Ceylon - Current economic situation

THIS REPORT HAS 1NOT BEEN RELEASED TO THE RETRICTED FXF.CUTIVE DIRECTORS 1 CIRCULATING COPY Report No. FE-43 ___.. RETURNED TO ARCHIVES DIVION I '"_-'IlTI I= af REPOFrZ nrewl WITPI ffs report was prepared for use within the Bank and its affiliated organizations. Iney ao no accept responsibiliry for its accuracy or completeness. The report may _ONE W EfiKe pu lished nor may it be quoted as representing their views. T%wrT 1aT k MT/"kT 1 T k TT Tr!t"T% T/V11'nT T1rTrT 1jT A XTT1 T1 YTT /%TAXITkT-V 11N I M11UNI .-1 IV-..IN.& -E)'%.N 1\ fK..JI . IL7.±" L X I-)J %. .L I'-JiN .,P LJ iz:; V Jn -L.. JLMi~N .I T%T""T'T I Y'T/%%T I T T1T 1FT TLATXT Y AV I 00/%f/IT I TT/,tkT IiN I MXKINJI- I .lk.IN1iU 1.im V IL1 %.Jri1vU1N .1~I ii%.JIN A NOTE ON SOME ASPECTS OF CEYLON'S CURRENT ECONOMIC SITUATION May 11, 1965 Far East Denartment CURRENCY EQUIVALENTS Currency Unit - Ceylon Rupee US $1. 00 = Rs. 4. 76 Rs. 1 mllio TTQ S l $ 1 Rs. 1 million =us $ZlO, 000 BASIC DATA Rate of growth: 2.6 - c.;b p.a. Population density (per sq. mile): 433 Population density (per sq. miLe of arable land): 1,100 Gross National Product (196): Rs. 7,540 million Rate of growth (1964): 4.5% Late of growth (1959-1964): 3.4/ p.a. Real Income growth (1959-1964): 2.1% p.a. GNP per Capita: US310 equivalent at official exchange rate. Gross Domestic Product of Factor Cost (196)> Rs. 7,155 million of which, in percent, Agriculture: 44 Manufacturing: 8 Construction: 6 Public Administration 7 Hiscellaneous Services 35 Percent of GDP at Market Prices: 1964 1959-1963 Gross Investment .................. 13 1 Gross Savings ..................... 11 13 Balance of Payments Current Account Deficit ................. 2 2 Investment Income Payments ......... less than 1 less than 1 Government Revenue ................. 23 22 Resource GaD as % of Investment: 15 13 Average Annual Change 1964 1959-196 (in Rs.million) Tin 7- Total Money Supply ............1..........,624 6 .L.Y-1C I .)CL J-1160I~ 1J,V0L0.... ...... - - L Bank Credit to Public Sector ............ 1,815 20 JDanl± U~reU.U OV C.L'-VaUU OtUUrI.............. Rate of Change in Prices: 2.0 (Official Cost-of-Living Index) (continued) -2- 1963/64 19 58/,r'9.)-1963/64 Government Current Expenditure ... 1,61 6f p.a. Government Capital Expenditure .03 Public Sector (net) 97 18% p.a. Balance of Payments (in US$ million): 1964 1959-1964 Total Exports ...................... 1,765 -- Total imports ...................... 1,9LO -- Net Invisibles ..................... -38 -7% p.a. Net Current Account Balance ........ -221 -2% p.a. 1964 1959 Commodity Concentration of Exports 93 9% o 1964 1959 TIn US$ million Gross Foreign Exchange Reserves ......... 74 114 Net Foreign Exchange Reserves ........... 10 131 (or 10 days' (or 4 monthst imports) imports) External Financial Assistance (in US$ million): Average 1964 1960-1963 Total Disbursements ................. 30 18 Grants ............................. 16 9 Loans .............................. 14 9 Major Donors United States ......... .. 5 8 Canada .............. .......... 3 2 United Kingdom .................. 1 1 Fed. Rep. of Germany .... 1 1 USSR ............................. 7 1 China ... ........ 8 i Introduction Since 1957 Ceylon has lived beyond its means, drawing on exchange reserves and, more recently, incurring short-term liabilities abroad, to supilement current income and receipts from external grants and long-term loan;. The main cause of this imbalance has been the persistent inflation- ary deficit of the Government which raised domestic demand above income. Declining terms of trade have aggravated Ceylon's foreign exchange position. Declines in exnort nries have tended to offRAt nontinnina increasn 'n volume. As a result, export earnings have tended to stagnate. As exchange reserves are virtually eyhausted and further recoumre to short-t.rm borrowing abroad would be imprudent, Ceylon faces a most serious problem of insufficint ity to imnort. Thtotically this sitation pld be alleviated by depressing domestic demand sufficiently so as to bring it inton -line -with domnrest+ic andl forenig-n resorcesnn presnt.Ix n-ri- 1 . Wn.n-ir* this is clearly not a practicable solution. If this judgment is accepted ,nnrl r'nycrl n crv +Ii- -vnr-v-;+tr --P vv . r e -m -;~4 ~ rr nnrc lt x+r imbalance of Ceylon's economy exists, for the immediate future, independently the shortage of foreign exchange - can be alleviated only by additional Uniess such assistane is forUtcomingi, it is difiul U±to~± see how Ceylon's basic problem of inadequate growth can be tackled. Conversely, this basic problem, the danger exists that Ceylon will slide from one crisis to the next, continuously requiring emergency assistance. ey-lon,s poor endowment with resources makes it difficult to achieve growth of income in excess of the increase in population. For this reason, Ceylon will have to be more diligent in the use of its resources than countries more richly endowed. Yet the last several years have seen a serious deterioration of performance in this respect. Increased consumption claimed more than the addition to total resources attained since 1959. Consequently, the share of resources devoted to investment has declined. Morever, investment resources available have not been used with due regard to efficiency and it appears that they did not contribute as much to addi- tional output as they might have done, even in Ceylon's difficult circums circumstances. Arresting and reversing the trend towards deterioration will be a formidable task, and the preparation of plans and measures for a comprehensive attack on the basic problems will take time. But the task will have to be undertaken with determination if Ceylon's economic prospects are to improve. The sections which follow examine some aspects of the two distinct, but related problems of insufficient foreign exchange and inadequate growth which confront Ceylon. A Ncte on Some Aspects of Contents Page No. T,tod cio-............................................ r e n1 s 4UJ n nU1d.I ,,4- UJU anU ea.y tJJV .LUfAI L ........ L Prospects .... 