Ceylon - Current economic situation and prospects of Ceylon

R E S T R I C T E D ReportN o. FE-10a LM sr Iv Afts dok 4e- m m This report was prepared for use within the Bank. In making it available to others, the BanK assumes no responsibility to them for the accuracy or completeness of the information contained herein. INTERNATTONAT. RANK FOr RPCOn rTTT(rTON AN nEVT nou3 Tr CURRENT ECONOMIC SITUATION AND PROSPECTS OF CEYLON April 10, 1959 Department of Operations - Far East CURRENCY EQUIVALENT 1 Ceylon rupee = U.S. $0.21 1 U.S. $ - 4.76 rupees 1 million runee w U-S. _ 210.000 S UMMAY AND UUNULUSIONS 11 CHAPTER i RECENT TRENDS ANDM DIFUFGUUTiES 1 Introduction ....1 Output and incomes .................. 1 Use of Resources ...................... 3 Employment and Labor Problems ........ 3 The Fiscal Situation ....... 4 Internal Monetary Situation ... 6 The Balance of Payments .. ..... 8 CHAPTER II THE DEVELOPMENT POTENTIAL . 10 CHAPTER III DEVELOPMENT UNCERTAINTIES . 13 The Communal Problem ................. 13 The Labor Problem . 0-0 . ...... 1 Development and Fiscal Problems ...... 14 Uncertainties in the Private Sector .. 16 CHAPTER IV CREDITWORTHINESS .................. 17 STATISTICAL APPENDIX TARTRA T - YVTTT - -i - T AQTIO T,otT~A '0- - l -4. n -. 1- IL UPU-Lct .,UI1 U07 11LL.L.L-LJU (1956 estimate) Population Growth 2.7% Lannual ave. lyp1-Vj Gross National Product (1957, Rs. millions) :Rs.5,610 Annual Rate of Growth Since 1950-52 3% Gross Fixed Capital Formation (7 of 1957 GNP) 1C Per Capita Income $125 Government Budget (Rs. million) IY-o?1 1 /o Total Revenue 12001 12o Total Expenditure 1439 1580 Deficit 178 300 Balance of Payments (Rs. million) 1956 1957 Exports 1772 1669 Imports 1576 1799 Current Account Balance + 82 -195 1956 1957 1958 Foreign Exchange Assets (Rs. million) 1179 943 883 1958 Money Supply (1952 - 100) 121 Cost of Living (1952 - 100) 105 Minimum Wage Index (1952 - 100) 1l - ii - CURRENT ECONOMIC SITUATION AND PROSPECTS OF CEYLON Summary and Conclusions 1. Ceylon has made fairly satisfactory gains in national output over the last decade. Year to year income has varied widely with variations in the terms of trade and in agricultural production. On balance, however, there has been some advance in real per capita income despite the high rate of population growth. 2. Nevertheless, since the end of 1956, the total expenditure of the economy has grown faster than real income. with consequent large losses of foreign exchange reserves. The source of this instability is in the gov- ernment sector where sharnlv increased xnen]it.nrP.q are outrunning revenues. leaving growing deficits to be financed by bank credit or direct use of f orpi gn asseqt.. 3zTisiu+Atin ca-not+ ry-iniiii much l ngr" it+hout reduciingy Cr.=-1rA foreign reserves to unsatisfactory levels. Financial stability could, of 'h1o "aQ+n+ nA lnoo+ -- lr + ri-4 - 4+..,# nA ,,re+ policies. But unless it is accompanied by satisfactory rates of economic growth, fiacl b-lanc may be difc - _ .j -~ o the population is growing at almost 3% a year, and expectations of better Ihe pru~ ~lUJ Ui -LI V. ~I 1L ±VLI U~V1Jt a u ~L U Ud t.. . ., LU± Ut~±L in real per capita incomes appears to be manageable, although by no means easy - especially in the aujunce uV an lleciuve program o reduce te rate of population increase. In its fiscal aspects, the problem is one of a rela- tively rigid revenue structure which wilL undouoteuly require curtallea growth of non-productive government expenditure if recent rates of private and public investment are to be maintained or increased. In its balance of payments as- pects, the problem is one of coping with a rather inflexible pattern of import requirements and with prospective growth in export earnings at a rate whicn may be less than the growth in population. 5. The basic need, therefore, is an increase in output for domestic requirements at a rate faster than foreseen for the export sector and one which will gradually reduce the large share of Ceylon's national income (35%) spent on imports. The potential of the economy is undoubtedly sufficient to meet this need. And substantial contributions to Ceylon's development have been and are being made by the Government through measures to increase agri- cultural production for exports and domestic consumption, to expand power and transport capacities, to improve health and education facilities and to strengthen the economy in other respects. 6. An even more effective public role appears necessary, however, if Ceylon's potentialities for public and private development are to be realized to the extent necessary for further significant improvement in per capita in- come. And the possibilities for this are at present uncertain because of unsettled social and political circumstances which adversely affect develop- ment in both the private and public sector. - iii - 7. Communal tension, poor morale and indiscipline among the labcr force, uncertainty in the private sector, and heavy non-productive demands on the budget all interfere with the effectiveness and unity of the develop- ment effort. And drift in fiscal policy may, if continued, necessitate a cutback in the level of public development expenditure. 8. The fiscal problem is not one of imminent financial crisis. Foreian re.ervp at the end of 194R wrp Pmanl to qix months' imnorts. Pros- pective losses of exchange in 1959 will probably still leave reserves some- where near thp fivP month lAvi1 - Bir rnntinmip 1nq.qpq it. thi.q rnt wonld h of serious concern in view of the fluctuation characteristic of Ceylon's P.nort. inncom nni t.hp I+.vz inflvihilit. of i;z imno-t. -r#ivrmPnt+.q_ Concern would be less if there were more effective action to deal with key ficnal and lahor iscus and + nrnmote grotr and more effotive develonment. effort in both the public and private sectors. Without such action, the nr-nhlom of vnnnnnlinrv f4nn-n.Al nn+qAbl-+ nniinl a+nhili+.,ir may become an increasingly difficult one. 9. Ceylon's external debt is small and the outlook for maintaining ~ ''J '~~,1 A..JO4~~ dJ LSL4r C6V 0. IL-L6,1 .4..UVU-.L _LO r'd%AL. -'VOII CLDOU"irLL , Ui= "Q of the major part of the recently-established credit lines from the U.S.S.R. 'Liu ma-LuIau tuxua , srvic ULI 1dua, uav wuiuts peak, not exaceed 2.5% of 1957 foreign exchange earnings. The present uncertainties in the econumic and political outlook imRit tne extent oI external deUb wIch Cey1on can safely incur. However, in view of the present low level of debt relative to export earnings, some margin for further borrowing sTill exists even with these uncertainties. - 1 - CHAPTER I RECENT TRENDS AND DIFFICULTIES Tntrobintci n Tin 1 an n w o I-o higher than in the 1948-50 period, representing an average per capita growth of around 1% nnnii-nlly- The, i=vA f=nA in ron Ininuf hnt avto"n ,A 11r" +.h= no-riM and there are no indications that this rate has fallen in the past few years. The teorms of taehaveo f1iuctuatfed widely,r causlineg In?. ar"oon in t.ho real income of the economy from year-to-year. At present, they are better than i R.. Wnd but~ coie-l I-.~1, +)In Anl -10 1O-1..C' or 1954-55. 2. The deterioration in the terms of trade since 1955 has created diffi- culi%s in te balance of payments, anU ntese have vUI aggravateu paricuaryr in the past two years by growing inflationary pressure arising from a mounting budgetary eliclt. Irne aeliclu, in turn, hns Ueen al Meas partly associaLeu with growing social and political difficulties. Output and Incomes 3. Recent trends in the major crops have reflected the influence of various factors, some of temporary significance, others of a longer-term nature. After the drop in 1956, tea production has regained and surpassed the 1955 level, rising in 1958 to a new record. This represents a continu- ation of the steady increase in yields (averaging about 3% annually) in the past seven or eight years achieved mainly through improvements in cultivation techniques. The moderate drop in rubber production in the past several years has been due mainly to the extensive replacement of low yielding trees by higher yielding varieties which have not yet come into production. In the case of coconuts, drought conditions in 1957--58 caused a 20% drop in total out- put, which in turn led to a 40% drop in export volume. However, indications are that output has recovered considerably in recent months. 