Ceylon - Current economic position and prospects of Ceylon

RESTR ICT ED TOEUR Reaponr t N~ n '~ -p-_ IREPORTS DESKI WITHIN ONE EK This report was prepared for use within the Bank. In making it availaule to- 0 eflS, 1-e Ban K assumes no responsiDility to them for the accuracy or completeness of the information contained herein. INTERNATIONAL BANK FOR RECONSTRUCTTON AND DRVELOPMENr CURRENT ECONOMIC POSITION AND PROSPECTS OF CEYLON Tune 27, 1958 Department of Operations I ar Eas CURRENCY CONVERSION $ - Rs. 4.762 Rs. 1 . $0.21 Rs. 1,000,000 g $210,000 TABLE OF CONTENTS Pa m Basic Data iii Summarv and Conclusions v . Developments Between 1953 and 1):0 11. Current Trends Worsening of the Balance or Payments Rise in Government Expenditures 5 Debt Operations 6 Credit Expansion 7 The 1957/58 Budget 7 Short-run Outlook for Exports 9 Invisibles and Capital Transactions 11 Foreizn Assistance 11 Conclusion 12 III. Growth and Balance of Pavments Prospects 13 Development Program 13 The Export Sector 15 Growing More Food 20 Industrial Development 21 IV. Creditworthiness 23 Statistical Appendix Map of Ceylon - 4 Table 1. Ceylonts Balance of Payments, 19)1-5' 2. External Assets of Ceylon 3. Composition of Exports 4. Export Quantities and Prices 5. Composition of Imports 6. Rice Imports 7. Trade by Monetary Areas 8. Trade vith the Dollar Area 9. Ceylon's Trade with Mainland China 10. Export and Import Prices 11. Export and Import Volumes 12. Government Revenue and Expenditure 13. Domestic Public Debt 14. Activities of Commercial Banks, 1953-1957 15. Changes in iVoney Supply 16. Cost of Living and Wages 17. Agricultural Production and Production of Principal Crops 18. Dutrut of Selected Industrial Products 19. Gross National Product 20. Allocation of Gross National Product 21. Total Capital Budget of Government 22. v itern.nil Tnh1-ie nehw. 23. Ceylonts External Debt Service - iii - BASIC DATA Area Total land area 25,000 sq. miles Cultivated area (1954) 3.638,000 acres of which: Coconuts 29% Paddy 27% Rubhr 18% Tea 16% nthiip.r 1 on Rate of growth (1950-56) 2.8% per annum 36IArA q mile AT.'.± a-"onal T_ __ of which (approx.): agricultural exports 32% Other agriculture 21% Construction, inuuStry and mining 13% Commerce and transport 1170 Government 11% Other services CA Per capita output Rs. 560 ($117) Foreign Trade (1957) Exoorts and re-exports, r.o.b. As. 1,06 million of which: Tea 61% Rubber 18% Major coconut products 9% Others 12% Imports, c.i.f. Rs. 1,804 million of which: Rice and flour 19% Textiles and clothing 9% Sugar 5% Machinery and vehicles 8% Fish 4% Petroleum 11% Fruit and vegetables 5% Metals 5% Other food, drink and Chemicals and fertilizers 6% tobacco 8% Others 20% - 1v - Balance of Payments (1957) Current receipts Rs. 2,006 million Current payments Rs. 2,205 million Balance on current account -Hs. 199 million Foreign Exchange Reserves (1ar. 31, 1958) Total External Assets Rs. 943 million of which: Government Rs. 281 .illion Central Bank Rs, 596 million Commercial banks Rs. 66 million Government Budget (Oct. 1, 1957 - Sept. 30, 1958) Revenue RS. 1,308 million of which: Export duties 25% Other taxes 8% Import duties 23% 1Tn-tax revenue 205 Taxes on income and profits 245 Expenditure, including loan Fund (capital expend.) Es. 1.1L67 million Deficit Rs. 159 million Public Debt (Mar, 1958) Forei-n debt Rs. 1A9 million. P,cludinL Rs. 77 million in sinking funds nmpRt'in HA'ht . r36 million, nrinding Ps. 181 million in sinking funds of which: Rupee loans Rs. 823 million Treasury bills and Central Bank ,qne suly- r r. t P.qh i q 11 'A2 Mi I I i Bank Rate 2-1/2% Treasy b nill orate ca. 6 i Loans and advances of commercial bankcs Es. 461 million - v - SUTIMARY AND CONCLUSIONS 1. The Ceylonese economy, which between 1954 and 1956 had made an ex- cellent recovery from the balance of payments crisis which beset the country in 1953, was in 1957 again faced with adverse balance of payments develop- ments. While between the end of 1953 and the summer of 1956 the balance of' payments was consistently in surplus and foreign exchange reserves had in- creased from Rs. 607 million to Rs. 1,201 million, reserves declined in the last 20 months to Rs. 943 million. The movements in the foreign exchange reserves reflect both changes in domestic economic policies and a worsen- ing of the terms of trade. 2. The boom in tea prices in late 1954 and early 1955 was of special importance to Ceylon, since about one-half of her export earnings are de- rived from tea exports. Exoort earnings reached record heights in 1955. exceeding the level reached during the Korean boom in 1951. Beginning in 1956, the value of tea exoorts declined and the decline continued in 1957. Falling rubber ?rices and a poor coconut crop further aggravated the fall in export e.rnings. 3I Tlp orrni nAl rp.nn forn the~ renwpd hP1Innni nf prvnt..- disp.mii- rium, however, was a very marked rise in imports. Between 1954 and 1957 the value of impnrt incrnased h iast ne-fnntq. A small nrt of this was due to higher import prices, particularly during the Suez crisis when freight hare were ahnmlly hich and +L+ rirce of netrolenm and suar two important import commodities, rose; but the main cause was a steady ,rnr,n i n Amnnnv+ iTnliimn v'Plon+ n a p an in 4m,on+ AnwonA government receipts was partly responsible for the increased demand for im- par _L~ S'L.± Ullu _LVU U± .LLZ).LJr, UAAJi_U0, AU J.ZAVkjUULV ki -L_LtD UVt511j- ment revenues increased sharply, while expenditures declined in the fiscal ye r rr,j _) . _ _ ! - n , /re 1_ _ -I si- L'I 17J,/,)4 cAllu 1uzt: UI1-L 1LUtLJVUt.L Lu1 ~ / ~ .LdUV±fLg jU _U Z5t:UZJ U10± t nificant proportions. In 1955/56 expenditures caught up with receipts and L11 CA./. i A L.LU.LU UL ILO L7V 1AL AUL.L.LUp Ul. LU0 U. UUa.L ±UV1L1UODy UtV: Ut-LVj.,U largely because of the reintroduction in 1955 of rice subsidies which had Ueen e.L-Lmni-u 1U 11 1- J 5. Credit creation for te private sector also played a role in the ex- pansion of money incomes and of the demand for imports. Bank credit to the private sector increased by Ras. 126 million over the last three years, or 39%. The decline in the rice crop in 1956 also contributed to the increased import demand. Rice imports in 1957 were 95,000 tons above the "normal" level of 420,000 tons. 6. In the fall of last year the Ceylonese authorities took various meas- ures to halt the loss of foreign exchange reserves. They increased tax reve- nues by Rs. 45 million, and reduced the budget deficit by a similar amount. They also strengthened exchange controls on the advance transfer of company IJ earnings, and on the outpayment of other invisibles. Since the budget pro- vAA fo an 4ncease 4 cant4+al etv.end4i+v which woo 1n11-4pir +n Matnv-in'l- ize, it appeared possible that the actual deficit could be kept small and that 1+ Could e financ0d almost entrely from, " l+ r sour-es - a subsequent increase in wages and salaries of the lower ranks of government the flood disaster of last winter may raise total expenditures to a level at WI-XII Ln. L U.Lonar7Uy financ1Iing becomes~ neesay MOrUUVI, U111= .L-LUVL U%LIMICA to the rice crop may increase import requirements of rice, or, alternatively, of whe=at an' wheat flour, and lead to a further decl"Ie in fIgnexchang reserves. So far, however, the fall in foreign exchange reserves has been rather moderate this year, and reserves 5sill are equivaLent to more Man six months of imports. 7. The long-term outlook for the Ceylonese economy is reasonably good. Growth in domestic output is likely to exceed population growth by a small margin and exchange earnings may grow steadily, though at a slower rate. The Government has shown some appreciation of the fundamental problems of the economy, i.e.., to provide more food anO to find enployrint for the population which is growing at a rate of 2.8eo per year. It is trying to eccomplish these objectives by bringing more land under irrigation, by encouraging farming in the Dry Zone and by assisting the expansion of export crops. 8. The long-term prospects for Ceylon's staple exports, i.e., tea, rubber and coconut products, are satisfactory. Tha world demand for tea is expected to grow at a rate which will make it possible for Ceylon to export her pro- duction at rather favorable prices since export supplies from other sources are not likely to expand. The decline in rubber prices is likely to be off- set by a gradual increase in output and exchange earnings from the exports of coconut products are likely to grow steadily because of the growing demand of nearby markets. 9. Ceylon's foreign debt is at present small. Debt service on the offic- ially reported foreign debt constitutes only a very minor fraction (0.6%) of current foreign exchange earnings and is expected to rise only modestly--to 1.8% of expected earnings by 1963. The proposed loans for Stage IIB of the Aberdeen-Laksapana project are well within the limits of Cevlon's ability to service foreign loans. CHAPTE I - EEVELOPMvTS BETWEEN 1953 AND 1956 1. The Bank Survey Mission visited Ceylon at the height of the post- Korean boom in the fall of 1951, when the terms of trade were extraordinar- ily favorable. Another economic mission from the Bank was there in the summer of 1953, when the terms of trade had swung back to a more normal ratio, and the country was facing severe economic difficulties arising essentially from inflationary budaetary policies. Import exDenditure had far outstripped export earnings, and foreign exchange reserves were falling sharply. To meet this situation drastic action was taken by the Government in July 1953 to reduce the budget deficit, notably through cuts in the food subsidies and a slowinz down of develonment nYnAnditurP;: At the samne time foreign exchange restrictions were tightened up. These measures, together with a dron in imnort nrinm 1nd to n hiv rndinAtion in iTnnrt- The drain on external assets was halted, and the stage was set for the subsequent nPrind of Annonmin recovPry. 2.. Thij ~ recovery-I wa net1 assistd bthbomin tean pryicno which began in the latter part of 195i4 and carried over into the first quarter of 1955 Ta prIces Aropped sharply In the pr4- +hk- -Anmer ' n' 195, but they ended the year at a level well above that prevailing before the boom and Ceylon's total export earninSs that year were significantly higher than ~.**~~ V~U...jC.jML4.LV.L~ CJ.o expend tum on imports ~2,n cr ase,; only modra te-l- CLkj was partly bec.ause of the cautious financial policies pursued by the Govern- mwn, anU par" vouo k uI vLV eIV.&CL.LU uI U U.Lte r gJ.u P .LUUoLJI, UJ gether with the fall in prices of food imports, which permitted a rise in couamptiou withcit any courresponuiug increase ill impOrt UexpouuILLxuAr.L Ceylon was thus able to build up its external assets from about Ps. 600 -ALLion ky -V~ ML.LIVIII auL wUlrz t .I l V L.; L )3 U Q 1w5. -L,-L)V. U11102 ~I.L-L" n±%,±+:L .L JtJ at the end of 1955. 3. A further, though much smaller rise, in external assets occurred in the firs UlU of 1956, and UOoUe renueU a peak U1 o 3. 1,200 miVlion in July and August, falling to Rs. 1,179 million at the end of the year. Ex- ports were lower than in 1955 and impors somewhat higher. But 195O was still a comparatively good year for Ceylon from a balance of payments point of view, and the country was able to enjoy prosperous conditions at home without any disturbance to internal or external financial stability. 4. The main economic developments over the three years 1954 to the end of 1956 are summarized in the following paragraphs. References are given to tables in the Appendix. 5. Balance of Payments (Tables 1-11). Ceylon's balance of payments was consistently in surplus on current account, but the surplus fell from Rs. 305 million in 195.4 and Rs. 323 million in 1955 to Rs. 75 million in 1956. These figures may be compared with a deficit of Re. 158 million in 1953. Taking the annual average for the three years, export earnings were 13% higher than in 1953 and import expenditure 8% lower; but imports in 1956 were slightly above the 1953 level. External assets roughly doubled over this period. 