4 iv~~~~~' vr%IIII.riuC V UU11.1 61 *** Statistical Annex 1. Gross Domestic Product by Industrial Origin 2. Expenditure on Gross National Product 3. Summary of Government Accounts and Financing 4. Government Revenue 5. Government Current and Capital Expenditure 6. Factors Affecting Money Supply 7. Balance of Payments 8. Gross and Net External Assets 9. Actual and Projected Exports T 1 1O~,. ,) r,. t- --.n~it nne 7-n n +-1 r r.i,+ ~. rrv prices grew annually by 3.4%, on the average. However, more than one-third for changes in the terms of trade, real national income has grown 0.5% SLJVwZl cnL11LJL.y uLnd U J U.L iu1uu VVtr JlIe pe v P iC ve yeaLt ~. An .Lll _i.714, 6.VWo(LI was somewhat more rapid than in the preceding years and GNP at constant cubt uy L.')o. uUwth aU sucu raue was maily due to a reuvery u coconut production from a low level in the previous year. Output in domestc agriculture rose only slowly because of the relatively usow iuureams in paddy production for the third year running. Rising net output in manufacturing - 10.8% higher tnan in 1yo3 - also contributed to growtn, although the annual gain was the smallest since 1959. One of the least encouraging features of the Ceylon economy is the ineffective use to which resources are put. Over the last six years the economy appears to have passed through a period of rising consumption, and falling capital formation and savings, which reflects the goverrment's own tendencies in the same direction. The essential magnitudes are shown below: - Resources and their Utilisation, 1959-64 (Ks. million) 1959 1960 1961 1962 1963 1964 1959-64 A. Resources --change GDP ............ 6,457 6,625 6,757 6,920 7,064 7,561 +17.1 Imports ........ 2,176 2,209 1,972 2,070 2,031 2,086 --4.1 Total .......... 8,633 8,834 8,729 8,990 9,095 9,647 +11.7 B. Utilisation Private Con- sumption .... 4,678 4,991 4,849 5,010 5,184 5,641 +20.6 Public Con- sumption .... 881 911 926 979 1,011 1,090 +23.7 Total ....... ,902 5,775 5,990 6,195 6,731 +21.1 Private Capital Formation ... 745 618 652 627 610 646 -13.3 Public Capital Formation ... 314 303 395 403 389 336 +7.0 Total .......... 921 1,047 1,030 999 1- -7.3 Exports ........ 2,016 2.011 1,907 1971 1,903 1,933 -4.1 Total .......... 8.633 8.83L 8.729 8.990 9,095 9,67 +11,7 -2- The total increase in consumption expenditure thus exceeded the growth in resources, while expenditure on gross domestic capital formation fell absolutely and relatively from 17% of GNP to 135 over the period. The savings rate has also fallen from 13% in 1959-61 to 11% in 1964. The increases in consumption expenditures were not accompanied by any increase in expenditure on imported consumption goods although imports of consumption goods started to rise again in 1964. Only 16% of the total increase in consumption is accounted for by the public sector. A number of factors would appear to be contributing to this unsatisfactory performance. Investment expenditures by the public sector have grown only slightly - such growth as has taken place has been in the industrial corporations - mainly because of administrative bottlenecks and shortfalls in aid receipts. In the private sector the import restrictions,l/ and associated controls such as on building and new industrial investment increases in taxation, and uncertainty over government policies probably contributed to the stagnation of investment - although output in the private sector has continued to grow, stimulated by the protective effect of import restrictions. Throughout this period there was a growth in government tax receipts without a corresponding growth in public sector savings, because of the continued growth in current expenditures on transfer payments and social services. Since total savings declined over the period, it would appear that the increases in government revenue took place in part at the expense of corporate and private savings. The progressive redistribution of incomes and savings, which has taken place partly through the mechanism of government transfer payments, aided by the continued credit expansion particularly in the rural areas, thus appears to have caused the continuous growth of consumDtion exoenditure. It is probable that organized Dressure for wage increases has also played a part in maintaining a growth in private incomes at the exoense of cornorate savings. II. rubic rinance and Monetary Development no qnite qtrni .nd ueful Pfforts to r1i.qe taxes over the past five years, so that current tax revenue now stands at 23% of GNP, and desnite stapnating canital exnenditures., the buovancy of current exoenditures has prevented progress in reducing the cash deficit. Some progress has been made in reducinga dPndenn on nnion.rr financina. mainly because of increased absorption of government securities by state-owned savings banks, the insurane cornoration and nrovident funds. However, in effect this meant that less private savings were available for financing private sector eativt.ie whicr conQiently pement ra pnent. n net hank Crrit expansion. Overall, little improvement was achieved. Recent performance has been as follows:-i~ 1 D~~+- r,, ~.l~rr~, 'v~ ,r. ~,i4 ~m~v+._ 'rr 1958/9 1960/61 1962/63 1963/64 1964/65 est. Current Revenue .............. ,28 1,h57 1,588 1,611 1,725 Current Expenditure .......... 1,15 13 -54e0 1J29 ··2',0 Surplus ................ 91 75 108 26 (115-140) Tosse, byv govt. enterprises -L2 -33 -36 -29 -25. Current Surplus ......... h9 39 72 -3 90-15 Capital Expenditures ......... 493 519 496 503 _55o Zash deficit Y .......... -420 -463 -392 -462 -(415-140) Financed by: 1)Tinexpansionarv 179 221 213 302 3hO Administrative borrowing 27 29 -3- ~ -l 2~ Market borrowing .... 109 165 15h 206 210 Foreign loans ....... 36 14 62 65 ) 110 Fereign grants ...... 7 13 31 32 ) 2) Expansionary ......... 241 242 178 160 (75-100) Borrowing from banks 179 22 178 115 Use of cash balances 62 - -- 5-- 1/ Adjusted. For details see Appendix Table 3. RPvenue has been hioyant because of the gowti nf direct taxes, import duties and excises over the 1959-1962 period. Profits on the sale of sugar and flour (whib are in effect indirect taxes) also grew rapidly; the expected jump in receipts in 1964-5 is largely the result of the fall in rna cmugar prie'- afte +t 1963-n- pe Current expenditures have been increasing rapidly mainly because gross food subsidies have continued to grow. Å1togthe , p nulblic corp-ratin A e risn r increng, Gross Food Subsidy Payments (Es. million) -95/o 1960/6-iö n A1 -in)192/3 -196K3/65. 7_.11- _ko --Lr~/. ýotz ý / i ,c_1 I_JL4 imported Rice ...... 91 133 125 129 Domestic Rice ...... 10 226 283 Other Costs ....... 20 25 29 38 'P , ~---1 =. 1197 -r TOtal ........ 25 3'- 431 i63 operating losses. The subsidies and other transfers now total arou-nd Rs.525 million, or a third of current expenditures and account for inore than IIalfP the expenditure gro-wt since 195.