4. Among crops for damestic use, trends have been generally upward since the poor harvest of 1956. Fran the 1956 level of 27 million bushels,, rice output rose in 1957 to 32 million bushels and in 1958 to about 36 million, or just over the previous record crop of 1955. The average level of rice production in recent years has been substantially above that of the 1948-52 period, indicating a growth rate under average weather conditions of about 4% annually. The main contributing factors to this secular rise have been an increase in area of 10 or 15% since 1952, expanded irrigation (about 70,000 acres in the five-year period) and more extensive use of fertilizers. 5. Trends in other sectors have been mixed during the past few years. From incomplete data it seems likely that manufacturing output (which comprises - 2 - only SW of GNP) was about the same or only moderately above the 1955 level in 1958. Electricity production was some 30% higher than 1955. which in turn was 50% above 1952. Construction activity has increased with the recent growth in investment, while transportation services and wholesale trade have been up as the result of increased levels of foreign trade -- particularly imports. Finally. there has been a significant increase in government services in the past several years. 6. The combined result was a rise of about 10% in total output between 1955 and 1958. This renrpsents a continuation of thp 14 avPrqgP qnnnal growth rate experienced between the 1950-52 period and 1955. Within this average. there havp- of noursp_ hn rp.ther wide vtar-tn-vPar fintnations. resulting mainly from variations in weather conditions. Such fluctuations do not. howpvr_ Pwppri the rane annrnl1iv rvnPriP.ne-.e1 in nthir Sou1th-F.t Asian countries which are also heavily dependent on agricultural production, and may h les becnua of +.he imnortann and relative stabili y +oca on- duction. 7. On the other hand, variations in the terms of trade do have a special importance fo' Ceylon. bece such a lan r,a,+ (rro,-ne, +<wA nP + +01 output goes to exports, with a similar proportion of total requirements being to the economy is illustrated by the variations in real national income which UlLeiy have4 prJR-Acel-Ulk over thei pas s-L-A Ytc. U-VWt-RZLL I.7)C O.kLVU L7-)-, CLRIL export prices rose by 18% while import prices declined by 20%; The combined impact o1 theU04e fctorU--s a.Lone -was a L )/ IseO in1 tota%l rl-CL income: in1 the; Ithree year period. Between 1955 and 1957, this pattern was reversed. Export prices fell by 10o U ipur pic uUe uy nearly ane Impmrt plmoun. u more than cancelled the growth in physical output, so that real national in- come in 1957 was probably somewhaT below the 19L5 level and consderably less on a per capita basis. In 1958, there was a moderate improvement of the terms of trade as well as a continued growth in output. Hence real income rose si.nificantly above the 1957 level. Compared to the relatively normal period prevailing just prior to the Korean boom, per capita real income in 1958 was probably up by about 10%, reflecting an average growth of about 1% annually. 3. These wide fluctuations in Tne terms of trade nave not produced corresponding variations in the well-being of the great part of the population. On the export side, their main immediate effect has been in changes in proCits, reserves and dividends in the foreign trade sector. However, the smallholders who account for a substantial part of copra and rubber production do feel the impact fairly directly. In the case of imports, deliberate government stab- ilization policies have been followed, and variations in import prices have been at least partly absorbed by variations in subsidy payments and govern- ment profits on some of the chief food imports. In 1953, however, the gov- ernment eliminated subsidies on rice, and raised the retail price by 100% for a two-year period; in 1955 subsidies were introduced again, bringing the price down by 35%. Guaranteed government prices to domestic producers fo:- rice and a number of other crops have been held virtually constant for the past five years, but prices of goods not subject to these controls have moved upward during that period, reflecting both higher import costs, as well as domestic inflationary pressures. Use of Resources 9. Over the past six or seven years, an increasing share of total re- sources has been directed to government consumption and to fixed capital in- vestment while the percentage going to personal consumption has fallen. As a result, per capita personal consumption apparently declined slightly in real terms during this period. However, the welfare of the great part of the em- ployed population has probably improved rather than declined, partly because of shifts in income distribution, but also because of the benefits provided by the growth of government services, particularly in health and education. Total government current outlays on goods and services, in real terms, have gone up by over 50% since the 1950-52 period. Defense expenditures have re- nained quite unimportant -- accounting for only 4% of the budget and less than 1% of GNP. Thus, virtually the entire rise has been in the civilian sector, and within this component, the increases in social services and generdl admin- istration have been the most important. 10. Fixed investment, in real terms, has grown by around 25%-30% over the past five years. As a percentage of total available resources, the share of gross fixed investment has increased from about 10% to 12% in this period. Private and public investment have contributed equally to this growth. Resi- dential and commercial building orobably account for an important part of the increase in private investment, but there are indications that private invest- ments in manufacturing have also grown considerably. particularly in the past two or three years. The most important of these have been in textiles and clothing. tile manufacturing. household utensils. bicves. furniturp and pharmaceutical products.- Part of the capacity installed is not yet in oper of Colombo. The main increases in public investment have been on land devel- opment anu irrigatiUn, power LInlanceU laUrgeJy uy tUe IDnU, UranspUr equip- ment for the nationalized 'bus service and the railways, and on schools and Employment and La or Problems 11. There has apparently been a growing problem of unemployment or under- employment in the post-war period. As indicated earlier, a good part of the increase in agricultural output has been the result of higher yielas, and.Ex- cept in the case of tea, increasing yields do not generally involve a corres- 1/ The institutional facilities for the promotion of development, particularly in the private sector, have been stUrengtueueu in recenu years through the creation of the Ceylon Institute of Scientific and Industrial Research and the Development Finance Corporation of Ceylon. ie former, wnich was started in 1955, has established an impressive record of technical service to private firms, financial and research institutions, and various govern- mental agencies. The latter,. on the basis of privately owned equity and goverment loans, has invested almost Rs. 10 million in carefully screenca private industrial ventures since the beginning of operations in 1956. ponding increase in employment opportunities. Even on the tea estates, the resident labor force (comprised mainly of Tamil Indians) has grown faster than the jobs. The labor force on the estates and elsewhere has probably been increasing at a somewhat faster rate than the 3% growth in total popula- tion. Additional manufacturing jobs have been too few to absorb more than a minor nortion of the excess labor force. The problem in the urban areas is reflected in rising registrations for employment which have doubled since 1954i (from 61.000 in 194L to nhout 117.000 in 1958). 12.L Tar unions nre reativelv more imoortant in Cevlon than in many other Asian countries. Though the greater part of the labor force remains unorganized) it. also eniOv to some degree the gains by organized labor. Strikes have been frequent in the post-war period, both on plantations and in other key sectors of the oannomy, such as the CAlovhe nort. Vhi t.rannort. the clerical trades, etc. In 1957, man-dayslost by strikes reached 800,000, a post-war peak and in the fir half of 19O, the rate was almost as high. The resulting losses in output have been a dampening factor on production growth. 