6. Internal Finance (Tables 12-16). A generally conservative financial policy was marked by over-all budget surpluses of Rs. 34 million in 1953/54 and Rs. 1208 million in 1954/55 and by a Re. 1. million deficit in 1955/50 (financial years beginning October 1 and including the transactions of the Post Office, Government Railway, the ports and the Electrical Undertakings Department). Revenue increased from Ra. 952 million in 1952/53 to Ps. 1,257 million in 1955/56, mainly as a result of the higher yields of export duties and taxes on income and profits. Expenditure was reduced from Re. 1,184 million in 1952/53 to Rs. 992 million in 1953/54 (mainly by cuts in food subsidies); it increased only slightly in 1954/55, but then rose sharply to Rs. 1,258 million in 1955/56 when food subsidies were reintroduced, and there were all-round increases in expenditure on social services. 7. The deflationery effects of the budget surpluses in 1953/94 and 1954/55 were reinforced to sone extent by goverr:ent borrowin: operations. An internal loan of Re. 70 millon was issued in 1954, three loans totalling Rs. 125 million in 195 and another three totalling Pa. 80 million in 1956; net of conversions and redemptions, subscriptions to these loans amounted to about Re. 130 million. In addition, net accruals of small savings through the Post Cffi-e Savings Dank and Savings Cortificates amounted to about Rs. 30 millT n during the period in question. The majority of the nubFcript- ions to the ncy loans camo from the commercial eoks or from within tz. Government, and probably not more than one-third of the total represe-*ted genuine borrowing from the public. However, these borrowing operaticns brought about a significant change in the composition of the internal public debt. At te erd. of 1953 about 30% of the total consisted of Treasury bills, mainly heJi by the Central Bank; by the end of 1956 the proportion of float- ing debt to the total had been reduced to 6%. and most of this was held by commercial banks. 8. The favciele balance of external transactions led to a substantial increase in money upply with the public, from Rs. 827 million at the end of 1953 to 's. 1,127 million at the end of 1956, but this was not accompanied by an-, incrtease in internal prices, the cost of living index remaining practi- cally stnble throughout this period. A notable feature, however, was the large accunulation of tire and demand denosits with the commercial banks, these having risen from Rs. 650 million at the end of 1953 to Re. 1,021 million at the end of 1996: the funds of foreian-owned estate comnanies accounted for an important element in this increase. The very liquid state of the economy was reflected in excentionally low rates of interest, the rate for Treasury bills never having exceeded 1% since July 1954, while the bank rate has re- in ag ricul ral pr oductione T ableeen w aso an a9s inificant incre se in agricul L-,ral production between 1953 and l956. Of the three main export crops, Which together aCCOuInteCd fo70r Over half Of all1 agriu.luralJ UtUPUt, - 3 - production of tea is estimated to have increased by about 8% between 1953 and 1956, and production of coconuts by about 5%; on the other hand, rubber production declined by about 3% as the result of the replanting program, since six or seven years must elapse before the new trees can be tapped. The rice crop fluctuated from year to year with variations in weather con- ditions, 1953 being an exceptionally badsyear, 1955 a very good one and 1956 rather poor. The indications are that, in normal weather, average yields per acre as reported are now at least 10% higher than they were five or six years ago, and there has probably been a 20% to 30% increase since 1951 in the acreage sown. 10. Industrial Production (Table 18). Industrial production in 1956 was only 6% higher than in 1953, having declined from a record level in 1955. Among manufacturing industries, plywood, cement, shoes and soap recorded substantial increases since 1953, but outputs of tiles, cotton yarn, mineral waters and cigarettes all declined, in some cases because of administrative difficulties, in others through inability to stand up to foreig-n competition. There also appears to have been some increase in the output of cottage industries in response to rising demand. 11. National Output (Tables 19-20). The gross national product increased in value by1- beteen 1953 and 1955, but there was a decline of over 6% in 1956. Part of the increase between 1953 and 1955 must be attributed to higher prices (notablv of tea). while the decline between 1955 and 1956 was in part due to price falls for export products (except rubber prices, which increased by more than 25% between 1955 and 1956). But the over-all increase in the national product, adjusted for price changes, appears to have been somewhat reater than poulation growth. Gross domestic capital formation was fairly steady around 11% of the gross national product, with government investment exnenditures accounting for almost three-fifths of the total. 19 Puhlin Investment (Tables 20-21). Capital expenditures of the Govern- ment (which cover some outlays not classified in the national accounts as "government investment") declined from Rs. 400 million in 1953/54 to Rs. 345 million in 1954/55; they increased to Rs. 381 million in 1955/56, mainly as a result of larger drawings on the IBTD loan for the Aberdeen-Laksapana power scheme. For 1956/57, expenditures of Rs. 499 million were budgeted, hiit. the innrenses did not materialize and actual expenditures remained below Rs. 400 million. The 1957/58 budget provides for capital expenditures of Pc. - 516 Tnillin- 13. The period 1954/1956 saw the execution of the Colombo port development scheme costing about Rs. 100 million, progress with Stage IIA of the Aberdeen- Tksanana hydro-electric project, and the introduction of diesel locomotives on the railways. Substantial sums also were spent on the Gal Oya multi- nursnne proiet where total investment exceeded Rs. 250 million, and high levels of public investment were maintained in smaller irrigation schemes and other agricultural works, the maintenance and improvement of highways, schools, hospitals and housing. Several industrial projects were completed. -4- The ceramics factory at Negombo started operations late in 1955 after an investment of Rs. 3 million; about a year later a paper mill was commis- sioned at Valaichchenai on the east coast after an investment of Rs. 22 mili-on spread over seven years; a coconut extraction plant involving an investment of Rs. 10 million just north of Colombo was completed. A caus- tic soda factory was built at the Elephant Pass near Jaffna at a cost of Rs. 16 million. 14. Private Investment (Table 20). Estimates of gross private invest- ment suggest that it fluctuated between Rs. 200 million and Rs. 300 million a year over the period. This investment was largely concentrated in the plantation industries and other branches of agriculture and in housing and office building. It was financed mostly out of accumulated reserves; the market for new private issues in Ceylon is still extremely restricted, and there was no net private foreign investment. So far as investment in in- dustry is concerned, a few new concerns were established including an asbes- tos cement factory costing Rs. 1.5 million, a Rs. 0.4 million factory for the production of aluminium hollow-ware, and two shirt factories. - 5 - CHAPTER II - CURRENT TRENDS Worsening of the Balance of Payments 15. Toward the end of 1956. the balance of payments picture began to deteriorate, with export proceeds falling off and import payments rising. Part of the deterioration was due to a downturn in the terms of trade, which had been very favorable in 1955, but there also was a shrinkage in the vol- ume of all maior exoorts and a 9% increase in the volume of imports. In 1957 the adverse price trend continued, but the volume of exports was well maintained exnnot for coconut oroducts. The volume of imports, on the other hand, continued to rise. The 1956 balance of payments difficulties was 1nr%71v r1uP in thp qirn innrPnno in imnort nirchses and only onrtlv due to a worsening of the terms of trade, while the difficulties in 1957 were rnia lichly oriiilly, Aila +.n thip +:w fnra 7c t_v 16 Th incres i "nn i mport va -lue was c I -l )n patteresult+ ofr larger puvr- chases of consumer goods, although the value of imports of textiles was higher than in the last few years; they amounted to 515 million tons com- j..id±lv 3tU, V-LWA C1 d J 40.i-J fL2.±iJ U J .1i ,i ,h .JQCZOU . L .i- YrUCIn . - 1- crease reflects the small crop of the 1956/57 harvest season. The largest va.LUt: UL; VULLLUIt:U _L11 Ullt: UEA Lt: UJ~ V 1 -_LU L,±A~ _L14 P~~ U U-i - tics as "capital goods", which, however, include large amounts of crude byelaaanc lels. The total volume of "capiUaL goods" imports increased by 22o in 1957, while "relatively unmanufactured capital goods" imports (which include fuel) rose by about 507. To some extent tle increase in xin- ports must be attributed to making up of arrears in imports which accumu- lated during the Suez crisis; but imports remained high throughout the summer, even after the backlog had disappeared. 17. As a result of these developments the upward trend in Ceylon's exter- nal assets was reversed. The recorded figures show a fall from Rs. 1,185 million at the end of June 1956 to Rs. 943 million at the end of December 1957. In reality the fall was not as great, because the figures of external assets exclude amounts due to Ceylon under the rice/rubber agreement with Mainland China, which increased from Rs. 25 million at the end of September 1956 to Rs. 140 million by July 1957. In August the Chinese Government paid Rs. 60 million, leaving a balance of Rs. 88 million at the end of December 1957 and of Rs. 74 million at the end of March 1958. The true de- cline in external assets during the period June 1956 - December 1957 was therefore only Rs. 154 million. In the last few months, exchange reserves remained unchanged. At the end of March they amounted to Rs. 943 million. Rise in Government Expenditures 18. The change in the balance of payments has been associated with the more expansionary budgetary policies adopted by the Government in 1956, when food subsidies were reintroduced. The budget for the year ending September 30, 1956 closed with a negligible deficit of Rs. 1 million, in spite of the fact that the food subsidies added Rs. 80 million to expenditures. But the Lict-I IU-7 U U LII9±1I~ .L IVV _* e . . LI ns IrnI -UJ1 lion, which through subsequent appropriations ras raised to Rs. 217 million; actually a cash operating deficit kestimated on the basis of preliminary figures) of Rs. 196 million was incurred.1/ The budget for the current fis-- caL year envisages a deficit of Rs. 159 million. The expansionary influence of government transactions on the money supply has been largely offset by the foreign deficit, and the money supply with the public, Rs. 1,046 million on September 30, 1957, the end of the fiscal year, was slightly less than at the beginning of the fiscal year (Rs. 1,064 million). In January and February of this year, money supply continued to contract. But the contrac-- tion was due to a decline in bank credit to the private sector and the govern- ment rather than movements in the balance of payments. 19. Rs. 100 million was allowed for food subsidies in the 1956/57 budget,; it represented an estimated gross expenditure of Rs. 120 million on the rice subsidy offset by an expected profit of Rs. 20 million on sales of imported sugar, which is a government monopoly. The Government also stepped up ex- penditures on social services; the original provision in the 1956/57 budget was about the same as in 1955/56; but sup_lementary appropriations, mainly for drought relief, increased the total by Rs. 20 million. Against this the usual shortfalls in capital expenditures occurred. The budget provided Rs. 307 million while actual expenditures came to only Rs. 212 million. Debt Operations 20. In the fiscal year 1956/57. the Government again was able to sell Rs. 73 million of long-term securities to funds and financial institutions other than commercial banks. while commercial banks Ourchased Rs. 30 million. and departmental and other official funds absorbed another Rs. 25 million. Net borrowings constituted about one-half of the total borrowings of Rs. 127 million. At the end of the fiscal year, the domestic long-term debt, net of sinking funds. Amoiintpd to R.