-59. Tes are likely to continue to inerease unless there are changes in the rice producer subsidy scheme and in the pricing policies of public enterprises. Education and debt service expenditures also continued to grow. - hL - The a;rsence of any :rowtl in public capital expenditures is perhaps the least satisfntory q-nect of nihlic sector nPrformqnre_ The nronortion of total government expenditures devoted to capital formation dropped to 2),9 in 196-Al, frnm 10f in 198R-4q r .qnite thp inrname in the vAl11P of capital projects being financed by external assistance. Almost the whole increaseP in publ-lic- sctonr current' Yrevenues wn as devoted to.r) n consumption expenditure; moreover, a good deal of the capital expenditure ha been of doubtful priorit. In some repcts, the picture may be better in 1964-65. After three years of stagnation, revenue is expected to rise nnno4a rh ir D -v+ 4 1 Cn4 I,r ii -C -F' ,"- TI; Ivn Is - n +k- -i,hc-Air burden and other current expenditures will not rise much. As a result, a Rs. 200 million). Both the foreign aid estimates and, thus, capital Ua O ±C LL-L VJJ.L v0LLy LLM;L,, anl a. leve o ca _Lta- exeLueo around Rs.550 million is probable, with foreign aid at sli-htly above the _LL S _C V VI * \ U[I.LO, UUd->.0, .LU J.-LL P.L VI.JCL±y Ut:e Y1u~~ Lor i. Le government to seek expansionary finance of about Rs.75-100 million during Utle i-i-an Aa_tL year* compareJd±L -vv-*L-'Utl i ue estUi-liat of. zero. tJVCIcii Y4LUIe±Y ±i~l-t1US5 I le continueu use voepafunr governlmenul nnezerlcvu with a slight lag, in the money supply, which rose by about 7% during calendar 1>4, mainly during tne Last quarter. The increase in net bank credit to the government continues to be the dominating influence having accounted for over 90', of the increase in net domestic credit since 1959, but during the last 18 months commercial bank credit to government corporations and the private sector has also expanded irregularly, reflectin:, in part, the growth of the banking system and apparent borrowing for consumption purposes. Overall, however, the surge in money supply during FY 1963 has not been repeated, and inflationary pressures are no more acute than in the 1959-1962 period. Although comprehensive price infoxaation is not available, it appears that except in the case of the free market prices of a few rationed commodities, such as textiles, cost of living increases throughout the country have been moderate. Ill. Ceylon's External Position and iimediate Prospects a) Export Performance Export earnin:s in 1962-1964 were just above those of 1959-1961. This stability in earnings was in itself an achievement because export prices declined by 8e during the period, and was made possible by continuing expansion of volume. In 1964 tea production suffered a decline for the first time since 1959 because of a persistent weakness in the market for low-and-medium-grown teas, as well as fertilizer shortages. Rubber output however continues to grow as high-yielding varieties come into tapping, and coconut production in 1964 soared because of good weather conditions. b) Exncrt ProSoects The nrosnect of rrowth in exnorts in both the short and longer runs is heavily dependent on Government policies. If present unfavorable nolic-'es with re.rd to the three mior exnort rrons remain unchanred, growth of volume will be held below the potential. Annual growth in the outnut of ten will nrobhly be below 3. hut if. ns now selm likely. nrices remain steady, this increase would be translated fully into additional earnings. As new high vinlinr nncre nomsn into nroductinn- outnut of rubber may rise by nearly 5% a year. However, as prices are expected to fall hlow Rs. 1-00 h 1970 the incranse in arnincs l will be small The grnwth of coconut production which is likely on the assumption of unchanged willi T T1 11 m'rnhnh lir iilc +. oiifrion +n ~ mnm'+_ n no rlm r T 1 A1C t±__*._ _ - -ly J Tust e t- - - - - export volume would remain unchanged, while prices may fall by at least 20%. Altogether, export earnings may develop as follows, if no change 1/ uey LU 1 LAJ%.V U £ . I VjlZLk U.L'il k11.0 . 1U_.L_L.LU11/ _L 7 .L E' U.U0icLUe average 1962 1963 1964 1965 1967 1970 Tea ................... 1,086 1,149 1,141 1,140 1,163 1,233 1,30 LUUU1 ........... ).L6 4yu 1( ; f 4)U 6C 4YL4 _)U i Coconut Products . 210 227 198 273 253 248 233 Other.....................10U 100U 110U 137 130) _lU -1_0 Domestic Exports ..... 1,717 1,766 1,706 ( ,ou 1,83a 1,915 0Oueu Re-exports ...... 57 42 26 34 35 35 35 Total Exports ........ 1,773 1,808 1,732 1,874 1,873 1,950 2,075 Source: Based upon customs returns in each of the major export crops, however, the potential exists for better performance in the long-run. In tea, for example, annual replanting (which can more than double yields per acre within five years) is only at the rate of 0.7% of the total acreage, and fertilizer use has stagnated because of import restrictions; in rubber less than half the area is under high-yielding varieties, and the potential returns would seem to justify a much higher level of renlanting. In the long run, therefore, the prospects could be brighter. In the more immediate future, it apoears probable that output of each of the major crops would respond to increased fertilizer use, given the incentive of changes in the various fertilizer subsidy schemes as well as an increased volume of imports. 1/ For details see Statistical Annex, Table 9. - 6 - c) Impow:rt Trends Recent import performance can be seen from the following table., which shows that the strict import controls operating from 1960 had only a limiLted effect on total imports, although they played an important part in halting the 1955-60 growth in imports, particularly of consumption goods other than food. Ceylon - Classification of Imports (Rs. million) 1954-56 average 1959 1960 1961 1962 1963 196) Consuner Goods .............. n.a. 1,203 1,195 970 1,016 959 1,171 of which. food and drink... na. 800 752 670 700 767 916 Intermediate Goods .......... n.a. 396 397 383 419 382 394 Tnvestment Goods.. .na 389 39 362 36) 330 Unclassified ............... n.a. 17 13 9 8 13 10 TOTAL ....................... 1,495 2,005 1,960 1,701 1,805 1,718 1,908 Source: - Customs Returns two-thirds between 1959 and 1963, and have probably reached a minimum level. Oo fad.-, Ut::'jj± U" a le ve-L 01. Uernad .10 UL UUjv U~ _LLL.CU%-U. by domet V.L monetaryj expansion, the import controls do not appear to have led to widespread price in re_ __401.- - 4-L- - -..