13. The labo r Situati on at the- Port o W-lib has been-- eseial dif- cult in the past two or three years. There have been recurrent labor diffi.- very poor working conditions, but complicated by competition among rival trade un,a L-- 4 uu.11 r Vll_ W.-V CLUIZ 0i"J_L16 CL,111V VVL1WJ a.U4L1L, S4----A 1~ ,1 d,~ part of the port's business until 1957. In an effort to meet these problems, ~ ~4'-'V~.j.IU ~ i 1 I± V L"iL J..LL.1U LU11C t.LV 11CJ i %AkU._1t I JT51CLLI-L U~J.Ji U11t P UU in 1958. Just prior to that time, however, a wave of strikes coincided with an ecXeptinal cocnrto of ship ari vals so thcat a -long waiting~ perio was quickly created for ships entering the port. Since the Government take- over, there ha5 ueen a substantial improvemenU in oasic wage rates anu wurkng conditions, but not, as yet, in the efficiency of port operations. Monthly output at its peak in 1958 was only about half of what it should have been for the labor force employed. Some of the difficulties after the take-over were traceable to the complications arising from the changeover in the port's management. But the management's task in dealing with the low morale and lack of discipline among the labor force is greatly aggravated by continuing rivalry among the unions. As a result, low productivity continues and the average turn-around time for ships at the port is still about three weeks, even though an increasing number of ships on regular schedules have been by-passing Colombo completely. The mounting costs and uncertainties in arrivals of imports are having a depressing effect on many lines of economic activity. The Fiscal Situation 14. During the three years 1953-54 through 1955-56, the Government achieved substantial budgetary surpluses, after running persistent deficits which had reached a peak of over Rs. 200 million in 1951-52 and 1952-53. l/ 1/ The fiscal year is October - September. This shift was the result of sharp economies, notably in subsidies, introduced during 1953, and of increased tax revenue arising from the expanding level of foreign trade. Since 1955-56, however, the government accounts have reverted to a mounting deficit position. Between 1953-S and 197-5Oo, revenue in- creased by about 23%. M11eanwhile, total expenditures went up by 50% including large increases in administrative, social and subsidy outlays as well as in investment spending. 15. The budget for 1957-58 provided for expenditures (including supple- mentary appropriations for flood relief and rehabilitation) of Rs. 1,574 mil- lion which was R.s. 267 million in excessof estimated revenue. Actual expendi- tures in 1957-58 appear in total to have been about as budgeted, while revenues were slightly below the budget estimates. The actual cash deficit (before extraordinary receipts from abroad) may be estimated from preliminary figures at almost Rs. 300 million. The approximate financing of this deficit is shown below, along with comparable data for 1956-57. Table 1 Deficit Financing (Rs. millions) 1956-57 1957-582/ I. Deficit Overall deficit 179 299 Net change in foreign bilateral balances of the Government + 67 - 70 Reported. net cash operating deficit 246 229 II. Deficit Financing 'Ia.. b/J±4 Foreign borrowing- 20 26 Deposis-t , aavances, etc. - 3 5y Borrowing from banking system 127 60 use u± cah: ro-e±In excuanrge oz uovernmnent 31 22 Rupee cash of Government 11 26 Total financing 246 229 a/ Preliminary. Loan disbursements from IBRD, ICA, the USSR and Canada. c/ Includes counterpart deposits from foreign grants.. - 6 - 16. It may be seen from the changes in the Government's bilateral balances and foreign exchange that in 157-o5 there was a drawing down of the Govern- ment's foreign assets of Rs. 92 million as against a net increase in such assets of Rs. 36 million in the previous year. Total domestic inflationary financing amounted to Rs. 86 million in 1957-58, as compared with Rs. 138 million in 17. The budget for the current 1958-59 fiscal year projects a very large increase in the deficit -- to over Rs. 500 million. It includes a marked rise in appropriations for recurring expenditures and an even larger relative increase in capital appropriations. Projected current outlays are about 25% higher than the 1956-57 level and around 10%o above 1957-58. The major part of this increase reflects higher salaries for government employees. but expanded health and education services are also an important element in the'increase. Budgeted capital outlays are nearly two-thirds greater than the actual 1956- 57 level, and about 40% more than the 1957-58 budget, with the major increases projected in schools, public utilities and land development. 18. As a practicable possibility, it is quite unlikely that actual spend- ing will reach the appropriated levels, especially in the capital budget. In any case, the government has followed the unusual procedure of setting a ceiling on domestic borrowing which would preclude the possibility of expendi- tures reaching the appropriated levels unless foreign financing were to mat- erialize on a far larger scale than existing commitments and plans would indi- cate. Actually, foreign financing cannot be expected to be much, if at all, in excess of Rs. 100 million. This will be provided mainly from IBRD loan withdrawals and U.S. aid disbursements. Together with the domestic borrowing ceiling of Rs. 160 million, this would indicate an actual deficit in the cur- rent year around Rs. 260 million. Of the domestic borrowing figure, not more than about Rs. 50 or 60 million is likely to be available from non-banking sources. The nrosnects for inflationary financing this year are therefore in the order of Rs. 100 million. Internal Monetary Situation 19. The growth in the Government budget deficit did not begin to generate significant inflationary nresqure until earlv 19q7. In the calendar year 1956, the domestic monetary effect of the government's financial operations wZAsAnnnt.ratfion of Rsq 28 Millin Duhringy 19(57_ ho.Tevr- nemtb'nnL c-retiti to the public sector expanded by Rs. 106 million, and in 1958, it grew by a further Rs. 130 millinn- T+. _hni1d he note flhiinq the ; re the rAcm1+.q as presented in the official monetary analysis. They include rupee advances ii-qp-r t.n firna++i n-e-nrinA n~n nf' fr)-rai gn owIcnac,~1* nn +.hm (Inxrnment' s own account as part of bank credit to the Government, and exclude from credit A modified presentation which shows the direct foreign exchange used by the -,. V. maentt~, Js. Jn~U th* +, ','I be'-~ JSJ Table 2 Factors Affecting Money Supply and Foreign Exchange (Pc. millincl Public Sector 19t6 '19I7 -I958f Net borrowing from banks 33 T7 161 ~~J.~V 4 LI ~.aIe 47 - C Use of Govt. foreign exchange assets - 27 11 91 Total of above - 50 117 223. Private Sector Bank loans to private sector 93 55 54 Less: Changes in savings deposits 30 40 59 Total bank credit to private sector 63 15 - 5 Total use of domestic credit and Govt. foreign exchange assets 7 132 218 International Reserves Change in reserves of banking system 20 -209 - 82 Change in Govt. owned assets 27 - 11 - 91 Tnt.nl change nf rP_Prves 47 .90 -171 (7hnncpc 'in Mnnnv ;iirnnilv Absolute change 5T -88 45 . I..cflhage chan.sges f C A41' L4.a' 20. It may be seen uat the impacu of he Government-s operations as defined above was a net contraction in credit to the public sector of Rs. 5@ MI.L-LionUU LLU J - ..)V WIL-L.t ±LLI -L7-)( CUIU L7-)VUIbIU.Et:: V WGU C L U eAPLIRIiL \ JJICiLLU- ing the direct use of foreign assets) of Rs. 117 million and Ps. 223 million respectively. The lauter figure corresponds to about 217 of' tne toTal money supply in 1958. 21. During the past two years, the growth in commercial bank credit to ulle private setour na amute o U abOu toR RoU5 -1. m)11-LOD, anIuU.Li±y. 0avingz; deposits have also grown by nearly that amount, so that there has been little net impact on the money supply from these two pLases of commercial banking operations. 