- 7Q/. million. A 1,ron nrnnnrtinn nf thp rpht. (Rs. 305 million) was held by commercial banks, which also held Treasury bills totalline Rs. 20 million. In the neriod October 1957 - March 19S8. the sales of long-term securities by the Government included Rs. 26 million to funds and financial institutions othpr than nmmernial banks R, 1. milon tn commercial banks and Rs. 14 million to departmental and other official funds. NPt. hnrrnwings cntitutedahout Rs 19 million f +he ++al of .. 5r mil.- lion. At the end of March 1958, the outstanding amount of long-term domestic rlp.ht.- noc+. n~f vztinrinc fiA womT~ *R SM Yn411 I iev rf IU1-~1^I Pc 10 "n 1~l4y was held by commercial banks. The holding of Treasury bills by commercial thnnk woun Rfom Minl C the amount due from Mainland China. Credit Expansion 21. In the period of 1956/57, the movements of the assets and liabili- UJIL LJ bhe. _AUIt LL _LJQVJ& Z l i CVC L i .It-1- dLJt5ki U%VU, ZI.ULAA UIU1411 .1-L U.LUJIJ- ary pressures of the government deficit and the government-financed export surlus witu Ia-Mlanu iLuMa. uLI±±e iLn fiscal 19)Dj590 loans anu auvUlcub increased by less than 12%, the increase in fiscal 1956/57 came to 22%. At te same tmue, the increase in private Uemand deposits ceased; in lact, they declined by almost 10%, from Rs. 671 million to Rs. 615 million. Time and savings deposits of' commercial banks, on the other hand, continued to in- crease, though at a slower rate than in earlier years. The liquidity of the banking system, although still high by any standard, decreased consideraoly, from a ratio of 61% (of liquid assets to demand deposits) at the end of 1955 to 45% at the end of 1957. 22. The reduction in liquidity, to vhich the Ceylonese banks are rather sensitive, has led, for the first time in four years, to a rise in short- term rates. The Treasury bill rate increased from 0.847 in September 1956 to 1.48% in March 1958. During the same period, the rate on call loans rose from 0.5% to 1.5%. The rate oi fixed deposits was raised three times during 1957, from 0.5% to 0.75% to 1.25% and finally, in July, to 2%. The growth of time and savings deposits, and the accumulation of trust funds and funds of insurance companies, on the cther hand, kept the rate of long-term secur- ities fairly steady at 3%, or slightly above. The 1 7/58Budget 23. The 1957/58 budget does not differ substantially from the actuals for 1956/57, except for an increase in tax revenues of Rs. 65 million, and a correspona'ing decrease in the deficits. In the budget message the Minis- ter of Finance stressed that improvements in Ceylon's foreign trade were not to be expected, and that for that reason only a deficit "of a reasonable magnitude" --which oresumably could be financed from non-inflationary sources --could be incurred. 24. The revenue increase of Rs. 65 million--from Rs. 1,243 million to Rs. 1.308 million-is to be derived from two sources. Rs. 18 million is to be realized through rising yields of taxes at rates prevailing in the last year: and Rs. A.7 million is to come from higher rates and new taxes. The profits tax has been increased by 5%, to 30%; the increase is to yield Rs. 8 million. Imnort diitv checulei s hqve bn revised to lower tiriffs on some common consumer goods, and to raise rates on gasoline, beer, tobacco, and a Inrae number of Inniry imnnrt. The not reslt of the dutv revisinns i. P- pected to be a revenue increase of Rs. 22 million. Certain stamp duties and excise tMae o%n dwoestc tobaccot%r ndA locanllyr producedbee also haven beNor raised. A new source of revenue, to yield Rs. 12 million, is a tax of one- +en+h of no4m.,+ o- kercetl a..4+ T- Mf k PA O.10 +1,- arr* meW+ A1n.A2A on an increase of the tea export duty by five cents per pound. The addition-, lower gradeso te. ourc L0 tLU j_ UdOU as a suLJD_1AJ LM jJ.LUW.LS Of lower grades of tea. 25. The pattern of public expenditures for the current fiscal year is similar to 1956/57. The expenditure total is Hs. 1,467 million, against Rs. 1,457 million last year. The only major difference is an increase in food subsidies from Rs. 106 million (including Rs. 6 million for the free distribution of milk to children and mothers) to Rs. 135 million, which is largely offset by decreases in expenditures elsewhere, particularly for the public works department, road maintenance authorizations having been cut. Minor increases in expenditure are provided for pensions (Rs. 6 mil- lion), government enterprises (Rs. 9 million) and defense (Rs. 6 million). Loan Fund expenditures (which comprise most of the public investment ex- penditures) are estimated at Rs. 304 million, total capital expenditures, including those financed from the revenue budget and other sources, at Rs. 456 million. 26. The balance of the revenue and expenditure budget is a deficit of Rs. 159 million. A significant part of this amount will be financed through the sale of government securities to savings banks. insurance comoanies and provident funds and will thus no,t create additional inflationnry orssures. On the other hand. oublic ex-rnditures may increase by the rise in the amount outstanding in favor of the Ceylonese Government under the rice/rubber exchange agreement with kainland China. and by relief and reconstruction outlays in connection with the flood disaster which struck part of the rice- growino area of the Island in DenRmbr 1917. En-,il1v sirrnifian-.,h I-,P of the amounts involved and the irreversibilitv of the event, are the wage innrnses which thp mornment governmer+ .r4. and the minain.qli+vi T o-P Colombo (which depends heavily on government funds) were forced to grant riok -,-jr-rIrP q mi in i. r- i no I ~ ~ im-la- anrl n+iv rny nrn -c n-n 0 + nif IAn M of strikes at the end of 1957. Ceylonese authorities have estimated the annual cost to the Governmnt a t Rs. 90 -f illon. Thus, even with the valThe of exports at a rather high level, and a resulting high level of revenues ~ ~ ~ -m - O- JP C3I_ L.W U %ALA U.VQ kLA _LI I.L 4nd U ±L'J U icI L UVL Lt, L U UJ. L t. -L,J )U 200 million, including estimated disaster relief and rehabilitation payments of Rs. 64I Ml1lIn, -is -liJkely;Qfr and. a furhe los nexhagrsevs in- duced by it is possible. 27. On the other hand, the Prime Minister and the Minister of Finance haUvUe 'o h emphas ze.L.~, .4 1k4 1,L - Jk need "o restrai U, C21U Wt, tI ~UMLl"D UI'U1 t.Vt, machinery is well adapted to resisting increases in expenditures. As for development expenditures, so far very Lew projects have progressed beyond the preliminary planning stage, and given the inevitable delays in planning and in t e oruering of equipment, no substantial increase in outlays is to be expected in the next year or two. The flood damage of December upset te schedule of these projects because of the necessity to devote immediate attention to rehabilitation works. Moreover, the Government is planning to reduce substantially the cost of land development--for instance, by requir- ing the settlers to bear part of the cost of reclaiming land instead of itself continuing to pay the whole cost; and by greater concentration on dry farming techniques, which should allow for some economies in expenditure on irrigation schemes. 28. Neither the fall in reserves to date nor the extent of deficit finan.- cing by the Government need in itself be a source of serious concern, but the possibility of a renewal of inflationary pressures, such as would put a severe strain on the balance of payments, cannot be altogether discounted. Account has to be taken also of the internal political situation. The pres- ent Government which has been in office since April 1956 is a coalition of the Liberal Socialist Party led by the Prime 1viinister and one of the Trotsky- ist parties. It has been faced in the past two years by problems which are relevant,to a judgment about the economic prospects of Ceylon. There have been in the past two years a series of strikes, the most serious of which have been in the port of Colombo. These strikes have a serious effect on the efficiency of the port and on the Island's commerce. In addition, in recent months the discontent of the Tamils over the Government's policy re- garding the use of the Tamil language caused considerable unrest and civil disorder. The Government has now taken firm action to ensure that order will be maintained; and, while a lasting solution of the labor and communal problems may take time to achieve, it now seems unlikely that these problems will seriously affect Ceylon's long-term economic growth. 29. With regard to the Government's attitude toward foreign investment, considerable uncertainty was created by a number of statements that the Government proposed to nationalize the tea estates. However, the Government has recently made some announcements which have been encouraging. If followed by more positive official action to encourage the foreign investor, it should helo to imorove the situation. Short-runi Outlook for Exoorts O. CPv1r. rprivps nhont. onp-third of its national income from exoorts. and approxirately 90% of total export earnings come from three products- A1 from ten (+.1in the nvrno fre- 19r to 1Qr7) - 1 frnm rnhbr qnti 129 from coconuts (excluding minor coconut products). Exports did very well in 1954 and 10955, and though 1a56 and 1a97 wee less favorable years +ha mere certainly not bad. The outlook for 1958 is reasonably good. 31. Tea. In the last two years, tea prices declined from the high levels 'k-4h *4 JA Q./ h m + 1nc -j iaq -i n, An jA h+n a he 4 a+. months of 1957. Since then prices recovered, and at the end of the year Lon- in the first half of 1957 was the market response to a build-up of stocks _L1 £JLJUL "O u n .111UJI 1h:1U VULLAU.L-:U ULU--Lljr W=i 1.1LAr,4 .L..LC)_' . LdJ. ;I Rl yp IU1y I±U MVV t r V stocks have declined to normal levels and traders have increased their pur- chaes Bcuse ofJ~Ui± unusually~ favoabl weater condUJions UIR11 VV.LLU1 . production and exports in 1957 was considerably higher than in previous years, and despite lower average prices the export procees for 1957 regis- tered Rs. 1,021 million, against Rs. 1,044 million in 1956, and if some ship- ments had not been delayed by the December port strikes, the value would have been a little higher than this. 32. The outlook for 1958 is for tea exports of the same, or a slightly lower volume than in 1957, at prices which may average somewhat above those prevailing in 1957. The reason for expecting a price increase is the re- markably steady consumption in the United Kingdom and other traditional mar- kets for Ceylon tea. Moreover, Soviet Russia recently entered the tea market as a buyer of low quality tea, and may come back for more. Thus the proceeds of tea exports in 1958 may be of the same order as in 1957, or around Rs. 1,050 million. 33. Rubber. World prices of natural rubber fluctuated rather widely during 1956, falling by well over 25A during the first six months, but re- gaining most of the lost ground during the second half of the year; taking the year as a whole, prices were about 15% lower than in 1955. In 1957, rubber prices declined further, from 33 U.S. cents per pound (for No. 1 r.s.s.) at the beginning of the year to 28 cents at the end. However, until recently Ceylon's economy was in large part insulated from these fluctuations by the rice/rubber agreement rii-h Mainland China. which took more than half of the rubber exports at prices somewhat above those ruling in the open market. In the summer of 1957 the trade agreement with P!ainland Cnina was renegotiated. Since November Mainland China no longer pays premium prices for rubber and purchases will be curtailed from 50.000 to 30,000 tons. Instead of paying premium pri-es, Mainland China agreed to contribute Rs. 75 million over the next five vors to the cost of tlhe rubber rc-nlantTne scheme now urdcif 'i In retuvrn for the rubber, Ceylon is to obtatl 200,000 tons of rice, com-pared with 270.000 tons under the -orvious agremet t November and D3ember 1957, p:resumably because Chinese purchases were postponed until the new agree- ment took ffpeot the unit ui of nvhnwe uber shinments line1 harp- ly. The volume of export shipments also declined, and it was adversely af- fpnt.nd ut'iryhipninud y +the e-ndl ofr the yer. Prnn n- exports in 1:5' amounted to Rs. 300 million. 