-4-1- _L1L;L'UbUj l'a(UjILLI_UL_uaU.LVq_ dUUbub. L1n pJaU-Lj U[.i~Ls~ ha een UUU UUA Wl-,8.ki WLL of state trading and the establishment of price controls as in the case of uextiles. UU[ler auverse economic effects abound, however, and botu hthe unsatisfactory techniques for allocating import licences, and the restrictions on VCne overall level of imports, nave been having an increasingly auverse effect on output and investment. In general government import requirements are fully met, so food needs, and the needs of public sector corporations and enterprises, are satisfied. Private sector allocations are from the resiUual, and usually are based arbitrarily on a percentage of pre-6yu1 import levels, rather than any assessment of priorities. New private industrial investment, which boomed when consumer goods imports were initially restricted, has also been progressively discouraged; private sector imports of raw materials and investment goods have thus both fallen, and in some sectors, such as the engineering trade, output is probably at only 30% of capacity, compared with 60-70% for the industrial sector as a whole. Also agricultural output has suffered from insufficient imports of fertilizers. An indication of the effect, which import restrictions have had on economic activity, is the fact that demand for conmercial and domestic ower has ceased to increase. I/ L7arge discrepancies exist between imports as recorded in the customs returns. and the recorded imnort navments data. In part this is due to non-entry in the relevant period, or non-entry at all, of various ovprnmnt imnorts. narticulr1v food This table has been amended to make some allowance for this erroneous recording, but significant - 7- d) Lroort '.eoii_rements Only a very tentative estimate of i port requirements can be made at this stage, because of the difficulty of determining future levels of investment, consumption and output, and the absence of related information on the corresponding demand for imrorted goods. The high demand for imports which has been a characteristic of the economy for several years is, in part, the result of the inflation of domestic demand by persistent inflationary deficits in the public sector. It is also, however, a structural problem at this stage of Ceylon's development, and it is not thought that the moderation of credit expansion now being considered will significantly affect the assumptions made below about import demand in the short run. If it is assumed, that non-food consumption imports are held to their 1962-64 level of about Fs.250 million, then annual consumption require- me!-s would total around Rs.1,150 million in 1965 and Rs.1,100 million in a9(. after n1lowin5 for heavier food imnort. to comnensate for the partial crop failure. Intermediate goods imports probably fell about Rs.125 million short, of ruirments in 1961 and 1961- which wnulrl imnly intermediate Pnods imports of about Rs.450 million in 1965 (assuming some relaxation of controls durin the second half) and Pz_024 million in a full ypr - a anntityr which corresponds to 1959-61 imports when related to the gross value of output. Gross canital formation anner unlikely to rPand very much within the next 1L8 months and, if historical relationships between investment and i TflT remain - nlnmngi n i mrn-+. 'rn-icn0t f.v -nu tm n. 1-il lu Amnrtmreainuncanedy mn e quoi-ementso for vemntnrka lky to be around Rs.390 million in 1965 and Rs.450 million in 1966. To these reuiemnt must be added an allomrance for the ac cuwmul-ated un-satisfied deand_ for machinery spare parts, transport equipment, etc. tentatively estimated avI L k J,/ L1!1JJui.L U .L U 4LLL. ujuulluo. ULILD CLO. W - - 4. L7uc uJLJ4 average 1965 1966 Consumption Goods .................... 1,049 1,150 1,100 u wilnll LUUU allu U1u_ 1i1'L...... .... k fy14) u k ; Intermediate Goods ................... 398 450 Backlog ............................... -- 40 60 tohaer............................... 10 uu Toa ................... _L, U _U e 9,)C- L)U 1/ This estimate is based on the accumulated shortfall in imports of transport equipment machinery; etc. and is corroborated by the data on the difference between requests, and final alloca- tions, of foreign exchange for import licences, - 8- e) Current Tnvi4. e Transactions Services and other current invisible transactions usually contributed Rs.60-100 million to the current balance of payments deficit in the 1954-l960 period. By 1964 however, under the influence of progressively more severe exchange controls, the deficit on invisibles was reduced to Rs.38 million despite the drop in earnings from bunkering facilities and external assets; if current restrictions on travel, dividend payments remit- tances, etc. remain in force, the deficit would probably disappear in 1965. However, the adverse long-run impact of such restrictions on the economy would justify some degree of relaxation of the controls on, say, dividend payments and remittances, if finance for the resulting payments is available. On this basis, assuming that selected controls are eased in mid-1965, the deficLt on invisibles might amount to Rs.30 million in 1965 and Rs.60 million in 1966 and subsequent years, plus any backlog. If it is assumed that one yea:-s deferred payments of dividends and some remittances are allowed, this backlog might amount to Rs.50 million, of which it is assumed that half would be paid in 1965 and half in 1966. f) The Balance of Payments Desnite thp imnort restrintions. Cevlon's Avprqge current balance of payments deficit remained about Rs.200 million a year in the 1960-1964 neriod reflecting the adrverqe movements in the terms of' trade over the neriod- As in the latter half of the 1950-s, this deficit was financed mainly by running down Cvlon's external ePts and qine 1961 Ev nenniItinp short- term liabilities, Ceylon - Gross and Net External Assets (Rs. million) End of Year 1957 1959 1961 1962 1963 1964 Gross Assets ..............1,062 735 532 504 h62 351 cha-,J TA1 i +A 0 1()o 119 9n9 91, 9O 4o) Net Assets .................~2 T - 330 250 6 7 * For details see Appendix Table 8. By the end of 1964 the foreign exchange holdings of the Central Bank were offset, by short-term liabilitiesr/ By March 1965 the Central Bank had reduced -ItSh.lig by . 2Om_lJ_lion and al so incurred additional liabiliti J JJes of Rs.51 million. Between 1962 and 1964, grants and long-term loans from of,'ficiali sources (muain-ly the iBIDd anu the Si.no-O'ov-*et bloc) h1ave also SteadiEly increased in importance. However, the prospects for 1965 and 1966 are bleak, and only 11 new sources 01 f1reign fin1ance can be found wil a urastic cutback in imports be avoidable. Under existing exchange restrictions, the current deficit was expected to be about Rs.300 million in 19>, up irom ls,22i million in 15o4 mainly because of the partial failure of the rice crop. If some relaxation 1/ Holdings include balances due to Ceylon on bilateral accounts. 9- of import restrictions takes place during the second hal of 1>o and throughout 1966, then on the basis of the above discussion the current deficit would probably rise to around Rs,1l0 million in 1965 and Rs.485 million in 1966, including an allowance for accumulated backlogs. In addition, it would seem prudent to allow for a restoration of the Central Bankis liquid working balances -. only Rs,25 million at the end of March -- to a more comfortable level, At least Rs.1u million would appear to be needed for this purpose, so that the combined iorking balances of the banking system could be raised to a level roughly equivalent to one months imports The following illustrative balance of payments projections indicate the I_L1CL[_t1r,Ii ga vj,LUQa, the precueing esumae o~IILf~ reuiemnt would±±II~L entai-:~ I1/.