22. During 1957 the drop in foreign assets by Rs. 220 million or 20% of total reserves was the result not only of internal monetary pressures, but also of factors that were largely of external origin -- mainly the after-effects of the Suez crises. This drop was accompanied by a fall in the money supply of about 8%. In 1958, however, the loss of foreign exchange assets, continuing at the rate of Rs. 173 million, was attributable partly to a small decline in foreign receipts but mainly to internal monetary pressures. Even after this use of reserves, the money supply grew by WIG during the year. - 8 - 23. In the course of the past two years wage rates in agriculture have owners, there also has been a significant improvement in such non-cash bene.- L it Us a s h o u Sin11g a C cmmoda 0-3U-t1Ins,p e tc Wage in the Ullu U1-Cg1-c"utU1rL setorvl have gone up quite substantially, particularly in 1958. Minimum wage rates 01 the government increased by 15% in that year, wile a selected sample of wage rates in manufacturing and public utilities shows a rise of 10% in the first eight months of 95o, followed by a further increase of 087 starting in September. The rise in costs resulting from delays at the port has also been of some importance in the past year or so. After remaining more or less stable in the period 1951-56, the official cost of living index began to rise early in 1957, and since then has gone up by about 67. The Balance of Payments 24. The adverse balance of payments effect of the deterioration in Ceylon's terms of trade between 1955 and 1957 was aggravated by an 8% fall in export volume and an increase in import volume to a new record high, 15/ above the 1955 level. The drop in export volume was due mainly to the sharp decline in output of coconuts caused by the drought, and the wave of strikes at the Port of Colombo which reduced the outflow of goods by about 40% in the last two months of the year. In 1958 the volume of e)ports recovered, mainly through a substantial jump in tea shipments as stocks built up at the end of 1957 were reduced. However, export prices weakened somewhat in 1958. 25. Customs data show that import values fell off significantly in the first 11 months of 1958 as the result of a drop in volume (mainly petroleum products) and of price declines. However, because of a lag in disbursements behind arrivals, actual foreign exchange outlays on imports, as recorded by the exchange control, remained at about the same level as in 1957. The re- sult was a merchandise deficit of about Rs. 100 million for the first three- quarters of 1958, as compared to a deficit of Rs. 130 million for the full year 1957.1 26. Net invisible payments continued in 1958 at about the same rate as in 1957 and earlier years. The biggest invisibles are payments of investment income -- which run about Rs. 90 million annually, and remittances by the "non-resident" population (mainly Indian estate workers and British company officials) of about Rs. 70 million annually. Since August 1957, both these categories have been subject to somewhat stricter limitations, but the trans- fer provisions are still relatively generous. Of more importance to recent balance of payments trends has been the virtual suspension (in August 1957) of permits for Ceylonese residents to purchase foreign-owned shares in Ceylon's tea and rubber estates. The capital outflow from these transactions was about Rs. 50 million in both 1956 and 1957. but fell to Rs. 10 million in the first three-.quarters of 1958. Long term private capital inflow has been quite small in the nast few vears except. possibly. for reinvested earnings of foreign owned estates. Y/ These figures include adjustments by the rision fUr eUtmateU impote financed by foreign aid which are omitted from the official exchange control data. - 9 - 27. The overall deficit before aid was about Rs. 200 million in the first three quarters of 1958. as against a deficit of Rs. 310 million for the full year 1957. Foreign aid and official loans amounted to about Rs. 80 million in 1957. and to Rs. 70 million in the first nine months of 1958. The draw-down of net foreign exchange assets ws Rs. 220 million in 1957 and about, Rs. 150 million in the full year 198. 1 This left net foreign assets at Rs. 883 million by the end of Decemruer, or the equivalent of six months imnorts at the nurrent rate. They were Rs. 1033 million at the end. of 1957.f/ 28. Foreign financial assistance to Ceylon has increased substantially rnring the n;.t twn vers. Frm 1Qh thronh 1916 annnal dinburnimnnts of aid and loans, excluding technical assistance, ranged between $5 and $7 million. As indicated. this total inmned to over q1c: million in 197 and i; P-tAm_ ated to have been around $2h million for the full year 1958.- Disbursements undMr aid and loMns (from +he TT Q +V, The T Po i --Im^ DIn +I, TTQQD A China) might total around $25 million or Rs. 120 million in 1959. However, nOJ ~ UL mor U1C1 4 id . O. -LUU ±J IILL-LL-LVII bV_LJ.L L iiC-1Lp VLUt=L kA-±LZ L ~ I±.LUtQ_ L.Y % V4j (through accumulation of counterpart), items which are included in the 1958- ,7 LUUgeL, 1/ The difference between this figure (a decline of Rs. 150 million in 1958) and that in the monetary analysis on page 7 (a decline of Rs. 173 mil- lion) is apparently due mainly to reporting lags. 2/ These assets consisted of the following: (Rs. millions) End period: 1957 1958 Central Bank and commercial bank reserves Z62 Government and government agencies foreign assets 281 280 Credit balances under bilateral trade acerLns90 - Total 1033 883 3/ Further detail on foreign aid and loans is given in Appendix Table XVIII. - 10 - IMEW5ELOPMENT PUTE NTIAL 29. Ceylon's development problem is basically one of securing economic growth rates adequate to meet the rising neeas of the growing population. The problem is complicated by limited development outside the sectors of primary production, by the large share of output accounted for by a few ex- ports and the consequent instability associated with changes in the terms of trade, by slow export growth,and by fiscal rigidities. 30. Previous reports- have indicated Ceylon's substantial resource poten- tial for expanding production, especially in agriculture. An added advan- tage that Ceylon has for realizing its development potentialities, as compared with many other Far Eastern countries, is a civil service with competence and dedication. An annual growth rate of 3% in the real national product has been maintained in recent years through the development of primary resources and. through additional expansion outside the primary sectors. As indicated, how- ever, this growth has not been sufficient to absorb all of the additions to the labor force. Moreover, rising levels of national expenditure have in- volved substantial balance of payments and fiscal deficits during the past two years and appear likely to do so again in 1959. 31. The question to be considered then is whether Ceylon's development problem is a manageable one: whether growth in real incomes and employment at annual rates of 4% or more is feasible and at the same time consistent with monetary and balance of payments stability. 32. The main difficulties in the way of adeauate economic Lrowth anoear to be the rigid fiscal structure, and the prospect that growth in the export sector (about a third of GNP) is not likely to achieve the Lrowth rate which will be required of the econmy as a whole if there is to be any improvement in Der capita inccmes. 33. The nroblem in the fie.al fitld i. two-fold- On thp ont hnnrl the ratio of government revenue to GNP is already high (about 23%), and direct taxation accounts for about the same Troportion of total revenue: a substan- tially larger ratio of revenue to GNP could well jeopardize the possibili- ties of the nrivatA sector to innreAn invARtmAnt. Or PvA to mnint.nin 4t at recent rates (about 6% of GNP). On the other hand, existing revenues pro- vidia lit.tle margin for publin qavinp heanua of the montine rcmuent vnan- diture of recent years. Some increase in domestic savings available to the invnrnment. my ho =r-+mA Aring +.he next ya orn o as the rsul f ap (Report No. FE-8a); "The Economic Development of Ceylon" (Economic Survey - 11 - recent extension of the provident fund system. And revenue at existing tax rates should grow in the future at approximately the same rate as total national incorie. However, as noted, government expenditures are already be- yond the possibilities of non-inflationary financin, so that even with the rise in financial resources which may be expected, the growth in total ex- penditure will have to be restricted if a balanced position is to be achieved and the loss of foreign exchange reserves halted. From the standpoint of Ceylon's economic development. the only satisfactory way to achieve this would appear to be the politically difficult one of limiting further increases in recurrent exoenditure. 