34. The prospects for 1958 are that Ceylon will be able to dispose of ar, 000 ton at ,a worl market,a <-, Ce O 09T QI --4 4. +-- export price of Rs. 1.10 per pound. Due to the aeverse effects of the de- line of Un-ted a industa+ l --+a-t + - t- onkia-a,onmn, the rubbe price has shown a considerable drop recently but, on the other hand, there ar S^m ---- + - f -+ P_ 4-1- e a + I~Q -- - ~ 1~ 4- -4--O - -4-.- besetting rubber exports from Indonesia. Therefore, rubber exports in 1958 oco b~t .1 rod i uc*L±I~ t. r,U f.& Ii±.UJ .5 Covconrouucts. UExport of the wree major coconut prouucts (coco- nut oil, copra and dessicated coconut) have remained fairly stable in value etUween 1954 af A96, averaging about n5. 215 milion a year. Prices were exceptionally high in 1954, fell sharply in 1955 and recovered a little in 1956; the volume of exports has moved the opposite way, rising sharply be- tween 1954 and 1955 and declining slightly in 1956. In 1957, Colombo prices of all three products were substantially above the average 1956 level. How- ever, as a result of severe drought conditions in the latter part of 1955 - 11 - and through most of 1956, the volume of exports in 1957 was one-third smaller than in 19/,56. The cOmbined effect of sUMll ppouti0- ~an L4r was a decline in the value of exports from Rs. 213 million to Rs. 156 million. ceding years will no longer be felt, export earnings of Rs. 210 million to R'12-2 million mayU LIJLA-,±IJ~ UU 36. Payments of dividenus and interest by foreign companies operating in Ceylon, private remittances abroad and the repatriation of foreign capital all impose a sizeable charge on Geylon's balance or payments. Dividend and interest payments normally reflect the profits made in the previous year; in 1957 they amounted to Rs. 92 million. Private remittances follow a course similar to investment income. They rose from Rs. 71 million gross in 1954 to Rs. 90 million in 1953; in 1957 they were somewhat lower (Rs. 75 million) than the year before; about two-thirds of these amounts consist of migrants' transfers to India and about one--third of remittances to the United Kingdom. 37. Private capital movements constantly chowed a net outward movement of' substantial proportions averaging about Rs. 40 million in the last four years. In September 1957 the Central Bank, concerned with the loss of exchange re- serves, prohibited the accumulation of earnings in London in anticipation of dividend and interest payments in the next year. The orims reason for this move wis to forestall the possibility of an increase in anticipatory trans- fers insDired by recurring rumors and threats of estate nationalization. 38. The inflow of new foreign capital for investment in recent years has been very small indeed and has been regularly exceeded by the purchase of foreign-owned tea and rubber es6ates by Ceylonese interests. As a part of the exchange control tightenin2 r.masures of September 1957. the Central Bank suspended for one year the release of foreign exchange for investments in sterling shares and prohibited banks from eranting any credit facilities for the purchase of estates of sterling companies. The Central Bank also cur- tailed the allocation of foreign exchange for travel and study abroad. Foreign Assistance 39. The United States advanced aid to Ceylon to the extent of about $6 million out of the appropriation for (United States) fiscal 1957; this was in addition to the 95 million appropriated in the orevious year. of which only a part had been disbursed. A proportion of United States aid was an outright gift. but 92.5 million nonsists of loans rPnrvnhlR in nam- . Cannan continued to grant aid to Ceylon at the rate of about $2.5 million a year, in- cludina tohninnl n and smaller amounts were received from other Colombo Plan countries. After allowing for the disbursements of the IBRD loan fonr t.he Ah--nnTnrtnn project, total reMeipts+ of foren asitncwr about Rs. 36 million higher in 1957 than in 1956. In 1958, foreign assistance December. The United States Government has made an emergency grant of 20,000 - 12 - tons of wheat flour (c,i.f. value Rs. 11.5 million) and additional assistance in the form of surplus disposal grants and credits under P.L. 480. Loanb Ir-m the Development Loan Fund have been agreed upon but no formal announcement has been made as yet. It is understood that repayment is to be made in rupees. As previously mentioned, assistance from Mainland China consists of a grant of Rs. 15 million each year over the next five years for the replanting of rubber estates. Early this year, an agreement was signed for a loan from the Soviet Union for the foreign exchange cost of 14 projects. Their total for- eign exchange cost has been estimated at Ra. 146 million. However, so far only two projects involving foreign exchange costs of Rs. 12 million--for cotton and sugar planting schemes--are ready to be carried out. The loan which is denominated in rupees to be used for the purchase of exports from Ceylon is repayable over 12 years and carries an interest rate of 2-1/2% per year. 40. The trends which developed in 1957 are likely to continue during 1958. In spite of a decrease of rubber export value, there may be a slight increase in export earnings, due to a recovery of coconut product exports to more nor- mal levels. At the same time. the lower prices of petroleum products will bring about a decrease of import payments. However, if the present monetary and fiscAl policies continue. these improvements may be offset by further in-- creases in imports. Unless the Government takes effective measures to cur- tai] thn r-onth of total demand. a further loss of foreign exchange, although perhaps of smaller proportion than in 1957, appears likely. One problem whichl my tnr trnnqirhip difficities for Ceylon. is the shortfall of rice production in the current year. With the exportable surpluses of the Tnnma "Mn p Mo e cn1atr c (irman, Thailand Canmbodia) denlining there is no assurance that Ceylon can obtain sufficient quantities to meets its re-- q-rement-+ ,a c 4 s-mhM+o fnNt ,fro Mainland Chi-nn are JnnrPq.qP It may have to increase cash purchases of wheat and wheat flour; or it may be able to secure iort under t US.Suplsul 41. C1eylon 4 is 41 stl cofortabyi placedo fo)r foreigpn exchannge. reserves. vwhich are sufficient to cover well over six months' imports, and a reduction of the ~ 4-.A.4-~ ,,-1 ~ 1, ~ A4a+-, T+ tin._ however, ma that past savings, which ought ideally to be reserved for financing develop- ment, ar bing use' UyJ L.L&i9.± V. ca J_4. _L&L1 _V_- ._4 may be in excess of what the economy can support on a permanent basis. The most i suuLconIcertLig astc of tjn1te -J-r UU 00J '± C_UU= U_L%JI .J-Q UL.LC4VU 14JU - k-dr. ments picture has deteriorated at a time when exchange earnings are at a rather high leve1. - 13 - CHAkPTER III - GRCTH AND BALANCE OF W.YMENTS PROSPECTS Development Program 42. The previous Government prepared a Six-Year Program of Investment for l9rh/qq to 1959/60, which was niblished in Jiulv 194 Thi.q nrnoram which envisaged gross investment of around Rs. 2,500 million in the public sector over the six v..q w + not ffimcrirnl a+nt hv _.ho n-mn. though in practice it is still taken as a guide to development in certain sPntors n nuh nr +.rAnnrt. and noer- Tn Sepamber 1(n- he n rnnT. established a iational Planning Council under the chairmanship of the Prime Minim+.a n nd a Plqnrincr RvnrQi -Pwn_lriprm qi+ n -+vnr-+.n + frnme - new plan, including a program for the private sector. This plan is expected toA be +.oat.as :o yers in preparation Me hta tne of the P-n10 ning Council was appointed to advise on interim measures, including the policies t.o be adnopte in the 10 7/C Endca+ * The onmm++a +vmma4+ a+.A an+hm ms tasks: a. reviewing the progross of gover-ment revenue and expenditure b, o1b+aining from Depar'ments detallo OP j, poeu and important projec'&s carried over from previous -rears, along , jll _L CL. V -ler ecanomi-Lu ~1 LL UVz LV17JaiLeIIU, nluIU considered necessary for long-term planning. 13. In July of 1957, the !ational Planning Council published its first uerJum Report, -uhicn conuain3 a statement ut the Council's views on the planning procedures which it proposes to follow, and on the "basic goals and objectives of planningl" in Ceylon. Also included were a number or reports of technical working groups and background papers. The Report emphasized the need for long-term perspecotive in the f1funLCioon of the program and discussed the "four major components of the economy of the future", as follows: "(a) The Doport Sector. First, it should be obvious that a small country like Ceylon cannot envisage a high level of development within the confines of what is described as a sclosed economyt. In the long run it is quite certain that a prosperous and developed Ceylon will need to trade with the outside world and to ootain from it a complex of imports, comprising machinery, raw materials and consumer goods, consistent with higher levels of incomes and development. Exports constitute the means of paying for these goods. It is, therefore, necessary that Ceylon's capacity to export should at all times be substantial. Thus all attempts which aim not merely at sustaining but also at expanding the potential of the export sector at as fast a rate as possible, would fall readily within the requirements of any long-term plan. The export sector of the future need not, of course, be confined to the agriculturcl crops. Eut the latter, in pe:-cuonar tea, rubber and coconut, are likely to remain of the g:.'maiteit i-portance for a long time to come. There is still a pcLential for a considerable improvement in output in this sphere aid, given the availability of markets, efforts should clearly be iade to exploit this potential at as fast a rate as possible. "1(b) The Development of the Dry Zone. Secondly, it is reasonable to expect that in the long-run Ceylon will succeed in bringing about the maximum utilization of land. Some two-thirds of the land surface of the country is said today to remain uncultivated. Given the vast pressures of population, the dependence on imported foodstuffs, and the urgency of the quest for avenues of employment, it is scarcely conceivable that this most basic of the country's natural resources would continue to remain unutilized over the long period. The maxi- mum utilization of all productive an(: cultivable land, consistent with the needs of afforestaticn, is one source ;hich could make a s,ostan- tial contribution towards increasing the productive potential of the economy. This would, of course, involve the effective opening up of much of the Dry Zone. A process towards this end representing the maxidr2m rate of progress possible should, therefore, find a place in any long-term plan. "(c) The Improvement of Froductivity in Non-Estate Agriculture. Thirdly, there is the improvement of productivity and yields in non-estate agri- culture. Clearly a primitive and backward agriculture can find no place in the long-term perspective. The existence of a so called tdual econoTrt -- a modern plantation oud commercial sector lying alongside a village economy -- is one of the characteristics of the present situation. Its elimination in the future through the modernization of techniques and, other such measures should naturally accompany a process of development. Here again is another major source of improvement in the future produc- tive potential of the economy. Its attainment would involve a host of measures -- the adoption of improved cultural practices, of better ccn- trol over water, of suitable organizational relations. of marketinp facilities, and so on. Clearly a vigorous and full scale drive along these lines. aimed at stepping up vields and modernizing techniaues, must constitute a vital part of any development effort. ** "(d) Industrialization. The fourth component is industry. It is to industry that a concept of cumulative exnansion is most annli- cable. Industrial development tends to a great extent to be self- sustaining. The existence of an industrial base is often a notent factor in rapid development. At the same time it must be emphasized that the nroblem of in.strialiati on is comnlex The avenue of x--r pension previously outlined have already enjoyed an important place in +.hp r1PNrP1 ormar+. inffr+. -sf o r 'anal ynn , Tli n czv+ +nzl~ - 15 - in relation to them are those of improvement, of imparting a clarity of purpose, and of stepping up rates of progress as fast as physical possibilities and finance allow. In the case of industry the problem is more elusive. It is virtually one of building anew. Yet it is precisely in this field that planning should seek to make an effec- tive contribution." The lonF,-term objectives as set out in the Interim Report unquestion- ably are the right ones for a country with the physical characteristics and the human resoureces of Ceylon. But the7r still require a great deal of fact.