- - Ceylon - Balance of Payments :t (Rs, million) Proj ec: tioa 1960 1961 1962 1963 1964 1965 ,968 &xports 2/.................... 1,796 1,707 1,763 1,708 1,765 1,775 l,825 Imports ........ 2,006 1,794 1,906 1,868 1,948 2,130 2,225 Trade Deficit ............. -210 -86 -143 -160 -183 -355 -4CO Current Invisibles 3/ ......... -61 -47 -44 -50 -38 -55 -85 Current Deficit ........... -271 -133 -187 -210 -221 -410 -I85 Financing (net) Official grants . 53 41 37 44 76 75 Official long-term loans . 20 19 40 75 55 65 --/ Official short-term liabilities -66 +44 -7 45 53 70 External Assets so............ 220 0 4l 42 56 715 2 IMF Transactions ............. -- 5k 54 1 1 90'/ nil Private capital movements..... -5 +6 -3 +1 -12 0 R-rr-. nri r iqr -------- -1 '1 +2t 4a-9 -8 - - Gap to be filled ................. 185 540 2/ Import payments are consistently higher and export receipts lower than anai-rms latn An anllr.Tanne for ths diffrencea ihqq 'hn mAp in the projections of the balance of payments. 'A/ T-r-linrlo-m b-at1nai n -r P q 9 QC wiI'Ii n n n - h1n+h, -104 Q AI nd A nna not include any allowance for oil compensation payments. / Assumed Ceylon will draw the full second credit tranche, and an so ,+ 4- +I,- r%-4nl-k-- --r,n-"Sea -s411 k nP.vn tranche and postpone the October repurchase obligation, the residual The new short-term liabilities are mainly to France and Australia for food u",,- 4 4-4a . - --,,.A 4 4- -,n -, -4-,-- -4- --4;- '41 4-1 44-4n.. u-,A~ various deferred payments agreements (mainly with the USSR, Burma and China) which aMoun",ted to RS052 mill1ion, (net) at t-he end of lo0Z. '1+,Vl - t -,-m 64n For yoo, it seems neither desirable nor possible to incur further short-term commercial liabilities in addition to the Rs.160 million (net) which will be outstanding at the beginning of the year - the bulk of which wOu.u iC± (uLtU I I I' 2eU.g ne year if nao reneJea. it cannot be preaictea whether capital assistance from the USSR and China, which accounted for a .iud of grants and long-term loans in 1963 and IYo4, will continue into 1966 arid beyondo Some direct private investment and suppliers' credits, utc. may be resumed in 1966, but the bulk of the Rso54U million financing (say US.115 million) is not yet committed and will have to be found from official sourceso 1/ It should e noted tiat part of the foreign financing needed in 1965 and 1966 to cover the projected gap, would have to be provided in the form of non-project aid. The amount will have to be determined as more information becomes availableo It should also be noted that, although import Eequaremenw an ev timateU above are believed to be consistent with the needs of Ceylon as a going economy, actual import allocations will have to be 1J" 'Al U?.LJj U 0 an 4.EI t.II J_t1~1ULtE1r t"CLP CL. _L1,LU_Y Ur ~ 1E ~ d b. .yU In the late 1960ts, the current account deficit may average about Rs.350 11 VUW" j)i _ I 2K . q J~.L CI jJ±U...UC6 L A O -L 111LU.LU11 1"tC UJ J U L , ~ ~ GNP and monetary expansion is restrainedo Ceylon is thus faced with some difficult problems of adjustmento Since 1957, the government has been operating with a cash deficit, and the expansionary forces contributed to a persistent balance of payments deficit -vhich was aggravated by adverse movements in the terms of trade, In part these deficits were financed by running down external reserves, but, as these became exhausted, increased use was made of inflationary financing which rose to a peak in 1963. Increasing income redistribution, together with bottlenecks in the public sector capital program and the use of import controls which restrained private investment, led to a steady relative decline in capital formation and a growth in consumption expenditure. More recently, the import restrictions which were imposed progressively more severely from 1960 onwards have led to shortages of raw materials, spare parts and other intermediate and caoital goods, and thus to further restraints on productiono Overall real per capita national income has fallen J a-3,io ~ VVL vilu jo- L-LVU CY 0 The reversal of this combination of trends. all of which are inimic,l to the achievement of future income growth, will be a formidable t-k. Tf. iq al-n a tasir that. cannot !hi P exnected to be comnleted within a few months, but it should be possible to get a gradual improvement in the orowth Trsnectq over the next two or three years. At the present time hardly any detailed proposals for improving the economic situation exist, or have been imnlemented - apart from short-term palliatives - so a comprehensive development strategy may take some time to evolve. In the meantime a number of imorovements could be adopted, somewhat along the lines of those discussed below, A sizeable volume of external assistance (as estimated in Chanter IV above) will be needed during the coming eighteen months, during which period little fundamental change can be expected from any new nolicies. Thereafter, the external capital needs will depend on the particular development program adopted, 1/7It is assumed that none of the short term official liabilities, nor liahilitips to the TMF. will be reduced until after 1966. - 11 - Ceylonts basic need is to improve the efficiency ai 'Ler resource use, i.e., to take steps to increase output from the existing and future capital stock. Such improvements should also, if properly implemented, imp7-ove the balance of payments outlook in the long run, while helping to minimize the payments disequilibrium in the short run which is Ceylon's most pressing problem. It is probable that an investment program emphasizing import substitution and export promotion will help to meet both the short and long run objectives. Considerable opportunities appear to exist for import substitution in agriculture. Most of the major technical obstacles to the local production of presently imported co,nodities, such as chillies, Bombay onions, some foodgrain and pulses, additional rice, etc.. appear to be more or less solved. Difficult problems - organisational and administrative and, particularly insofar as They applv to changes in dry zone aericultural practices, human - remain. It appears, however, that a program could be developed on the basis of oresent knowledge which would have a significant effect on food imports within three to four years. The same would apply to fishinv arni livpstok nnd dnirv nrochin.tnAn Tn ePorrt. nagricultuire,s,ignificant. nn.