3h' Ri:aiitiP. stmmincr from thp balanr!A of' aymnts are attrihutabl to relatively slow export growth and to heavy import requirements of consumer goods, mainlv Pq.ntials. which limit the connp fnr qhift. in tho iymn-t nat.Arn at given levels. Food imports constitute about 45% of the total, other consumer qh~oi~~ nii+. ?,q t)f' irhinl r ni -i,nd hnl f Are f-v.1 ,qrvi+.nl anneq.q P'Finl+. 1cl nn__l intermediate goods, including most fuels, about 15%. In recent years export vnlmo has not. knt. nna with nnnintion and incnme The averge annual in- crease during 1949-58 was only about 2.5% even after adjusting for the abnor- malv nor notn+ and vnort of -oonni nrondtn in 1907 and 1958. Tean as noted earlier, rose by over 3% a year, but rubber and coconut export volume food imports bas increased at about the same rate as total exports, i.e. at possible by the increases, already noted, in the output of domestic food crops. in the past 6 years, even though real capital formation has increased by over %'J/O. s1J as. beeni at_LI.. V reu by 11LJ.U L .L L U lit kUi1J.4IA1 L i1Vt;Z)UJ1I1z11UJ, pecially in the government sector, involving substantial increases in domestic construcUun anu Lanu develpment actviy and a reduceu raio ou machint.-ery and equipment imports to total investment. 35. Regarding future export possibilities, the potential exists for sub- stantially higner real growth rates tan durLng the pasS UecaUe. From the supply side tea output could well continue to expand at 3 or 4% a year on the basis of subsidized programs of replanting and improvement in tLchniques. Marketing and price possibilities would, however, probably limit the rise iLn tea export earnings to 2.) or 370. obber, on the basis of replanting alreauy completed and with continued replanting programs, should begin to increase during the next two years with reasonable expectations of at least a 30% rise by :yo6 and a 50% rise by 1970. Earning prospects are less favorable, however, because of the probable effect on rubber prices of expected technical advances in syn- thetic rubber production. On balance, an average growth in rubber export value by 2.5% a year appears reasonable. Similar growth in exports or coconut products should be possible under the present coconut rehabilitation program. Among minor exports there is a large potential for cocoa exports and other less important items. For export earnings as a whole, the growth potential during the 1960's should be expected to average between 2.5 and 3 annually. 36. This rate is below a rate of growth in national output which would provide some improvement in per capita income. If a 1f economic growth rate - 12 - were to be the aim, despite a slower rate in the export sector, it would imply rates of increase in output for domestic purposes of about 4.5% a year or just over 50% in ten years. This would provide sufficient import substitution to permit real income to rise faster than the level of foreign trade. 37. Such an increase in output for domestic purposes does not appear to be an unreasonable goal. During recent years the average growth rate in this sector has been nearly that high, i.e., about 4%. Among agricultural products as a whole, it is the consensus of qualified observers that an increase in rice output of at least 50% and probably more is practicable within ten years. Studies also indicate large expansion possibilities in livestock and poultry products (although at slower annual rates in the first few years) and still larger potentialities in sugar, potatoes, chilies, onions and pulses, which now account for most of Ceylon's food imports other than erains and dairy products. On the basis of recent experiments, tobacco also appears to have a good potential for greatlv expanded Droduction. Among other imnortant aLri- cultural crops for domestic use, growth of domestic supplies of coconut products and tea at rates corrpnnondin to nonniAtion intr-rqP i. imnlied in the Pnort projections, and a similar rate of growth for most other minor products appears a reasonable possibility. Taking Agri-lltural outnut fny 1ft1l markets as a. whole, an average annual growth rate of at least 4% would seem to be technically and AnonominAllv fPn.qih1_ nmp+.hina aimilnr mnr hz macimad far fqnnf%i+A0 in fish, forest products and other primary goods consumed domestically. As yet, the development of the industrial scor has been quite limite alt1hough evidence of substantial industrial investment, relative to the small industrial hanse hna hoon annaont in recent rear m+ 1nn+ in?-% 157. Accumine soM improvement in the climate for private investment and in the management of gov- n.,w,n 4 .A, l .4n 44v+ Jtnrn wo'dno+ ben u,nm nabil-. to exec at n,nn+n-t a two- or three-fold increase in manufacturing over ten years. 38. In sum, then, Ceylon's development problem would appear to be a man- ageuw= '-U11tv LIIU UUVJU LU.E guv PLtL "HY4LLi . LVVt;Jt11%, J.11 .1w:UUe6- V. L.LV_L11, likely to be only modest, however, so long as population continues to grow at t recent rate - wichl is one of the nighesn th ne world. is emphasizes the need for more active measures to encourage family planning and a lower CHAPTER III DEVELOPMENT UNCERTAINTIES 39. To conclude that Ceylon's development requirements are manageable is not necessarily to conclude that they will be managed. ossibilitieS for rallying the necessary unified efforts to do so may be limited because of underlying social and political uncertainties. The cief pruU±tum, LUuLL1-UL1UJig the country today may be grouped into four main categories:- a) the ccmmunal problem; b) labor difficulties; c) the problem of achieving a satisfactory reconciliation of competing claims on public financial resources; and d) uncertainty, arising from these and other problems, in the private sector. The Communal Problem 4o. The persistence of strong communal tensions is particularly dis- turbing. Twice in the past three years, open conflict has erupted between Sinhalese and Tamil groups.l/ The most recent and most serious outbreak occurred in the spring of 1958. After some bloodshed and much destructiot of property, communal peace was only restored after the Governor-General declared a state of emergency and called in the armed forces to help. 4l. An immediate cause for the 1958 riots was a dispute over legis.- lation to make Sinhalese the official language. After order was restored a compromise bill for "reasonable use of Tamil language" was enacted, al- though not to the satisfaction of extreme groups on either side. The more basic cause has been the pressures created by the rapid growth of the popu- lation and their rising expectations. These manifest themselves in the towns in competition for jobs, particularly in government and the professions; and in the rural areas in bidding for new land and for social facilities, particularly schools. L2. The recent period of communal violence was brief. The Pxeasss which were reached are believed to have had a sobering effect on the racial communities and on those who have in thp nant anninpd t commiinq1 omotion for political advantage. Another violent eruption is, consequently, not considered likely in the near future. Nevertheless. communal emotions and rivalries, if they continue, are bound to complicate Ceylon's development problems throuah frictions and adiustments to frictions that may be neessary in the course of economic activity; through difficulties posed by the need to r.qpttle S-inhn1tzese in predorminantly-i Tami-l areas or4A ± vrsa;n and through inefficient use of human resources that may result from discrimina- ti on in PInt.in,nPI cnnnrt.unitAmQ andi adrvanncmnt. in +.i nee)nr-f ndA governmental hierarchies against one side or the other. 