- ual inquiry and analysis before effective policy measures for their attainment can be taken.* However, even in the absence of a full-fledged program, the main long-term trends which will determine the progress of the Ceylonese economy in the next decade or so can be assessed. The Tbcnort Sector M[ Tea. Ta nrodurtion in Celon has risen ranidlv over the nast few vears from an average of around 320 million lbs. a year in 1951 and 1952 to about 198 million lbs. a year in 197. The main factors contrihutin. to this increase have been the successful control of blister blight, greater.use of fc:tilizers and mm-p n n n n +. pluking nd prningr much of the credit ror th_s_ advances being due to the -ork of the Tea Research Institute. The scope for nlanting mar- In Vith a+.P is limited, nartculari -n +-.h .q_ ll wher., the best qualities are growm. Some further grcith in output may result from con- timirnfj~ irrnr nQ~ - v o jn n- fivv'+Jl- 1 - z invirl m + n f~c r-ii1 +ji-rqnn v it is unlikely that progress on this account will be anything like as rapid term possibilities of expanding production through replanting estates with Sec~ il,r].y -,4rA i-d-ushles grown j':-o.. shoots. -ns+C,ad of SeCAS. A+ rmen+. large part of the tea comes from bashes planted 60 or 70 years ago. As the normal li1leL o.J..L a.J te L 10 USUI LS -- -'214 4,--A -4-l 1--4U. AA' ---- -4- 4. 4~J±.± -.L~ -0 c proceeding on an increasing scale. Continuous experiments are being carried OUUL iL1 jLCLuIU Ureeuig, aU tne new types UL vegUoVvueLy pagieu vuse nou being extensively used for replanting are commonly yielding around 1,200 lbs. 850-900 lbs. A yield of 1,500 lbs. per acre is considered a feasible target J4 fLp ntlUL .Lg J-5 a ti-V. jJ.L'Vt.;uZDb,$ CU~ dIU cl YUU Uli-Ly ci V(,.L'y tIU".L proportion of the land under tea has been replanted with high-yielding bushes. DUU LItEc CMP Eu1u1t: n1IVU vEn o1n2ug gUOU 1MzO-L, IUU. CUiU itu uUe ±LeouioUua wUmirg Group on Tea of the National Planning Council has endorsed a proposal of the -lea Covuolu iLAulU u ±UUo.LUUULu a upVC±nLing ZUUaiuy kwinuf wUUoLu cover slightly more than half of the cost) for tea estates, and subsidy payments for small holders woo adopt improved _roduction practices. Given the necessary incentives, therefore, there should be no technical or financial barriers to the steady expansion of tea output; and it should De possi.be to achieve an annual production of 425 million lbs. within, say, the next five years and 400 million lbs. within the next ten. 46. In recent months the Government has become increasingly aware of the lact that the eariLer uemarus for nationalization, raised paricuiarly by ue party of the coalition government, may adversely affect the level of reinvest- ment in tea estates, although there is no evidence that it has had that effect so far. By prohibiting foreign exchange allocations for the purchase of shares in tea estates, it has halted at least for the time being the gradual process of "Ceylonization". This measure and the enactment of the Tea and Rubber Es- tate Act in December 1957 also go a long way toward preventing the breaking up of estates into production units of uneconomic size. 47. One other problem which may have an unfavorable effect on tea pro- duction and its growth is the difficulty of keeping intact the management of tea estates. Because of the country's "Ceylonization" policies, it is becom- ing increasingly difficult to recruit European staff, and the number of Euro- peans presently engaged in managing and inspecting the estates (limited to 500 under an agreement with the previous Government) may decline. There are, however, many high)j cor1e,tent Ceylonese estate managers and assistants, and in the coursc of tiN_ mori will be trained. 48. Political un,ertainties apart, there appears to be no reason vhy Ceylon should not be ahle to increase its share of world trade in tea, which in re- cent years cane to 35% to 40%. While East Africa may well become an increas- ingly serious omnpetitor, competition from India is likely to decline in the long run as a iLesult of rising consumption in India itself. Ceylon's excrts which :clude a larae proportion of hiLh aualitv teas. have the advantage of being q-prad over a wide range of markets, about one-third going to the United Kingdom and the rest mostly to Australia. the United States. Irao. South Africa, Canada, Egypt and Dbw Zealand (in order of importance on the basis of the averngn for the nast threr years). Official estimates- hased on a sample of esLttes, put average costs of production in Ceylon at about Rs. 1.50 oer lb. in 155 (exnluding drnrni.tAnn) Adding t. this the xnort duty of Rs. 0.65 per lb., the present unit value of around Rs. 2.80 per lb. f.o.b. lPAvAq a rather omfortable profit marnin Tf nrice remain na n ent levels, or go slightly higher, and production costs are progressively reduced through thp devAonment. nf high-vielding humhes Cnvion will be wpll Phl tn maintain its competitive position in the years to come. 49. Between 1936/38 and 1954/56 world exports of tea rose at an average would appear to be a rather conservative assumption; it would allow for the ~~~L~w 51ko u w AlLJ A.I A QJLu LUOLA .LUV%jl -. 16 U'L1Ib U _ U l I .El substantial increase in per capita consumption. It is true that the income C .CA J . J44 . A L VC-1 L.LA Ullu VL4..LU 4"11uULW MilU wilt- vnu e it 'alte hasI,1UO in the past been very low, but it would not seem unreasonable to look for some extiension of the t0ea-drinki.-ng habit in- EurITOpe andU Ute ULLUUW Eiat1. 11tus, theM long-term rate of increase in world imports of tea might be around 1.2% to 1 o year. 50. Ine level of consumption in the main importing countries will probably not be very much affected by price movements, and the latter will be determined - 17 - primarily by the supply situation. As indicated before, rising domestic con- sumption may adversely affect the growth of exports from India. On the other hand, exports from Formosa and Africa may expand quite fast while the future of production in Indonesia remains uncertain. All in all, there should be room for Oeylon to expand its exports by 2.5% per year without upsetting the balance between supply and demand, and thus avoid a sharp drop in prices, aside from intermittent fluctuations. A reasonable average price for Ceylon- ese tea f.o.b. Colombo over the next five years might be about Rs. 2.80 to Rs. 3.00 per lb., compared with Rs. 3.00 per lb. in 1956 and Ps. 2.78 per lb. in 1957. 51. Under such conditions, and allowing for some increase in local con- sumption. mostly of lower ouality teas, the quantities exported might rise from an annual average of 360 million lbs. in the last three years to about 400 million lbs. in five years and might reach about 450 million lbs. by 1967. At a price of ris. 2.90 per lb. this would mean an average export value of Hs. 1,120 million a year over the next five years (approximately the same as in 1957), with a rise to about Rs. 1.300 million in 10 years' time. These figures are, of course, very tent&tive, but they serve to indicate the general conclusion that, so long as production is maintained in Ceylon on a ccmpetitive basis, the long-term trend of tea exports should be appreciably upwards. 52. Rubber. About two-thirds of the rubber acreage in Ceylon is owned by Cevlone3e and one-third by EuroDeans. The total area under rubber is about 660,000 acres, and two-thirds of this was planted over 20 years ago. Product- ion has remained fairly static over the nast five years, averaging about 96,000 tons annually. The area under production has declined as a result of the renlantinp proprm- hut 30s-se on this account have been made good by in-- creased appli2ation of fertilizeirs, improved methods of taping and "slaughter taoDing" of trees shortly due for renlacement- The renlanting subsidv scheme. previously financed out of cesses on exports and now through aid receipts frNm Mqinland Chinn effectively name into onPain in 1A ani -rmiult.ed in a charn increase in replanting with high--yielding trees; between 1946 and 1953 a little over L-000 acres were renlanted- on the average, every year. but this has in- creased to an average of 20,000 acres in more recent years. The scheme is well run: there is a strict system of insoection- and certain conditions have to be fulfilled before a grower qualifies for a subsidy. 53. Taking a long view, there is great scope for increases in production and reduction in unit coat- thrpoh rnlantina with high-vielding trees. The new trees yield three or four times as much rubber as the old (anything from, 1-200 lbs to IA00 Ibh. ner acre- comnared with an average of LiOO-CO bs, for old trees). As, however, new trees take six or seven years to mature, the omfTet._Q nf .h,- -rPn1ntAna nrogranm o%n ovepr-all leelnf prrducioAn ndlr c-Qost will not become really significant until the early 1960's. 5h. Production costs are a matter of particular importance in the case of natural rubber because of the comnpetitin t rom J m+he+i0 The selling nr tre of synthetic rubber, at present about 23 U.S. cents per pound, may settle down L).L VjL L,iL(.Q U .LU VU_L* JJLUU C)yjU1LU V.L.. 11U ~ i '± ~ ''i -~ in some uses; in others the latter remains superior. It is now estimated that (in New York) stays within a range of 24 to 26 cents. A New York price of - -I ALU L.,) ul uoIL L.UJLLLL '_Ulltop ll J U C1 0U±UIIIUJ L*U*L)4o UILLL, VCL±UI= _,I± J1UtU CUIU L1UJJ of Rs. 1.10, against an average price of Rs. 1.43 in 1957. 55. The longer-term outlook for Ceylon's rubber exports appears more favor- able than that for the next few years, since there is ittle possibility of' expanding production for some time. The volume of exports will probably there- -Lure expanu itUle, U 1ot at aLL Util the ealy L>fUU39's i a rougn guess, Ceylonts exports might be expected to rise over the next five years to 105,000 tons a year, at an average f.o,b. price of, say, is. a10 per 1b. Un this basis the value of exports will average around Rs. 250 million a year, compared with us. 3UU million in 157. Looking further ahead, some expansion of exports should be achieved as production capacity increases with the matur- ing of more hign-yielding trees, and a growth rate of around 3% a year should not be difficult to achieve. Prices, on the other hand, may recede further under the competition of synthetics. 