--ihilitips exkist, as discussed in Chapter IIMabove, for an increase in the output of the three -a e-r crp, -lhough threwol be an additional cost inthfom f larger incentive subsidy payments, imports of intermediate goods such fc4'rtL)Jzze."s, -mA +I,- d-J-4-t-m, r.f -01rlntao -n n-- nA A urtherLtac on t4e problems Ofecnmcifiiny and the balance of payments could be made in three directions. Firstly, rational basis so as to avoid production cutbacks in efficient sectors o uth ecoomy. inauequaue fertilizer impurts, ad yarn impurt for the private sector textile industry, are examples of avoidable restric- t94us Seondluy, the public secour investment program (as well as private investment) should be reconsidered and capital expenditures on projecuts which may have low economic returns and a high import content should be re-examined and either delayed or abandoned. The u±em±isat o o0 ILe rulnways, and Lurther investment in some ul une less efficient public sector manufacturing corporations, are cases in uoint, iirdly, there is the overriding problem of reducing total demand for imports by keeping monetary expansion at a low level, and curtailing the rapid growth in consumption expenditures by reans of fiscal policy. The first step in this direction should probably be a review of overall fiscal policy with the objective of developing a program designed to break the buoyancy of current expenditures and transfer payments - particularly the producer subsidy on rice. Ihile it is urgent that such a program be prepared and put into effect, it should be recognized that it may be necessary to ease the process of adjustment by aiming at curtailing the growth of current expenditures over a 3-5 year periodo Since there is also some evidence to indicate that the present incidence of taxation is contributing to private investment, the review of longer-tem fiscal policy should also consider the revenue structure. - 12 - Ce'tain other rPforms. allied to the courses of action outlined above, could over a period make an important contribution to efficient resource use in Ce.wlnn Tn the fipll rof nrninc nnlicy- for erpr m thr use of prices as a means of income redistribution has seriously interfered wi t h +.hp -rl a nT' ni-i~=c i n onii A i nrv ++ t nh o n t. i r,N - nf -rf -rani 1r (-oz nrl H~ in generating surpluses for financing further investment. In agriculture the hi4 Mid a,rnn+ Y-i n -Pn" -m n nr 3. ac i-1 +In t+fn rnr c- nn n-f Fi"4 g n+A nnv qrt. well below cost, has seriously reduced the financial attractiveness to the farmer. o --P A, - ~.1 + 'I+ n - - -A .A 4- + -4 - ~+-A Tv n a- k.L Utj O U. a kL u± U A.J1IO L± IL uu, UC 0. prices for railway services, posts and telecommunications, electricity, etc., VUW LU U~ _LVODZ' UUUctJ_J__"4' 1I1L±±L U1U CA Yt-,C U1i U11it Ud. U of' government enterprises which should be in a position to contribute signi- 1±Od.cantly to U11e fJlw O1 J)Ub-11 sa-Vinig's; liuvJ ictL_Jay -Lai-ub I&LLLU, lUi~A1IjJ.e may tend to overstimulate railway investment at the expense of road transport. The public sector manufacturin7 corporations form another segment of the economy in whic performance has Ueen 1nadequate. ilube uor,oratvu have absorbed over a quarter of public sector capital formation over the past fLve years, yet aggreUae proits before tax yieldeu a remUrn on captal employed below 3, and 0.5% if the highly profitable Cement Corporation is excluueu. t' is thus clear that the opportunities For improving the per- formance of the economy in the long run by improving the quality of decision- making and operations in the public sector are considerable. Such improvement will in itself reduce the demand for imports of capital and intermediate goods. Unless some planning improvements are made, the marginal contribution of increased foreign capital inflow will be less than it should be. V. Conclusion The performance of the economy over the past six years has been unsat.isfactory in a number of respects, and it is clear that if these trends continue Ceylon's long-run growth prospects are extremely poor. It is also clear that the reversal of present trends is much more than a question of restoring financial stability. It involves not only the reduction of the present rate of growth of total expenditures. It requires also a better allocation of expenditures between consumption and capital formation, and a more efficient use of capital expenditures than in the past. Ceylon's basic problem is inadequate growth of output. The shortage of foreign exchange is part of this larger problem and, in the longer run, its solution lies in accelerating overall growth. As pointed out earlier, the potential exists for such acceleration, but its translation into actual growth requires far-reaching improvements in the allocation of resources. Above all, available investment resources will have to be employed with a view to maxi- mizing economic returns. Notwithstanding Ceylon's acute shortage of foreign exchange, this means that projects promising exchange savings or earnings should not be given absolute priority regardless of their overall economic return. Presently, Ceylon authorities in their concern over the foreign exchange situation tend to lose sight of the objective of overall economic returr and of the broad problem of resource allocation. - 13 - if i p in ose in a ficial canital inflows from abroad materialises, it will, if it is to be effective, have to be accompanied by +echnical assistanc on the on hand- to heln get the best oossible returns from existing and additional investment, and some painful political decisions on Lie ot"Le a o curb the pmestent trend towards increases in consuT- tion, which Ceylon can ill afford. 'ithout assurances that action in these e-.P4 .n 1e i-L +V- 1 - taitJnal cani tal inflows. particularlv of non-project aid, may well continue to finance additional consumption, Table 1 - Gro,s Domestic Producjt by Industrial Origin at current factor coS PIees) Percent of 1959 1960 1961 1962 1963 1964 GDP in 1964 le Agriculture, forestry, livestock, fisheries 2763 2872 2857 2907 2983 3121 kh 2, Mining and quarrying 11 11 11 12 11 10 - 3, Manufacturing (excluding construction materiais) 271 317 353 417 499 553 8 4e Construction (incLuding constructiorn 349 385 429 424 419 6 materials32 5, Transport, storage and communication i71 512 498 523 545 617 9 6, wholesale and retail trade 647 647 6214 662 719 768 11 7. Banking, insurance, finance 48 52 56 59 68 71 1 8. Ownership of dwellings 169 178 196 205 223 238 3 9 Public administration and defense 397 402 403 4L4 469 493 7 10. Services n.i.ec 731 784 _99, 806 826 865 12 GDP at current factor cost prices 5891 6124 6182 6464 6769 7155 100 GDP at constant :1959 prices 35191 "507 wuu -6g Soiree: Central Bank of Caylon. Tablo 2, Exenditure en Gross NatiL,rial Prcduct, Rs million in crrent prices) 9 1960 1 O 961 1962 1963 196 A. Private Consumption Expenditure 4678 4991 4849 010 518h 56h1 Importnoods n ~sevices l 09' 90l -7- 1 1=69 Locally produced goods 2093 2208 2282 2416 2650 2806 L2cally produced serviccs 467 475 488 506 52h 54h. Other (net) ý/ 123 243 2'25 209 320 424 B, Government Consumption Expenditure 881. 