1/ Sinhalese constitute the majority group in Ceylon, with about 70% of the population. nCeylon Tamils" account for about 11% and "Indian Tamils" (mainly estate workers without citizenship) account for another 12%. The latter group of Tamils has not been involved in the recent disturbances. - 14- The Labor Problem 43. Over the past several years, there has apparently been a general decline in labor productivity. The situation at the Port of Colombo, already discussed, is perhaps the most striking case, but the problem is also evident in many other sectors of government and private industry. Business circles contend that low productivity is a considerably more serious problem than the difficulties caused by explicit pressures, through strikes or other means, for wage increases and improved working conditions. The low level of productivity is closely related to a relative lack of discipline - or rather - to the apparent inability on the part of the authorities and private employers to impose a reasonable degree of discipline on the labor force. This situation is aggravated by competition among the unions themselves. Failure to achieve a solution to this problem is having a depressing effect on morale not only in business circles but also among government officials concerned with promoting a faster rate of economic development. Development and Fiscal Problems 44. The role of the Government in Cevlon's economic development has varied. In some respects, the Government is continuing to make a substantial contribution to economic growth. The most important are successful prosecution of the rubber replanting and coconut rehabilitation programs, the inauguration of a similar and promising program for tea. measures to assist peasant farmers in improving the cultivation of rice and other cropn and a land reform which if successfully administeTed should improve the economic security, well-being and productivity of the large numbers of tenant farmers. Government investment programs are also adding to power capacity and improving the roads, railway and nort facilities, Stepn, thongh modest. ae heing taken +.o meetCevlon':-, urgent need for an effective program of birth control. Most of these measures are of high priority in Ceylonts development. But in other respects the policies, guidance and effort from the Government do not appear to be fully adequate to meet the difficulties of the development problem. 45. In the absence of a coordinated development plan and agreed p rorities, ini v .iual mcistries vi puse hir, ownv a a development acivities in considerable independence of one another. Ceylon is, of course, hardly uniqu e einuch h+ho4me of cornA4o+n. And much +ofhe individual ministerial activity would be included in any well planned significance in Ceylon because of very heavy outlays on certain programs be demonstrated. 46. Perhaps the most important specific case in point is land development, which constitutes about a quarter of total public capital - 15 - outlay. This program has been severely criticized from within the Government itself for excessively high cost-benefit ratios. Careful investigation may suggest a major shift in land development away from the present scattered pattern to a more concentrated effort on a few large valley development projects and on water control in already cultivated areas. Some investigations of large valley possibilities arenow under way with foreign technical and financial assistance. 47. Another sector which may soon pose major planning and priority problems is that of government-owned manufacturing industry. During the past few years government investment in manufacturing has been quite small. Some of its ventures appear to be reasonably successful, although others have definitely not been. Assuming the problem of obtaining efficient management can be overcome, it may well be that some expansion of government manufacturing activity would be justified. However, such justification requires careful consideration of technological and market factors. as well as of the possibilities for enlisting private Eterprises to undertake the job. It should also be demonstrated that such investment would be of higher oriority than alternative use of the resources in agriculture, power, etc. There is little evidence that analysis of most proposed government manufacturinL nrojects alone these lines has so far been adequate. This becomes particularly urgent in view of recent announcement by the Ministrv of Tndustries of a major expansion of investment in government-owned manufacturing activity, to be achieved within the next few vars. LA8 There- hAVP. Al.q 'hP. _q ani fi -rml-t rwna.^-P of4 eenl pol 4cy nd a resultant uncertainty about the continuing availability of non- inflationary finanning for phlin investment. TTnatinft+nry final trends were quite apparent before preparation of the 1958-59 budget. approved despite the very large increase in the deficit. The deficit (even after a generous allowance for central bank credit). Yet the budgt+ ws adopted with the hopeful not a t foreign aid might -xidge the gap, even though prospective foreign aid is far short of the magnitude that wuld he r.nniel- Tninhtedly ePnPnditireq will be much less than budgeted. However, the expected actual deficit will, as noted Q+.11 "Pnlip nh+nv" firn"^inc. An .ha probable resulting drain of foreign exchange cannot go on much longer may well be down to the equivalent of five months'imports by the end of this year'. FvisCal economies- will clearly be 4necenSSary tochkths trend, and it would be preferable if they could be found in the large expenditure. But this will be difficult in Ceylon's prevailing political %.,.L."A"0 V w - 16 - Uncertainty in the Private Sector 49. The past two years have undoubtedly witnessed a loss of confidence and increased uncertainty in many phases of private economic activity. The communal tensions and labor problems mentioned abcve have been important contributing factors. AsLe from thesa uncer-ainty about nationalization of foreign owned estates is perhaps the most important single difficulty. The possibility that the government wil actually nationalize the estates in the foreseeable future now seems to be taken less seriously among estate officials resident in Ceylon than was the case a year or two ago. Yet it is still advocated in some important official circles. And depressed estate share prices reflect the persistence of uncertainty among fcreign estate investors. Because of the attractive subsidy provision of the replanting and rehabilitation programs for rubber and tea, it is likely that this form of estate investment will continue. But there is at present considerable reluctance among the foreign estates to risk more than a bare minimum of longer-term capital in plant expansion and other facilities. 50. The debate about taxation policy has also been a cause of considerable uncertainty. Major revisions in direct taxation were proposed in the last budget message which have aroused concern in private business circles about future tax obligations. The proposals would not necessarily increase taxation on business and personal incomes as such. They would, however, impose taxes on capital gains, individual wealth and gifts, and would add considerably to the tax burden on that part of business income distributed as dividends and on that part of personal income spent, beyond a given margin, on consumption. The object, of course, would be to focus the incidence of the taxes on consumption rather than on private savings and investment. They would, nevertheless, adversely affect inducements to equity investment and the attractiveness for foreigners of employment in Ceylon. Withdrawal of the tax proposals for further consideration and possible revision together with some publicized controversy within the cabinet on this issue have added to the uncertainties about taxation. - 17 - CHAPTER IV CRED ITWORTHINESS 51. Ceylon's external public debt is quite small. Excluding the credit of about $51 million at the end of 1958. This debt is composed of IBRD loans loan ($2.0 million), and a Czech supplier's credit ($4.0 million). The schedule of ServiCe on this debt is nu a signicuant buruen, runui1g auuu IZ or less of 1957 foreign exchange earnings., 52. The lines of credit from the Soviet Union and Mainland China, which were both establisled in yo58, amount to the equivalent of $30 million and $10 million respectively. About $1.5 million of the Soviet credit has been committed for the development of a sugar plantation. The extent to which these credits will be utilized is uncertain but it is unlikely they will be fully drawn down. Even if it is assumed that they would be drsen upon to as much as 75%, total debt service at its peak in the early 1960's would still be only about 2.5% or 157 foreign exchange earnings and would decline thereafter to less than 2%. 