56. Coconuts. Output of coconuts in 1955 and 1956, when the weather was exceptionally favorable, was estimated at 2.h billion nuts a year, an advance of 7% over the average for the previous four years and of about one-third over pre-war. In 1957, production declined sharp:ly to 2.1 million nuts as the result of drought conditions. Coconues are grown largely on small holdings, but there is also some estate production, Greater use of fertilizers, better methods of cultivation and replanting with high-yielding trees have been mainly responsible for the increase in production since before the war. About 155 of the total acreage has been replanted in the past sevet yea--s, and present annual yields are thought to average about 2,000 nuts per acre, compared with 1,850 in 1951. There is still great scope for increasing yields. It is generally believed that a continuance of the existing fertilizer and replanting subsidy schemes should result in an average increase in yields per acre of up to 5% a year, and there is also the possibil:'.ty of adding to production by planting coconuts on 30,000 t3 40,000 acres of land on the edge of the Dry Zone, a project at present under consideration by the Government. No reliable figures of domestic consumption are available, but probably something like half the coconuts pro- duced are consumed locally. A 5% annual increase in production would be suf- ficient to take care of a 2-1/2% increase in domestic consumption and at the same time to provide a larger surplus for export. If the planting scheme is carried out, the exportable surplus would increase more rapidly. 57. The scope for selling additional exports will depend on a wide range of factors, including the growth of world demand for edible oils and fats. the relative prices of coconuts and competing products, the further inroads made into the scap market by synthetic detergents. the trends of production of oils and fats in other countries, especially in India, and the efficiency with which Ceylon's oroducts are marketed abroad. Cevlon's proximity to areas of rising consumption should give it an advantage over some of its competitors, and it should at least succeed in maintaining its share of world trade in copra and coconut oil, which has remained steady since before the war at around 10%. There has been a fairly close inverse correlation in recent vears between the volume and prices of Ceylon's exports of coconut products, and a similar relationship noil well nrevail in the fiuture. The best long-rane nrprdition is that the value of Ceylon's exports of coconut products might grow at an average rate of 3n airyear_ Thisq wouTnldrea tAt P--n-ts rnigli+. ave rage bu - 19 - million in approximately 10 years' time. 58. Other Export Crops. The report of the Technical Working Group on Uocoa of tne National Planning Councl indicated that at present ther_ are 30,000 acres under mature plantings and that in the next few years 10,000 to 15,00 acres of immature plantings will come into production. it proposea that under the rubber replanting scheme already in operation another 30,000 acres, considered unsuitable for rubber cultivation, be planted with cocoa. Areas under most of the other crops concerned have somewhat increased since 1951, but they still play a very minor role in the island's economy, and the total value of earnings from domestic exports other than tea, rubber and coco- nuts has remained practiliy unchanged at Rs. 100 to Rs. 110 million in each of the past three years.- 59. Total Export Earnings. Subject to the innumerable uncertainties in- e v 1 itadyr su4. r. rolLJAing anJ,Y, SUlcht 4-4 4*-- + U i I _ U1L 9 -4 1 4 . .5LLA. - - o4 -P Per-. ~VA as an indication of the way in which Ceylonts merchandise exports might de- veLoLn 4 ULM nex LJ LVt L)I. Ut:114 -c._D (LAS. Million) Actuals Forecasts 195 1956 1957 1958? 1961-6 .196-L Tea 1,194 1,044 1,021 1,050 1,160 1,300 Rubber 350 293 300 235 250 270 Coconut products 225 213 156 215 250 290 Other domestic exports 103j 102 111 105 125 150 Total j,72 6? 1 1.605 1.785 2.010 Earnings from visible exports might be supplemented to a modest extent by an increase in receipts from tourism, which amounted to Rs. 9 million in 1956. There appears to be scope for attracting more visitors both from the West and from neighboring countries if adequate accomodation and other facilities can be provided. Negotiations for the construction of a new hotel in which the Hilton Hotel Corporation is to participate are in progress. But whatever will be done to stimulate tourism, this is not an item which can be expected to loom very large in Ceylon's balance of payments in the near future. Much more sig- nificant, though in an adverse sense. is the foreign exchange income derived from the British naval and air bases in the Island. The United Kingdom spent Rs. 60-70 million a year at Trincomalee. which was transferred to Ceylon last December. This means the loss of a valuable source of external income. There are no other items in the invisible account where any comiensatinL -ains can be expected, and Ceylon must essentially depend on merchandise exports for the growth of its foreign exnhange earnings. 1/ In 1956 the main components of this total were coir (Rs. 34 million), cinna- mnn (R.- 18 million), noona (R.9 maillion), cjtronella oil (Rs. 4 million) plumbago (Rs.. 6 million), betelnuts (Rs. 1 million), and cardamoms (Rs. 3 Millin). - 20 - Growing More Food 60. Rice. Paddy is grown on approximately 950,000 acres approximately half of the acreage being double-cropped. It is the main peasant crop in the Island, and both acreage and yields have risen substantially in recent years (see paragraph 9). This enabled imports of rice to be kept fairly stable from 1953 to 1955 at around 400,000 tons a year, in spite of the growth in population. Imports increased to 08,000 tons in 1956 and to 515,000 tons in 1957, but this was still below the prewar average of 522,000 tons (Table 6). 61. Of the 30% increase in paddy acreage since 1951, about half has been directly due to the progress of irrigation schemes and half to an expansion of the area under dry farming. The increase in yields is attributable in large part to the greater use of fertilizers and to an improvement in the techniques of the ordinary cultivator. Fertilizers are supplied by the Govern- ment at one-third below cost; improved seeds are distributed by experimental stations run by the Department of Agriculture; cooperative credit institutions are being fostered by the Government; and the agricultural extension service is being strengthened, though the low pay is an obstacle to recruiting. 62. Paddy production is as-isted by a guaranteed price scheme under which the Government buys rice from the farmer at around Rs. 860 per ton, conpared with a landed cost of imported rice of approximately Rs. 495 per ton in 1957. This scheme, which is linked with the scheme for the rationing and subsidiza- tion of rice consumption, involves government expenditures estimated at RS. 135 million in the current fiscal year. 63. The present system of land tenure in Ceylon is a serious obstacle to agricultural efficiency. Roughly one-third of the paddy lands are sharecropped; in most cases owner and cultivator share the crop equally, while any increase in costs has to be borne.by the cultivator alone. Moreover, extreme fragmenta- tion of land still hinders the introduction of improved techniques; in 19511 over 80% of all family holdings were less than 1-1/2 acres. To bring about some irprovement in the situation the present Government introduced, at the end of 1957, a new Paddy Lands Bill, which guarantees the cultivator perpetuity of tenure in return for the payment of a fixed annual rent. The Bill, which originally contained provisions designed to give to agricultural cooperatives special privileges which had no connection with its main objectives, was sub- sequently amended and passed, in spite of strenuous objections by large land- owners. It is reasonable to assume that in the short run, paddy production will not be affected by the law, but in the long run an increase in rice production may result. 64. Land Reclmation. The prospective increase in paddy production will be barely sufficient to keep pace with the growth in population, and more land must be brought under cultivation if rice imports are to be kept down and ulti- mately reduced, and if progress is to be made simultaneously with the develop- ment of new crops such as sugar, tobacco and possibly cotton. Of the 5 million acres in the !et Zone about 3 million are already cultivated, 600,000 are under forest and jungle, and most of the rest are occupied by towns, villages, roads, tanks and so forth. There may still be some scope for clearing the jungle in this part of the Island without causing a deterioration in climPtic con- ditions or erosion of the soil, but the potential reserve of cultivable land - 21 - probably is not more than 150,000 acres. Opening up of the Dry Zone is there- fore essential if production of rice and commercial crops is to be developed fast enough to anhieve a tiqfqt.rv rate of rynwtfh of ntnut nr head. 6q Of thp. 12 million q t-r..- i n thp. nl.v 7.nnp- tnl-r nhni+ 7nr)-nnn nrp. nui- tivated at present, most of the remainder being under jungle. According to the Port to the National Planningoncof the Technical Working Group an Agricultural Development in the Dry Zone, an additional 970,000 acres are con- Bowever, irrigation costs, which so far have averaged Rs. 1,000 per acre, woldrset ~ . a P. 0 00 The- Govrne4 is -;- 4- creasing attention to the possibilities of dry farming. The normal method of system the land is allowed to revert to jungle after two years of cultivation, and iL t retaIns Lut:der jung.le for a1t let:MI ei.ghJt Ars; ' oteY rwI in the cli- atic conditions prevailing over most of the Dry Zone, the soil is rapidly de- pleteU. No surveys have yet ben made of the area suiable for dry iaruang, and there is some uncertainty as to groundwater conditions, although the Tech- nical norking Group concerned wicn The Dry Zone has reported that the water resources would be more than adoquate to permit irrigation of all land suitable for paddy. A figure of 1.3 million acres is frequently mentioned as the area that might be brought under cultivation in the Dry Zone, but it is too early to say whether development on this scale will be reasible. Indust.'.al Development 66. Manufacturing industry in Ceylon is largely centered on the process- ing of agricultural products, particularly tea, rubber and coconuts. Other organized industries of significance are: metal-working and engineering, in- cluding vehicle repairs; printinr.; the manufacture of cigarettes and cigars; spinning, 7-eaving and finishing of textiles; and the manufacture of matches. The largest single industrial establishment in Ceylon is the Government Rail- way workshops south of Colombo, where over 4,000 workers are employed. Pro- duction statistics for some of the leading industries are given in Table 18. Against a gross national output in 1956 of Rs. 5,006 million, the value of manufactured consumer goods produced in Ceylon was only about Rs. 250 million. No estimate is available of the net output of organized industry and mining as a whole, but the above figures show that, apart from the plantation indus- tries, it is rather small. 