931 926 979 1011 1090 Co Private fixed capital fcrmation 2/ 733 649 637 668 607 682 Planting and replanting 2 ~6- ~S~5 -7 'Õ Transport 153 1o9 85 92 63 50 Plant and machi1n3ry 119 77 113 113 154 177 Building and con3sruction 336 34l 320 342 262 331 Other 64 59 55 57 59 55 D. Public fixed capital formation 336 317 341 364 334 3). Eo Stock changes ~C _969 8 _-,h0 F, Gross Domestic Expenditurp 6617 6823 6822 7020 7193 7714 G. ,3ess imports4.exports of gcods & non-factor services -160 -15ý8 _-65 -99 :128 -153 H., Expenditure cn GDF at inarket prices 6h57 6625 6757 6921 7065 7561 I. Net Factor Income from Abroad -37 -h -0 -h7 -53 -34 J. Residual error -177' 8 -185 . /16 £163 _ K. Expendi-ture on GNP at market prices (243 6h93 6532 893 7175 7541 1/ is e. net cf goods and services purchased by non-residents. 2/ utcludes public corporations - Source: Central Bank ol' Ceylon. Table 3 Sutimry of Guverr-.nt Accounts ad Fin±aniagd (Rs,, million) ,o8/a ac2/9 1oAn/6,1 0 : /2 1,'63h n'/N --- __ 2/ 1, Current revenue 3/ 1248 1337 1457 1610 1588 1611 1790 2, Current expenditure 4/ n1157 1260 1382 1451 1480 158 1590 Current surplus or deficit ~~91 79159,7 10 r 200 3,~ Net surplus or deficit of govt. enterprises 5/ -42 , -33 --36 -36 -29 -25 Overall current surplus/deficit h939 ~~l 2 72 .-3 ~7ý - Capital expenditure 46/ 93 496 519 586 496 503 600 5,, Advance payments (net) 0 0 14 15 -14 '16 n.a. Overall surplus/deficit E7 ~¡ 6, Adjustments 7/ 24 27 2.3 22 18 24 20 7* Net cash operating surplus or deficit -20 ~IO -3 -4.393 -02 55 Sources of Finaancing 8,. Non-expansionary 179 183 221 270 213 302 380 AEninitrative borrowing 27 29 ~0 3 2690 Domaestie narket borrowing (net) 109 84 165 109 154 200 210 Foreign borrowing (net) 36 29 14 38 62 65 ) Foreign grants 7 13 13 18 31 32) 150 9 Exansionary :241. 247 242 187 178 160 -2 Boirow.'ng from bankirg systems 179 2~ ~~2 227- n.a. Use of govt,. cash balnces 62 6 -40 -45 n.a. (See fcotnctes on next page) (Table 3 Footnotes) 1/ Provisicnal. 2( Revised estimate, except that estimated foreign aid receipts., and thus capital expenditures, are lower than the budget estimate. Revenue includes gross profits on sale of flour and sugar, excludes receipts of government enterprises which are offset against recurrent expenditures and appear in line 3. 1961-2 excludes Rs.20.6 m, transferred from National Flood Relief Fund. National development taxes of Rs.19 m., 18 m. and 3 m, are included in 1961-2, 1962-3 and 1963-4 respectively. Includes gross food subsidies, excludes recurrent expenditure of govt. enterprises, and expenditures of a capital nature. Classification of government expenditures into capital and recurrent items is basically as per Table II 03 of the 1963 Central Bank Annual Report. 5 Comprising Posts and Telecommunicaticns; Railways; Electrical Department; Broadcasting; and Ports, Harbours and Warehousing. 6/ Includes loans to govt. agencies, extra-budgetary expenditures by the rubber and tea replanting subsidy funds, etcj / Consists mainly of expenditures from extra-budgetary sourceso Source: Central Bank of Ceylon, Ministry of Finance and information supplied to the missione Tt-b.e 4 - Gove:rnent Reven.ue prcvo Es t 98/59 1959/60 1960/61 1961/62 1562/63 19_63/64 1964/65 C-i.: iois Duties 674 733 739 756 676 760 817 port duties « 53 32Ó 290 276 1 30 of which: tea 2Ö 220 243 q'9 ýo2 rubber 43 61 54 30 29 12 22 coconut 43 45 30 31 27 42 26 Import duties 367 h06 _3 365 398 482 507 Other ~1 ~1 ~ ~ ^1 Indirect Taxes 23h 260 272 360 410 316 h22 Excises 21 .30 113 211 2'3 0 Turnover tax - 0 - 16 32 Profit on sale of sugar, flour, etc. 104 12h 136 192 199 82 160 Taxes on Income, Profit 201 195 283 293 289 305 278 Income tax 395 iö9 976 7S9 2-, UEE Profits tax 6 5 4 2 3 h Land tax - - 8 12 11 6 5 Personal tax h/ ~ 1 12 16 16 13 25 0ther Taxes 5/ 59 62 66 92 96 85 81 Mi!7rellaneous Receipts 6/ -n 7i 9-7 109 7 Total Revenue 1255 1337 1457 1610 1588 1611 1725 .Includes tea tax, 2 ALmost all excises are derived from profits and taxes on liquor sales. Includes surcharge on income taxe Includes rice subsidy taxc j,Includes development tax0 / Excludes gross receipts from operations of government coTärmercial enterprises,, Excludes transfer from flood rel.ief fundo Source . Ceylon Covernnment Accountsc Table5 - Governr.ent Current and Capital Expenditure Rs. 2milion) 1958/59 1919/60 1960/61 1961/62 1962/63 1963/64 1964/65 A. Current Exper-iture ~~ ~~ (Criginal est) Social Services ................... 377 420 419 437 446 n.a. 481 Economic Services 1/ ............ 80 79 88 80 96 n.a. 106 Transfer payments ..... ........ o. 1492 544 629 697 708 n.a. 803 Food Subsidies (gross) ......... 317 ^38 ~¯2 ~5 ~6 ~~ Interest on public debt . ~¯1E $3 67 83 98 n.a. 100 Pensions ....................... 91 93 100 109 115 n.a. 136 Other ................. .... 106 81 78 78 60 n.a. 80 TOTAL CURRENT EXPENDITURE ...r...... 1~15~ 1,260 1,382 1~ES5 1¯h8O iT~5~ 1,68 B. Capital Expenditure Administration ...............4..... 66 37 31 29 19 n.a. 21 Social Services .................. 77 70 79 94 92 n.a. 11.4 Heal!-th .............~10 11 1,3 13 ~~11 ~n.a.' ~15 Education 28 26 33 30 36 n.a. 41 Housing ................... 26 24 20 37 27 n.a. 39 Rural Development ............... . 13 9 13 l0 16 n.a. 17 Economic Services ................. 321 333 362 376 368 n.a. 492 Public Utilities .... ......... .:2 ~ 120 -18 ~162 n.a. 209 Agriculture,,irrigat:lon and fisheries 179 175 185 166 148 n.a. 186 Manufacturing,mining and trade 20 31 5B 63 57 n.a. 97 Acquisition of financial assets 2/ 50 56 47 86 10 n.a. 21 TOTAL CAPITAL EXPENDITURE ... - -.. 37~9 ~ 6 ~~9 586 ~58 ~ 503 64 C. Current Subsidy Payments to Govt.enterprises 42 38 33 36 36 29 25 D. Advance Account Payments (net) .. . -- 21 15 -14 16 n.a. TOTAL EXPENDITURE ....... .... , ? _1,9L8 2,88 1 .L1 2,133 2,32 Comprises mainly current expenditure on development services. Excludes current operating payments by government enterprises. 