cent in 2015 was a deceleration compared to 6.7 per cent growth recorded in 2014, mainly
due to the slowdown in nominal GDP growth. GNI, which is estimated by adjusting GDP for net
primary income from rest of the world increased to Rs. 10,932 billion recording a growth of 7.1 per
cent in nominal terms during 2015 compared to 9.0 per cent growth in 2014. The net primary income
from rest of the world, which consists of compensation of employees and investment income,
remained negative as the primary income paid to the rest of the world exceeded the primary income
received from rest of the world. The negative growth in primary income was a combined outcome of
the decline in both the compensation of employees and the investment income in 2015 compared to
last year.