67. The Government is conscious of the need to offer more attractive tax concessions to new enterprises, and in his 1957 budget speech, the Minister of Finance made specific proposals to extend to companies which are entirely in private ownership certain tax exemptions on new investment now available to enterprises with government participation. The Parliament did not act on the proposal. however. There are now indications that in some instances the Gov- ernment has acquired nominal participation in private enterprises for the pur- Dose of oualifyinp them for tax exemotions. The DevelonmAnt Finance Cornor- tion of Ceylon became increasingly active in 1957. During the year, its in- vestment nortfolin rnn frnm RA- ;i-000 to R!. 6.A milinn - 2-2 - 68. The Government continues its policy of setting up publicly-owned in- austrial enterprises. A cement plant with a capacity or I25,UU tons in Puttalam is ready for execution. The total cost is estimated at Rs. 38 mil- lion. An ilmenite refining plant with a capacity sufficient to process an- nually 100,000 tons of sand from which 60,000 tons of ilmenite, 4,000 tons of rutile (titanium dioxide) and 3,000 tons of zircon are to be recovered is under construction. A sugar factory in Kantalai with a capacity of 20,000 tons is to go into operation in 1959. Estimated costs of the last two olants are Rs. 8 million and Rs. 21 million, respectively. CHAPTER IV - CREDITWORTHINESS o7. %oyon- iivy UjrC1JULnUU ULI Uint exAPoL u Z a UUWUVumIvLu±Om ±1- evitably introduces an element of instability into its economy. There will be goou yeari anu tnere will be bad years. Ine last our yearS, taken as a whole, have been rather good; 1958 promises to be more or less like 1957; but it may be several years before export earnings regain the levels reached in 1954 and 1955. Over a longer period, demand for Ceylon's main export pro- ducts should steadily increase; it should also be possible to achieve modest increases in exports of cocoa and other minor food crops. There are certain other directions in which exports might eventually be developed on a small but rising scale-ilmenite, for instance. Visible exports might be supple- mented by an increase in tourist earnings. In the light of all these con- siderations, an average long-term rate of growth in export earnings of about 2-1/2% a year would seem a reasonable assumption. 70. The real value of exports will, of course, depend on the terms of trade which Ceylon enjoys. So far as one can judge, there is nothing particu- larly abnormal in the present relationship between prices of manufactures and prices of primary products, and one can assume that this relationship will continue without a major change. Over half of Ceylon's imports consist of foodstuffs, raw materials and fuel. Rice, flour, sugar and petroleum are of special importance, and the decline of pric-. of r.ce in the past five yars has been of material assistance %o Ceylon, permitting the consumption of im- ported goods to be maintained while the import bill was substantially re- duced (in 1954 and 1955). According to one estimate, in 1958 Ceylon will require 100,000 to 130,000 tons of rice in addition to "normal" imports of 420,000 tons. Ceylon expects to obtain some rice under the U.S. Surplus Disposal Program (P.L. 480). Including the value of these shipments, rice imports in 1958 may reach Rs. 280 million to Rs. 300 million. Rs. 25 million to Rs. 45 million more than in 1957, in part because prices have gone up by about 10%. However, as mentioned sArlier. rice is at -resent in short suoply in the entire Southeast Asia area and Ceylon may not be able to cover its re- quirements. Therefore, the deficiency may have to be made up through the im- portation of wheat and wheat flour. 71. In the longer run, rice prices may well be somewhat higher than in 1957. when they averAped Rs. Z9 ner ton n.i.f. but thei Are not Ro_ted to reach again the levels which prevailed in earlier years. As to sugar im- norts- nrosnpnts Pre thqt. the uunniminll hi world lrin.-, of siianr whinh nrp- vailed in 1957 will decline to the substantially lower levels of earlier veFrs In thnt PvAnt the ot. of qiiane iTmnAv- mny declinep Prices of petroleum were adjusted upward in 1957, but have since declined. One factor which isq of czIrez sigifianc forthelevl of Cey lo%nee foreignecag penditures is the movement of ocean freight rates, which were abnormally high dur.i ng, the Sz crisi but+ declied after the canal had be en rL0-nd and are expected to remain low, or even decline further in the next few years. The be m or Uoi U tLh s UasV L lUa y o s 11 U Y h . ±1U1JU1 U he Long r un y be more or less the same as last year, or slightly higher. In the long run they mayO. dec.line somewhatic . 72. Any attempt to forecast Ceylon's future balance of payments position must also take account of the likelv payments and receipts for invisibles* remittances and capital transfers. In the last few years, invisibles and re- mittances resulted in net outpavments averaLing around Rs. 200 million. This sum may increase somewhat because of the loss of sterling receipts in con- nection with the transfer of British air and naval bases. On the other hand, the recently imposed controls on the purchase of tea and rubber estate shares by Cevlonese nationnas may redue thp nnt.flow of nrivan nnnita1 Tf the rubber and ten replanting schemes are vigorously pursued and nationalizaticn rumors subside, capital outflown mo bany a n1+nro+1-r* cnmp Py-!+h cni have announced their intention to invest modest sums in the replanting of their ac+atS., Mev+heless, imr4lles, re-i+e and prate c-Jt+l movements are likely to impose a burden on Ceylon's export earnings of the order of Rs. 2)OO M-J 1-1-on to RS. 250 mllion anuly and export earnings will have to exceed import payments by similar amounts to maintain balance of increase at more or less the sane rate as the population or slightly less. uu n epanson of exoorts ucanot v res .eu upon Lu alloru any marg±in Ler a rise in per capita income, and the chances of achieving the latter must in the long run depend upon the development of production in oTner sectors of agriculture and industry. The scope for increasing domestic food production is considerabLe, and the prospects are reasonably good that the value of looa imports can be kept at the present level, s- that additional foreign excharge earnings can be used to pay for imports of fuel, industrial materials and cap- ital equipment. But with strong pressures for rising levels of consumption continuing, it is doubtful whether the growth in real resources will permit the substantial increase in the rate of domestic capital formation which in turn would r%:sult in an acceleration of income growth. 74. In these circumstances, there is justification for Ceylon to seek for- eign capital to finance projects for the development of her economy. The country's public e:ternal indebtedness, including sums accumulated in sinking funds, amouints to the equivalent of $59 million (Tables 22-23). Excluding sinking funds, the figure is $42 million, of which the IBRD loan for the Aberdeen-Laksapana project accounts for $12 million and sterling loans for $23 million. At the end of April, 4% Ceylonese bonds were quoted in London at 74-1/2, to yield 6.56% to maturity. The figures shown in the Statistical Appendix do not include the loan of Rs. 146 million (k30.7 million) granted to the Ceylonese Government by Soviet Russia. Projected debt service on the officially reported debt as of the end of last year (i.e., excluding the loans from communist countries) amounts to the equivalent of $2.1 million in 1958. It rises to a peak of $3.3 million in 1962. If the debt service on the loan from the Soviet Union (for 12 years, interest 2-1/2%) is included, the total debt service increases to $7.1 million, which still is a small amount in relation to the level of foreign exchange receipts on current ac-- count of close to $400 million. Therefore, the proposed loans for Stage IIB of the Aberdeen-Laksapana project are well within the limits of Ceylonts ability to service foreign loans. rable 1. Ceylon's Balance of Payments. 1951-57 (Rs. million) 1951 1952 1913 1954 L 1956 1957 Current Account Exports, f.o.b. 1,843 1,474 1,557 1,794 1,963 1,844 1,739 Imports, mninlv c. .1.1 1-676 1 583 I363 1,ZÄ7 1.5-_ 1,92 Trade balance 39 -202 -2,6 /3 56 /11& Direc+ investment n -4 -1 --es2 -5; 7 -7Q -7Q -?, Private remittances -77 -104 -59 -67 -77 -83 -66 Other invisibes ( -99 -31 - -7 -1.'70l _-10-l7 vurrent ILanc 9 --446r -25/3 323 2 -.19QQ Cap2ital Account Private capital (ouuflow -) -L r2) -3u - 5- Errors and Omisio_ns 49 _-2 2t 4 r _7 Balance of above 711u -3 _ -1LÖ 7228 jo2 65 - 2) net change in capital position of official and banking i:nstitutions, of which: Official loans received(-) - - -5 -9 -9 Government borrowing in United Kingdom (-) - - - -67 - - - Change in foreign assets of Central Bank (increase /) /110 -267 -157 /280 /132 /82 -146 Change in foreign assets of commercial banks (increase /) -27 -90 /10 /23 /88 -57 -49 Other government capital /27 -15 -51 -3 /64 /49 -13 1/ Includes the following amounts of official donations: - - 3 24 17 2 2 Source: Central Bank of Ceylon Table 2. External Assets of Ceylon i~ *" . 1 (a.millon) Changs Government and Contral Commercial between End of period - Government Agencies/ Banik Banks Total] Peris 1951 367 671 147 1,185 - 1952 376 403 57 837 -348 1953 294 247 67 607 -230 1954 278 527 90 895 /288 1955 318 659 178 1,155 /260 1st Qtr. 1956 341 679 157 1,177 /22 2nd " 327 737 121 1,185 /8 3rd " 323 735 136 1,194 /9 4th " 314 745 121 1,179 -15 1st " 1957 299 711 116 1,127 -52 2nd " 298 590 89 978 -118,9 3rd " 300 625 79 1,005 127 lith " 281 590 72 943 -62 Jan. 1958 281 591 68 939 -4 Feb. 285 592 79 956 416 March 3/ "21 596 66 0 -1 1 Includes sinking funds accumulitdin respect of sterling loans amounzing to Rs. 77 million in March 1958. 2/ Excludes sums due to Ceylon under the China Agreement. 3/ Provisional. Source: Central Bank of Ceylon Table 3. Composition of Exports Value in Rs. million Percentage of Total Exports Te 1 111 1 -1~ - rI . .' ^1. 1. " e-vil r',% ~ , Ln 0 Z- Z^ n Z^ O J. 0 _JL2 C.,? J- L7 4 .L 44 _L ' vc. _L _? U v . U U-L.U OU.4 L'U.U Rubber 3:38 285 350 293 300 21.5 15.8 18.0 16.9 27.9 products 21h 212 225 213 156 15.6 11.7 11.6 12.3 9.3 exports 83 99 103 102 111 5.3 5.5 5.3 5.9 6.5 Domestic exports ,9 0 1,719 1,872 1,652 1,>o 8 U y )9.U 96.5 5.3 Y.5 Re-exports 78 90 68 82 93 5.0 5.0 3.5 4.7 5.5 Totals 1,568 1,809 1,940 1, !16 100.0 100.0 100.0 100.0 100.0 Source: Ceylon Customs Returns Table 4. Expor)t Quantities and Prices Tea Rubber Grantity F.o.b. Price Quantity F,o.b. Price (malbs.) per lb. (mn.lbs.) per lb. Es. cts. Rs. cts. 1953 336 2.46 213 1.54 1954 361 3.11 203 1.36 1955 362 3.30 216 1.56 1956 348 3.00 188 1.50 1957 368 2-78 207 1.43 Copra %jocoru VL Uesccatu Couonut Quantity F.o.b. Price Quantity F.o.b. Price Quantity F.o.b. kLXn*UWUUJ per owft LLu.Cwu; per owt* Lin.cw-0s; ric Rs. cts. Rs. cts per cwt. Rs. cts. 1954 921 49.37 1,378 72.69 1,104 60.C 1955L. 136 Oz-f4.90 1, 945 5.6115 73 1956 1,155 42.43 1,698 58.42 1,275 50.86 1957 695 47.95 1,081 62.80 978 56.o8 Source: Ceylon Customs Returns Table 5. Composition of Imports Value in Rs. million Percentage of Total Imports f953 1954 1955 --1956- 1957 1953 -19 54 -1955 1956 1957 Food, Drink and Tobacco, 794 664 625 703 736 49.5 47.5 42.8 43.2 40.8 of which: Rice 324 273 222 264 255 20.1 19.5 15.2 16.2 14.1 Flour 164 91 86 71 86 10.2 6.5 5.9 4.4 4.8 Sugar 71 63 63 96 82 4.4 4.5 4.3 5.9 4.5 Fish pro- ducts 58 57 68 78 80 3.6 .1 .6 4.8 4.4 Curry stuffs 29 43 37 36 41 1.8 3.1 2.6 2.2 2.3 Raw Materials and Manufac- tures, 1n 732 83 926 1,068 50.h 52.h 97.2 56.8 59.2 of which: Petroleum products 120 103 127 111 202 7.5 7.4 8.7 6.8 11.2 Fertilizers 38 __ 49 5I) 70 2.L 2.9 3.3 3.3 3.9 Cement 16 13 13 17 28 1.0 0.9 0.9 1.0 1.6 iro-n nd steel 55 46 64 86 70 3.4 3.3 4.4 5.3 3.9 Macbinery 68 46 59 65 81 4.3 3.3 4.0 4.0 4.5 Textiles 137 124 130 156 147 8.5 8.9 8.9 9.6 8.1 drugs, dyes 32 37 35 37 42 2.0 2.6 2.4 2.3 2.3 Paper and cardboard 26 28 28 30 34 1.6 2. 1.9 1.8 1.9 Motor vehi- cles 27 35 53 54 2.7 1.9 2.4 3.3 _3 Total gi00_ 1,3 9 1,Å60 Rn,6 imn.n in..n 100.0 10.0 in0 in.0 S.>ource: 'ey lon Cust Rie Urn.s± Table 6. Rice Imports ('000 long tons) Average 19:34-38 1953 1954 1995 1956 1957 Total, 522 104 396 379 484 515 of which from: Burma 342 141 189 186 241 30 -fainland China - 261 193 120 247 159 Thailand 88 - - 12 - 49 India/Pakistan 81 - - 61 neg. 1 Other countries 4 2 15 - neg. neg. Nef. = nerligible Source: Central Bank of Ceylon Table 7. Trade by Monetary Areas 1954 1955 196 1957* ExPorts Imports Exports Imprts Exports Im ts Exports Imports Monetary Areas Sterling area 57.0 58.2 54.3 59.3 53.0 Sh.7 51.5 54.5 Dollqr q 11 0 L.7 ])hI 6.9 1h1 L9 LL.2 5.8 Non-Sterling FP-TT area 8A 119 11 I 12 10.9 I'A. 8-0 11.9 Others 23.5 25.3 19.9 20.9 22.3 27.1 26.3 27.5 Total 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 0oree. eintal DaU1CO(eyLn'ju-viI Table 8. Trade with the Dollar Area (Rs. millon) 1953 1954 1955 1956 1957 Exports 209 199 280 245 238 TOtal, of which: Tea 131 147 170 169 158 Rubber 29 18 62 28 36 Coconut products 28 13 24 22 18 imports 69 67 101 80 104 Total, of which: Machinery 12 8 17 10 1 Vehicles 8 5 6 9 9 Rice, flour, sugar and tobacco 18 24 47 33 40 Textiles 2 2 2 2 3 Petroleom products 5 4 4 4 3 Paper and cardboard 3 -4 3 3 4 Trade Balance +140 +132 +179 +165 +134 Source: Central Bank of Ceylon Bulletin Table 9. Ceylon's Trade with Mainland China Exports Imports Trade Value Percentage Value Percentage Balance Year (Rs.mn.) of total (Rs.mn.) of total (Rs. mn.) exports imports 1953 242 15.4 209 13.0 + 33 1954 222 12.2 158 11.3 + 64 1955 121 6.5 80 5.5 + h1 1956 182 11.0 134 8.2 + 48 1957 167 10.5 84 4.6 + 83 Source: Ceylon Customs Returns Table 10. Export and Import Prices (In e nos. 