2/ Consists of loans to Government Corporations and agencies, some of which may be used for current rather than capital purposes. Some of these loans are not utilised in the year the appropriation took place, and the consequent Treasury deposits form one of the sources of administrative borrowing. (See Table 3) bcDifferenceetwee budget receipts and payments by Eeerical Dpartuent, Broadeasting, Posts and Telecormunicati.ons, Ports Harbours and Warehouses, and Railways. Scurecg; Central Bank of Ceylon; G-vernment Accounts Table 6 - Analysis of Factors Affecing M[oney Supply (Rs millionTJ Sept. 59 Sept, 60 Sept. 61 Sept 6:2 Sept. 63 Dec, 63 June 64 sept. 6. Dec. 6 A. Government seCtor Central Bank holdings of govt. securities and loans and advances to govt.: 405 678 883 1044 1200 1228 1340 1345 1358 Cormercial bank hold- ings of govt. secur.- ties 295 297 .340 408 430 1k23 389 395 423 Gross bank credit to governrment: 700 975 1223 1452 1630 1651 1729 1741 1781 less: Govt. rupeM cash balances..5/ 163 138 168 220 266 237 252 271 238 Central Bank, misc. accounts (net) 99 118 126 140 154 157 208 213 212 Net bank credit to goverranent 439 719 929 1092 1208 1257 1269 1257 1331 B. Frivate Sectori/ Cemercial bank Credit 484 526 516 578 63,4 692 783 745 770 less: Time and savings deposits 299 348 347 397 473 499 467 467 486 Commercial bank misc. accounts y±/ 29 48 62 85 43 21 30 39 56 Net bank credit t> -108 23 228 156 131 ?08 96 118 172 286 239 private sector (Continued on next page) (Table 6 continued) Sept, 59 Sept. 60 Sept. 61 Sept. 62 Sept, 63 Dec. 63 June 64 Sept 64 Dec61 C. Semi-gvernment sector Commercial bank credit to govt. corporations 17 56 34 les3: Time and savings deposits of govt. corporations - -- 81 71 65 Net bank credit to corporations -64 -15 -31. Do Total net domestic credit 595 850 1037 1187 1326 -129 119 1481 1528 E. Net External Bankin3 Aset33 331 22 106 17 79 59 95 F. Total Mong apjy 1128 1181 1261 1294 14)99 1506 1950 1,549 1623 (change between periods) (83) (53) (80) (33) (205) (7) (44) (-1) (74) T7P:r-ovi sional. 2/ Includes cOuntepart fund balances. These figures differ from those given in the gvernment accounts because of differences in definitions and coverage, and because of siZeable leads and lags in recording transactionsc 3/ Includes government corporations up to Dec. 1963" I/ Includes adjustment for transit* J Excludes counterpart funds on the liability siden Source: Central Bank Annual Reports and Bulletin; information provided to the mission. Details may not add to totals because of roundingo Table 7 CEYLON - Balance of Payments 1563 1964 1960 1961 1962 redit Debit Net Credit Debit Net :) 4erchandise Trade a) Export (f.o.b.) 1,796 1,707 1,763 1,708 1,765 b) Imports (c.i.f.) 2,006 1,794 1,906 1,868 l,94(8 Trade Balance -210 -86 -1.43 -160 .-183 2) Services and Current Invisibles -61 ~47 -44 216 266 -50 173 2n -38 a) Port expenditure; non-freight Transport and Insurance 75 73 71 112 47 65 914 43 51 b) Foreign 'Travel -24 -18 -l4 6 22 -16 5 13 -8 c) Investment Income -44 -40 --46 16 68 -52 i 46 -35 d) Govemment Expenditures -14 -9 -2 25 25 e 23 20 3 e) Other services -23 -23 ~23 51 68 -17 33 46 -13 f) Private remittances -31 -30 -30 6 36 ~30 6 42 37 3) Current Account Balance -271 -133 -187 -210 ~ ~ -221 14) Capital Account a) Official grants lf 53 41 37 44 - 44 76 76 b) Long-term liabilities (i) Private 2 -8 "2 5 - 5 - 2 -2 (ii) fficial -20 19 40 82 6 75 66 11 55 (Continued on next page) (Table 7 cnntinued) 1963 1964 1960 1961 1962 Credit Debit Net Credit Debit Net c) Short-term liabilities (i) Private -7 /24 -1 4 44 - 10 -10 (ii) Official 2/ -66 A4 -7 45 , 45 53 -53 d) External assets 220 0 41 42 142 56 - 56 e) IMF transactions 54 514 1 1 1 - 1 5) Errors and ODmissions 0l -31 25 - 2 - - -8 T IncudesT-D-4O, CARE etc, Excludes IMF, which is included in e). Includes net balances on bilateral accountso Sourcea Based on data supplied by Central Bank of Ceylon0 Table 8 - Gross and Net External Assets End of Year L957 L958 ;1959 :1960 1961 19 1963 Goverrnent Institutions and Agencies 281 280 245 232 242 243 243 108 1/ Central Bank 59i 539 387 165 169 136 99 118 Cormercial Banks 2/ 109 114 102 112 105 102 105 107 Balances due to Ceylon under various bilateral acc ounts 81 n,,a3 l 27 16 23 15 18 Gross Assets 1062 933 735 536 532 504 462 351 Less: Balances due from Ceylon under various bilateral accounts na 28 n.a0 nea. 22 11 50 116 IMF Liability - - 54 110 111 113 Other Central Bank Liabilities _h/ 3 4 6 1 6 4 3 4 Commercial Bank Liabilities 19 26 27 29 29 22 25 25 Sterling Ioan Sinking Fuids 87 95 79 84 91 97 104 46 Total Deducticns 109 153 112 114 202 244 293 304 Net Assets 953 780 623 422 330 260 169 47 (changes between periods) (-222) (~173) (-157) (-201) (-92) (~7C) (-91) (-122) 1/Consists almost entirely of sinking fund investments for sterling loans and domestic public debtø Working balances only, comprising foreign currency on hand, balances due from banks abroad, and export bills purchased and discounted, / 1957-60 data are net, and inciude only China prior to 1960. 1961-64 data comprise balances due to and from Ceylon under accounts with Czechoslovakia, USSR, China, Rumania, Bulgaria, UAR, Hungary, Poland, Iran, GDR, Yugoslavia, Burma and France. Excludes counterpart funds. S ource Central Bank of Ceylcono Table 9 - Actual and Projected Exports Est. Projection 1959 1960 1961 1962 1963 1964 19 65 1fT 1970 Tea Production (million lbs.) ......... 413 635 )455 67 8 82 490 520 571 ExDorts (million lbs.) ............ 384 410 426 452 456 455 465 493 540 unit price (:Rs. per lb.) .......... 2.72 2.67 2.62 2.54 2.50 2.51 2.50 2.50 2.50 Export value (Rs. million) ........ 1046 1096 1115 1149 1141 1140 1163 1233 1350 Rubber Production (million lbs.) ........ 205 218 215 229 231 246 258 287 330 Exports (million lbs.) ............ 206 235 197 224 209 243 252 281 323 Unit price (Rs. per lb.) .......... 1.45 1.61 1.32 1.29 1.23 1.19 1.16 1.05 .95 Enport value (Rs. million) ........ 298 378 260 290 257 290 292 294 307 Coconut Products Production {million nuts equiv.) . 2306 2185 2602 2830 2551 3000 2950 3070 3200 Exports (million nuts equiv.) . 1131 970 1348 1536 1216 1625 1080 1590 1600 Consumption (million nuts equiv.) 1175 1215 1254 1294 1335 1376 1410 1480 6oo Export price index 2/ ............. 106 94 74 73 80 83 79 77 71 Export value (Rs. million) ........ 2)4 184 202 227 198 273 253 248 233 Other domestic exports (Rs. million) 105 117 104 100 110 137 130 140 150 Total domestic exports (Rs. million) 1693 1775 1681 1766 1706 18140 1838 1915 2040 Re-exports (Rs. million) ....... 62 57 52 42 26 34 35 35 35 Total exports (Rs. million) ....... 1755 1832 1733 1808 1732 1874 1873 1950 2075 1/ Projections are by the mission. Projections of production are pro forma because they assume no change in present government policies towards, for example, fertilizer use. 2/ 1959/1960 = 100. Composite index for coconut oil, copra and dessicated coconut. Source a- Customs returns, and data supplied to mission by Tea, Rubber and Coconut Controller.