530 Nevertheless, confidence in Ceylon's ability to service substantial further additions to its external debt hinges on the extent to which the Government can deal satisfactorily with the country's difficult development problem. Financial stability could, of course, be maintained, without adequate rates of development, through necessary fiscal and monetary measures. But unless mounting and prolonged foreign assistance is to be forthcoming, this would be an uncertain stability, implying sagging standards of living, heightened employment problems and probably mounting political and social pressures. Sh. In its balance of payments aspects, the development problem is not alone one of achieving the rate of export expansion which appears feasible. That rate implies slower growth in the trade and payments pattern than in the national output as a whole, if the latter is to be sufficient to improve or possibly even to maintain per capita income levels. Hence if these divergent rates are to be compatible there must also be a reduction in per capita consumption import requirements to provide an adequate margin for capital and raw material imports as well as for the service of external debt and investment. For a satisfactory balance of payments outlook, therefore, it will be necessary to achieve substantial import substitution at the margin through fairly high rates of irowth in output for domestic consumption. 55. The achievement of necessary arowth rates outside the exoort sector appears, as discussed earlier, to be a practicable goal within Ceylon's resources and develoDment possibilities. Efforts are being made toward this goal as well as toward expansion in the export sector. Yet it is doubtful that these efforts are at Dresent fully un to the renuirements of the nros- pective development and balance of payments problems. The need is for the kind of nrogrqm and effort which ill nnntun nonular sunort for economin - 18 - development and submerge current rivalries in the larger interest of more rapid economic growth. 56. The present uncertainties in the economic and political outlook limit the extent of external debt which Ceylon can safely incur. However, in view of the present low level of debt relative to export earnings, some margin for further borrowing still exists even with these uncertainties. Table I Exernal-Debt and Deut Ser-vice (In thousands of U.S. dollar equivalents) Tutal e/t Service due in as of Total U.S. Founds Other foreign january i dollars sterling currencies 195 4 13,068 1,671 - 1,671 - 1955 45,233 2,254 - 2,254 - 1956 43,898 2,259 - 2,259 - 1957 42,409 2,265 - 2,265 - 1958 72,3712/ 2,840 127 2,292 421 1959 81,067 6,942 287 2,436 4,219 1960 76,668 6,804 539 2,100 4,168 1961 72,463 9,203 814 2,099 6,390 1962 65,761 9,412 1,050 2,098 6,264 1963 58,845 6,802 1,049 1,612 4,lU4 196h 54,420 6,538 1,049 1,423 4,066 1965 50,013 7,620 1,056 2,573 3,991 1970 27,221 5,726 1,049 1,32h 3,353 1/ Debt outstanding is net of sinking funds on sterling bonds. The total debt fig7irp. for 19Q incldeiiroc- 3 9 ilio oji ^f t-e 4--t--o1 gl.nii CD--Wom - v11 U V ~L-' L t4k4j ILLJL.L_LULI C4U-LvajcJ.lIu - '-11 lines of credit from the U.S.S.R. ($30 million equivalent) and Mainland China ($10 m-Ilin" eqiae1,2ynt) 2/ Debt. isc: oJn 3c n9P pay- a for e ulU year 95.o Table II Gross National Product and Expenditure at Current, Market Prices (Billion rupees) 1950 1951 1952 1953 1954 1955 1956 19527 Private consumption expenditure 2.99 3.56 3.66 3.67 3.55 3.97 3.76 4.13 Government consumption expenditure 0.44 0.50 0.57 0.62 0.60 0.63 0.81 0.90 Gross domestic fixed capital formation 0.36 0.45 0.54 0.48 0.44 0.55 0.55 0.67 Public sector 0.19 0.19 0.25 0.25 0.25 0.30 0.30 0.35 Private sector 0.17 0.26 0.29 0.23 0.19 0.25 0.25 0.32 Increase in stocks 0.04 0.06 0.06 0.03 0.03 0.05 0.03 0.04 National expenditure 3.83 4.57 4.83 4.80 4.62 5.20 5.15 5.74 Exports of goods and services 1.64 1.99 1.65 1.79 2.01 2.19 2.08 2.00 Less: Imports of goods & services 1.)2 1.83 w199 1.89 1.66 1.81 1.92 2.2 Gross national product at market prices 4. 05 4.73 4.49 4.70 4.97 5.58 5.31 5.61 Note: These estimates, prepared by the Ceylon Dept. of Census and Statistics for publication in the United Nations yearbook of national incane statistics, differ in some respects from the estimates published in the Statistical Abstract of Ceylon for 1958 (cf pages 255 & 256). The above series is used here in preference to the latter both because its definitions correspond more closely to the standard national ieome concepts and because the estimates for 1957 in this series are understood to be more up to date than those in the Statistical Abstract. Table III Gros,s National Product and Exenditure at Constant 13rices (Billion 1.948 rupees) 1950 1951 1952 1953 1954 1955 1956 1957 Private consumption expenditure 2.93 3.28 3.31 3.31 3.24 3.53 3.33 3.68 Government consumption expenditure 0.13 0.46 0,.52 0.52 0.58 0.59 0.75 0.85 Gross domestic fixed capital formation 0.35 0.51 0.4 0.40 0.42 0.51 0.51 0.62 'Increase in stocks 0.04 0.05 0.05 0.02 0.03 0.06 0.03 0.03 National expenditure 3.75 4.30 4.32 4.25 4.27 4.69 4.62 5.18 Expo:rts of goods and services 1.18 1.20 1.25 1.35 1.37 1.44 1.45 1.46 Less: Imports of goods and services 1.40 1.62 1.65 1.71 1.66 1.79 1.75 1.99 Gross national product at market prices 3.53 3.88 3.92 3.89 3.98 4.34 4.32 4.65 Note: It will be seen that the above estimates indicate an average growth rate for G11P of 3.5% between the average for 1950-52 and 1955-57. However the above data on export growth, which are derived from exports receipts as recorded in the exchange control records, somewhat understate the level in the earlier years and overstate it in the later years as the result of lags and leads in pay- ments relative to physical volume. After adjusting roughly for this factor, the average growth rate works out at just about 3% annually. Source: Except for the last three lines, the above estimates are those supplied by the Department of Census and Statistics for publication in the U.N. yearbook. The constant price estimates for exports and imports have been recomputed by the IBRD Mission in a manner which is conceptually somewhat more satisfactory than the original computation, and which is more consistent with the published price indices for imports and exports. The GNP at constant prices has been re- vised to reflect these modifications in the estimates -for exports and imports. Table IV Real National Income at 1948 Prices (Billion 1948 rupees) 1950 1951 1952 193 1956 1955 1956 1957 Gross National product at constant (1948) prices 3.53 3.88 3.91 3.89 3.99 4.34 4.32 4.65 Effect of changes in terms of trade O.h9 04h OJO 0.2 0.6h 0.73 00h7 0.1 Real national income at 1948 prices 4.02 4.42 4z1 4.14 4.63 5.ol 4.79 5.03 Aote: The effect of changes in the terms of trade since 1948 is calculated as the difference between a) cretmchniexprt value,s deflae w ±p~~ith Whe import prico index, and b) cport valuce doflated 7!itI the export price index, The indices are, of course, on the basis of 19145 = 100. These ccmLp .onnts are shown below,in billions of rupees: Exoorn doeflatedoh ot oc l by import price 1nuex 152 159 1.1* 1oJ7 1.*79 1*74 1*68 1-58u by export price 1/ The difference between the values shown here and those shown for exports of goods and services in Table A!I corresponds to total invisible earnings. Table V Production of Principal Crops 1950 1951 1952 1953 1954 1955 1956 1957 19581 Tea (million lbs.) 306 326 317 343 367 380 376 398 hoo Rubber (thousand tonsj 114~ 105 96 99 9)4 9)4 95 98 103 'Jocouts k I-LL-L.LLonl nuts) 1925 2185 2376 2264 2203 2420 2520 2090 2200 Paddy (million busnels)g/ 24.5 24.3 2.9 21,9 31.5 35.7 27.1 30.6 36.9 Onions (thousand tons) 14.7 15.1 21.6 25.0 2:3.2 44.0 20.0 48.7 n.a. Chilies (thousand tons) 11.7 11.3 15.5 17.5 18.8 16.7 16.0 18.0 n.a. Pepper (thousand tons) 42.5 38.1 47.5 52.2 27.5 58.2 59.5 58.8 n.a. 1/ Provisional, partly estimated by mission. 