'I9l-I = -100)N k.MIUCX2~ XLUb., -L7i4u - LUV) Export prices 173 133 136 151 158 148 L42 13h Import prices 119 128 118 108 102 106 112 101! Terms of trade 145 104 115 140 154 140 127 129 Source: Central Bank of Ceylon Table 11. Export and Import Volumes (Index nios., 1948 = 100) 1951 1952 1953 1954 1955 1956 1957 1938 (Feb.). Exports - tea 103 106 113 122 122 118 124 113 rubber 111 102 105 102 108 94 101 11i coconuts 135 157 138 129 165 155 105 96 All exports 111 113 116 119 126 118 116 1L7 Imports - consuner goods 127 131 133 119 126 141 142 168 capital goods 154 146 141 145 146 144 176 156 All imports 133 134 135 125 130 142 150 165 Source: Central Bank of Ceylon Table 12. GoverrLnent Revenue and Expenditure Actuals Actuals Estimate Revenue £27'U.L-t UULL±t-- i;. C±7) )( 2'L _-2a;-4 ') C_ Import duties 251 244 258 286 304 302 Taxes on income and profits 232 218 20 UU 2e U Other taxes 37 41 45 49 54 71 Receipts from govern- ment enterprises 1/ 127 136 145 155 164 165 Other revenue 51 77 75o 2 o1 Total 932 Y0 1,19 12761 1,30 Expenditure Chargeable to revenue: Defense and external affairs 42 45 51 65 71 84 Justice and home affairs h6 45 49 61 58 64 Local gov't labor, housing 57 53 56 69 82 66 Health 89 92 92 102 114 114 Education 143 138 144 159 152 187 Lands and land development 48 39 42 48 46 42 Food subsidies 127 12 - 80 106 135 Pensions 39 43 46 48 n.a. 60 Expenditure of gov't enterprises 1/ 154 151 161 171 n.a. 192 Other 2/ 159 154 188 211l n.a. 219 Total chargeable to revenue 4/ 904 772 829 1,014Y 1,136 1,163 Loan fund expenditure 221 162 215 211 212 304 Miscellaneous advances, etc. 59 58 -13 33 109 - Total I. BE 992 1.031 1.27 _TT77 1,467 Net surplus or deficit -232 +34 +128 -1 -196 -159 I / D--4- APPI -4+ sra-1I r lP-o+w-^nI TTA+rv nec Tar+ .nd 3rra rrnd in. nym+ 2/ Public works, industry, trade, debt service and miscellaneous expenditure. T/ V-luin a. boo dei of -*L.-_ . -644 D IfA lion 1 of trdn lossesp - .. incurred in previous years. p r e&eCuLUUng contrIlbutbions Uou Sil-u -MAuu A-4 -- --4- --P -1o - 4-1mo,+ tpuae o 14 £ALLU±L~ UIUL OL ±UI~IA 4. In.4% .LU11UM , Lla.1 U U A . CL 111UL1 UO WAL VUULL.Lk from revenue, and IBRD-financed expenditures on the Aberdeen-Laksapana hyuro-elecuric~ project, except for ±7,0/f( anu 1/au one U1g1m s which years are accordingly not strictly comparable with those for earlier years. n.a. = not available Source: Ceylon Government Treasury. Table 13. Domestic Public Debt Rupee Loans Held by 2/ Central Commercial iela : September 30 Total Outstanding I Bank Banks (% p.a.) 1953 613 16 231 3.97 19524 655 19 2124 3.59 1955 693 19 251 3.06 1956 731 14 287 3.03 1957 794 L9 305 3.00 1958 (Jan.) 81- 6o 303 2.97 " (Feb.) 807 78 297 2.95 (Mar.) 823 76 303 2.97 Treasury Bills and Central Bank Advances Held by Yield Septmber 30 Total Datstanding Central Commercial N p.a.) Bank Banks 1953 313 4/ 71 50 2.48 1954 171 66 77 0.79 1955 60 -- 34 0.82 1956 68 -- 40 0.87 1957 170 96 20 1.08 1958 (Jan.) 117 13 34 1.35 (Feb.). 113 -- 27 1.44 (Mar.) 113 -- 31 1.48 1/ Net of holdings of sinking funds and supplementary sinking funds, amounting to Rs. 180 million on Feb. 28, 1958. 2/ Including holdings of government-guaranteed issues of public entities. These holdings are believed to be small. ?/ 3% National Develooment Loan 1965-70. Yield to earliest redemption date. / Including Rs. 59 million borrowed from supnlementary sinking funds. Source: Central Bank of Ceylon Bulletin lau&v~ 1L4. ACQUI~LVIvy~e~ of umnerical WnKs. Avow-IM~~ Assets (Rs. million) Loans & Government Treasury Foreign Liquid End of rerod Advances Securities.' mills Excnange' Heserves i' 1953 253 230 53 51 108 1951 327 222 88 73 1L6 1955 324 249 35 156 201 1956 07 294 53 98 224 1957 453 299 39 56 164 Mar. 1958 462 303 31 48 160 Liabilities Ratios (Rs. million) Liquid Assets ./ Loans & Advances Time & Savings to Demand to Total Demand Deposits Deposits Deposits Denosits Private Gov't Private Govft (%J -) (%-_ _ 1953 491 43 100 3 47 39 1954 601 42 136 11 58 39 1955 675 60 152 13 61 36 1956 718 68 187 1 55 10 1957 601 85 216 31 45 48 Mar. 1958 582 90 216 30 4L 50 1/ Including government-guaranteed securities and Central Bank issues. 2/ Foreign currency holdings and balances due from banks abroad. 3/ Cash on hand and balances due from Central Bank and other domestic banks, and items in process of collection. h/ Consist of: cash on hand, balances due from Central Bank, foreign currency on hand, balances due from banks abroad and Government Treasury bills and bills discounted; balances due from domestic banks and items in process of collection are excluded. Source: Central Bank of Ceylon Table 15. Changes in Money Supply Ts. million - end of periou 1953 1954 1955 1956 1957 1958 (,ar.) Currency with the public 335 342 385 401 435 466 Demand deposits held by public 92 oL 0o (LO 68 o oo Money supply with public 027 957 1 U 1 12 ( lUU 1,0 1 Change during period, -69 +130 +116 +54 -67 -19 of which attributable to - External transactions -133 +341 +219 +21 -209 + 9 Extension of bank credit to Government +40 -195 -50 +33 +57 - 4 Changes in government cash balances (increase -) +7 -17 -47 -61 +49 -18 Extension 3f bank credit to private seactor +18 +38 +15 +92 +55 - 5 Shift from demand to time deposits - 5 -36 -16 -31 -38 - 9 Other causes + 4 -1 -1 --- - + 9 Source: Central Bank of Ceylon Table 16. Cost of Living and Wages TIndex nos. 1952 = 100) 1952 1953 1954 1955 1956 1957 1958 Cost of living, Colombo 100 102 101 100 100 103 101D Minimum wage rates for estate workers 100 102 lo 107 108 109 112 Source: Central Bank of Ceylon Table 17. Agricultural Production and Production of Princnina Crrnns- All crops (1934-38 =100) 136.4 139.2 139 .4 148.5 15836 OEM21 n.a. Rubber (thousands tons) 105 96 99 94 9 9 98 Ioon)miaon nuTs/=/ 2,161 2,376 2,264 2,203 2,420 2,520 2,090 Paddy (million bushel01a 22.0 28.9 21.9 31.1 35.5 269 3.6 / rovisional / Estimate. These estimates are unreliable, particularly for rice, where the year-to-year variations appear to be much larger than can be accounted for by objective factors. n.a. = not available Source: Department of Census and Statistics, Ceylon; Statistical Abstract of Ceylon. Table 1. Output of Selected Industrial Products 1952 1953 1954 1955 1956 1957 (Jan.-June) Shoes ('000 pairs) 498 595 462 473 769 386/ Matches ('000 gross) 1,221 1,151 1,123 961 733 606/ Cotton yarn ('000 lbs.) 2,403 2,332 1,373 1,750 1642 9891. Cotton fabrics ('000 sq. yds.) 9,492 8,887 5,388 6,169 7,894 3,2431/ Plywood ('000 sq. ft.) 3,587 3,644 6,739 6,507 7,168 5,0012/ Mineral water (million bottles) 46.o 45.6 42.1 41.0 38.9 19.9 Soap (million lbs.) 23.8 24.6 25.4 26.9 28.9 8.31/3/ Cigarettes (millions) 1,668 1,647 1,447 1,380 1,69 802 Tile(7 0Cob 7 7 A M17 I , OnU Cement ('000 tons) 60.2 64.9 82.3 4 83.4 28.5 4/ Tea chests (000) 280 270 252 178 130 101 / n.a.- not availaue. 1/ Provisional 2/Jan.-Sept. Jan.-April 4/ Jan.-July Source: Department of Census and Statistics, Ceylon Table 19. Gross National Product (Rs. million) 1952 1953 1954 1955 1956 Domestic exports (f.o.b.) 1,381 1,457 1,676 1,836 1,613 Tea 723 825 1,123 1,194 1,044 Rubber 373 338 285 347 293 Coconut 259 274 243 259 237 Other 53 49 63 72 78 less Imported mater- ials used -27 -29 -38 -36 -39 Locally produced art- icles consumed in Ceylon 1,271 1,260 1,299 1,476 1,250 Rice 344 291 330 391 276 Coconut and coco- nut oil 131 157 157 126 139 Tea 32 36 42 40 44 Other food crope 317 316 292 333 296 Tobacco ? 9 7 9 9 Livestock products 136 11 153 174 1LO Fish 33 29 30 41 46 Industrial products 178 192 196 264 203 Betel and arecanuts 45 41 42 43 49 Firewood. 11 11 12 12 12 Other 37 37 38 43 36 Trqrip nthi-r thinn trplo in export products 407 332 287 310 327 Trannort other than transport of export nnnf 0 10alla 107 oia 011/ Professions 57 57 64 67 68 Pe,-ronal and d--s-; services 279 288 300 312 324 Rnt 7A 2 A4 97 108 Capital development +0 / ~ - ,,6 +. Government 394 411 451 496 566 UJ~~AJ~4A_ JJ Ji~ jIUU _j~J 4U _)L f .U~ l/ Estimate(. domestic output of construction, building materials and machinery, including building repairs and expenditure on installation of machinery; includes also expenditure on opening up new lands. Source: Department of ensus and Statistics Table 20. Allocation of Gross National Product I Ira 12 1042 1O'7 7 Government current expenditure 535 540 564 685 Gross domestic capital formation - UuverUmeut )14 470 Private 245 202 271 265 Source; Department of Census and Statistics Table 21. Trtal Capital Budget of Government (Rs. million) Actuals Budget Es'Fim*te Capital outlays in revenue budget-' 88.8 119.2 127.9 88.6 Loan fund and loan scheme expenditures 203.0 179.9 264.6 300.9 Hydro-electric Scheme (foreign costs- IBRD) 12.0 32.0 27.9 16.0 National Develooment Reserve 2.0 8.0 5.0 6.0 Reserve, Extensions & Renewals FunCs 3.0 3.5 13.6 4.3 Rubber Rehabilitation Scheme 10.0 15.0 24.5 18.0 Colombo Plan aid projects 26.0 23.2 12.2 11.7 American aid projects - - 23 10.6 Total 344A 380.8 4993 456. 1/ Including maintenance expenditures (1954/55 - Rs. 40.8 million; 1955/56 - Rs. 48.9 million; 1956/57 - Rs. 54.0 million; 1957/58 - Rs. 48.8 million) and (small) exrenditures on consumer durables. / Allocation among sources partly estimated. Sourna. CAntral Bnnk nf CAvlon Table 22. Ceylon's External Public Debt Total External Public Debt Li.603 Disbursed and still outstanding 31,379 Undisbursed U,24 U.S. Dollars (IBRD Loan) 9.065 Disbursed and still outstanding 1,340 Undisbursed 7,725 Pounds Sterling 22.98 Publicly-issued bonds 21,7312/ IBRD loan 1,249 Other Forein Currencies (IBRD Loan) _L0 ' Ceylonese Rupee (U.S. Government Loan) 2 Disburse. and still outstanding 1 Undisbursed 2,499 1/ As of December 31, 1957. Not included are: (a) a loan from the Soviet Union of Rs. 146 million (30.7 million equivalent). The loan is repayable in rupees,which can be used for the purchase of exports. over 12 years and carries a rate of interest of 2-1/2%; (h lans under P.L. Z80 and from the Development Loan Fund to be announced in July. The loans are repayable in rupees. 2/ Excludes accumulated sinking funds of 1 6,646,959 ($18,611,485). 3/ Consists mainly of (in thousands of U.S. dollar equivalent): ' AA in P-a n r-hn fyan'a 2a 3n in Itlian lire and 1.125 in Deutsche marks. Source: IBfID Economic Staff. Table 23: Ceylon's External Debt Service 1/ nf tiæusands of U.S. dollar equivalents) Service due in Total OtLer All Year outstandin: U.S. Poinds foreiin foreign Cevlon Total Januar- 1 dollars sterlin currercies curr,ncies rupees service 19541» 13,068 - 1,671 - 1,671 - 1,671 1955 k3,.95 2/ - 2,25 - 2,25 - 2,25, 1956 1!2.138 2 - 2.265 - 2,265 - 2,265 1957 !0',671 3/ - 2,1919 - 2,1>9 1958 1,603 - 2,149 - 2,1h9 - 2.,1k9 199 10.658 292 2.328 77k 3.39h - 3,39k 1960 40,027 292 2, 20 7?1: 3,271 90 3,321 1961 38,372 292 2,20 77 3,271 101 3,372 1962 36,589 292 2,205 ?7 3.271 103 3.371 1963 31,?32 292 1,907 77), 2,973 106 3,079 196_ 32860 292 1,907 7? 2,973 108 3,081 1965 31,523 292 2,721 77k 3,737 110 3,897 1970 23,669 292 1,85 77k 2,551 121 2,.672 1/ Excludes serrice on loans from the Soviet Union and the United States referred to i' Nu ±ote- ,Table 221. 2/ Excludes $1,7.38,00 of the IBRD loan cnceled in 1957. Source: IBRD Economic Staff I- +.w Pn,nt Pedr-o- CEYLON fcft C MAIN ROoS RIVERS MAIN TOWNS 0 L0C4TION OF PROJWTS ALTITUDE iN FEET 3000 & OBOVE 1000-000 0<000 Pu/moddai (Jimenite Deposits) --,,,ývvunya Anu k.Volaichchenai Chlw Ku uf~ ~I F, In7 J; E lIG Moratuwp *,, Ponadir Ran Hmbantota Gaalle JULY 1957 lR-6