2/ Paddy data for 1950 - 52 reflect adjustments by the National income office of the Covlon Dkenarth&t of Census and Statistres to allow rc ihlv for under- reportiniG in those yars. Source: Excent as noted. DeDartment of Census and Statistics. Cevlon: Statistical Abstract of Ceylon. Table VI Government Revenue and Expenditure (Rs. million) Revised Actuals Budget 1/ Budget 1953/4 1954/5 1955/6 195-6/7 195778 1.95879 Revenue Export duties 259 371 322 323 327 356 Import duties 244 258 286 304 302 328 Other indirect taxes 67 57 70 81 83 95 Taxes on income and profits 218 206 300 272 298 234 Other taxes 41 45 49 45 58 58 Receipts from govern- ment enterprise 2/ 136 145 155 163 172 182 Other revenue 61 77 75 72 69 77 Total 0 19 12 7 1 1,308 1,331 Expenditure Current Expenditures Administration 116 142 149 172 180 222 Social services 225 23 257 278 284 3h9 Economic services 113 142 133 138 165 187 Govtt. enterprises (gross) 80 84 91 101 100 129 LdA qII'nqidiP I - P0 106 134 inA Interest of Public Debt 3A 34 34 3c bn 4) Other 90 90 119 147 143 173 79A~ --?7 977 1 =n, 12912 Capnitaml TipndAiivn Te,nl 931 357 396 462 LA Supplementary Appropria- t.iofnq - - - =6 Net payments on advances, etc l 3/L3 .1529 1337 - Grand Tta 1,2al05 ~ ,7 Deficit +5 +91 -66 -246 -266 -535 i,limin~~~~~~r-- dat on ac4-reeu-adepedtres iniate that4 toal9-1 eue in 1957/58 were slightly less than budgeted, i.e., around Rs. 1,280 million. This is exclusive of ns. 'u millon net government receipus irom repaymenus under the bilateral trade balances due from China and other countries. Total cash ex- penditure is estimated roughly at Rs. 1,SSo million, leaving an over-aU actual deficit of about Rs, 300 million. 2/ PosT orice,, ports, railway, Electrical Undertakings Dept. and roaacast:-ng Dept. 7/ Includes net payments or receipts arising from settlement of bilateral trade balances. Source: Ceylon Government Treasury and Central Bank of Ceylon. Table VII .Government Capital E32enditure (Rs. million) 1954/55 1955/56 1956/7 1957/58 1958/59 TActual) TActual) (Actual) (Budget) TBudget) Administration 18 24 21 42 58 Social Services Health 19 22 20 18 25 Education l4 21 27 18 48 Housing W 40 32 41 b9 Rural Development 8 19 9 17 17 Total 80 101 87 94 139 Economic Services Utilities 118 122 129 144 199 Agriculture it 120 131 125 150 201 Manufacturing, mining and trade 9 3 4 30 Total 247 256 257 324 i43 Acquisition of financial assets 13 50 31 3 13 Grard Total 357 431 396 462 653 1/ Includes irrigation and fisheries. Source: Central Bank of Ceylon Table VIII Domestic Public Debt Rupee Treasury Central Bank Other Total 1/ Loans Bills Advances September 30 1950 366 79 - - 4h5 1954 655 105 66 - 826 1955 693 60 - - 753 1956 731 68 - - 799 1957 794 65 96 9 96L 1958 8o6 140 83 8 1037 1/ Net, excluding sinking funds. Holding of Net Domestic Public Debt Percentage Distribution Cent.ral Bank rnmmnirt. ank Other :1/ September 30 1957 15 3 51 pension and provident funds, insurance companies and private non-financial oce:nrn Centra.l R an'-o '--)n TphlP TY Activities of Commercial Banks, 1954-1958 (Ns. mllion) aew, 2. l,%n','.,.,nn+.r,,n*rT 4 ^,,4fq End of Period Advances Securities 1/ BLs Exchange 2/ Reserves 3/ 1954 327 222 88 73 146 1. nl, -jr,'Lf n 1956 407 294 53 98 224 r)r7 .r,- -,Nr1L n Z I 1958 502 285 1i t9 191 LiaDilities Ratios Demand Deposits Time & Savings Liquid Assets 41/Loans & Advance. Private Govt. Deposits to Demand to Total Private Govt. Deposits Deposits 1954 601 42 136 11 58 39 l195 675 60 l62 13 61 36 1956 718 68 187 41 55 40 1957 601 85 216 31 45 46 1958 546 113 261 24 49 53 1/ Including government-guaranteed securities and Central Bank issues. i/ Foreign currency holdings and balances due from banks abroad. I/ Cash on hand and balances due from Central Bank and other domestic banks, and , items in process of collection. / 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 7 Analvsis mf Far.snr9 Afferting) thP Mnnp SirpRply (V.illinn ruispez) md prind 1953- 19 95 19 I I IOl,'7 19 58 >ublic sector ;entral Bank loans and advances to Govt. 72 - - - 33 108 PntrAlB GPnvt. securities 151 97 IR 15 onmercial bank holdings of Govt. securities 284 310 28h 346 339 299 ,ross bank credit to public -etor nn07 337 30 37 r25 560 Lesst overnment rupee Cas-h bL-aLlnces 53 - 9 116 i, 77( ' 2M 15n6r entral Bank miscellaneous accounts (net) 21 46 63 96 97 72 ot-al duc,-tiLOMs 7. 15 179 2 22 2 . Net domestic credit to public sector 433 222 123 y4 200 33 rivate sector ommeercial bank credit to private sector 2 5 274 363 (18 172 Less: iime and savings deposits and other liabilities net) of commercial banks 134 170 186 217 256 324 ljustments for items in transit - 1 2 i 2 -7 . Net domestic credit to private sector d7 b6 U2 145 160 1 . Total net domestic credit outstanding (1,2) 510 308 205 239 360 487 xternal sector . External assets (net) of Central Bank and Commercial banks 307 649 868 888 679 597 . Total money supply (3/h) 827 957 1073 1127 1039 1084 ource: Central Bank of Ceylon Bulletin January 1959. Table XI 4f ~vn 4 ATn ae (Index nos. 1952 = 100) Uost of ..LV.ing 10 10Ai UV 3U0 IinImum wage rates Agriculture 102 103 107 107 109 110 Trde n0 909 101 03 10 116i- t Trade s -LU.L -LU. JVJ- Luj -Lu2 . LU Government 101 101 106 107 110 127 Source: Central Bank of Ceylon Table XII Ceylon's Balance of Payments, 1953-58 19 !el4 i L725) .7e 6 1971 7 9_1 (Nine nonths) Merchandise Exports (f.o.b.) +1Ls95 +1724 +1803 +1772 +1669 +117.5 Imports (c.i.f.) -1633 -1384 -1478 -1576 -1799 -1270 Trade Balance - 1j0 + J4U + 11'0 +TIO - 13 - Other current (Net) Transp. & Insur. + 94 + 78 + 56 + 41 + 43) Investment income - 38 - 47 - 61 - 50 - 53 ) Other Invisibles - 31 - 22 - 26 - 50 - 51 ) Private Donations - 59 - 67 - 78 - 83 - bb ) Public Donations + 14 + 24 + 17 + 28 + 62] + 6:/ Current Balance - 158 + 306 + 323 + 82 - 195 - 131 Capital Account Priv-Ae = 37 49 56= 20 3 Official & Bank Lo-em+ 266 +~ i 1P a Other Assets & Liabilitie (Net) r~ - 5923 77 9 +~ 22 *2 Total Canital + 170 - 289 - 334 - 67 + 182 + 126 Errors & Omissions - 12 - 17 + 11 - 15 + 13 + > 1/ Provisional. / Imports financed by foreign aid are excluded from the official exchange control records for 1957 and 1958. The data shown here have been adjusted to include the Bank mission estimates for such aid. / In the official exchange control records, Rs. 50 million under "Private Capital" represents tea export under consignment. In the above presen- tation, these amounts are included in "Exports, f.o.b.". Source: Central Bank of Ceylon. Table XIII External Assets of Ceylon (Rs. million) End of Gov't. & Gov't. Central Commercial Change Between Period Agencies 1/ Bank Banks Total 2/ Periods 1951 367 671 17 1,185 - 1952 376 h03 57 837 -3h8 1953 29h 2h7 67 607 -230 i9li 278 927 90 891 +288 1955 318 659 178 1,155 +260 1957 289 79 -2 1958 2/28 327 883-6 "/-Iclues snigfunds acumlae in rsetoster.lin on mutn to Rs. 84 million in November 1958. 2/ Excludes suns due to Ceylon under the bilateral tradc agreements. These were Rs. 90 million at the end of 1957 and. about zero at the end of 1958. 3/ Provisional. Source: Central Bank of Ceylon Table X5r Conposition of Exports Vlue in Rs. million Percentage of Total Exports ommodit,y 1954 1955 1956 1957 1958 j 1954 1955 1956 1957 1958 (Jan - kJan- Oct) Oct) ea 1,123 1,19h 1,o4 1,021 957 62.0 .61.6 60.2 60.8 67.4 tubber 285 350 293 300 202 15.8 18.0 16.9 17.9 14.2 4ajor coconut products 212 225 213 156 130 11.7 11.6 12.3 9.3 9.1 )ther domestic exports 99 103 102 111 81 5.5 5.3 5.9 6.5 5.7 Domestic exports 1,719 1,872 1,652 1,588 1,370 95.0 96.5 95.3 94.5 96.5 te-exports 90 68 82 93 h9 5.0 3.5 4.7 5.5 3.5 Totals 1,809 1,940 1,734 1,682 1,gs9 l100.0 100.0 100.0 100.0 100.0 3ource: Ceylon Customs Returns. Table XV Composition of Imports Value in Rs. million Percentage of Total Imports 1954 1955 1956 1957 195- b 1954 1955 195b 1957 195b (Jan- (Jan- Oct) Oct) - - I Food, Drink and Tobacco, 664 625 703 736 560 L7.5 42.8 h3.2 40.8 41.7 of which: Rice 273 222 264 255 178 19.5 15.2 16.2 14.1 13.2 Flour 91 86 71 86 to I 6.5 5.9 hA 4.8 3.3 Sugar 63 63 96 82 72 4.5 4.3 5.9 4.5 5.3 Fish products 57 68 78 VO 75 4.1 .6 4.8 4.h 5.6 Curry stuffs 43 37 36 41 30 3.1 2.6 2.2 2.3 2.2 Raw Materials and Manufac- tnren 732 835 926 1.068 785 52M 57.2 56.8 9.2 58.3 of which: Fetroleum nroActs 103 127 ill 202 100 7.4 8*7 6*8 1l.2 1.9 Fertilizers A1 49 54 70 36 2.9 3.3 3.3 3.9 2.7 Cement 13 13 17 28 11 0N 0N 1.0 1.6 0.8 Iron and s+eel 46 64 86 70 303 44 5a3 9 4o Machinery 46 59 65 81 73 3.3 4.0 4.0 4.5 5.4 Textiles 124L 13f 156 147 126 8.9 8.9 9.6 8o1 9.4 Chemicals, I drugs, 37 35237542 2.6 2.4 2.3 2.3 2.6 dyes cardboard 28 28 30 34 23 2.0 1.9 1.8 1.9 1.7 vehicles 27 35 53 54 52 1.9 2.4 3.3 3.0 3.9 Total 1,397 1,460 1,629 1,804 1,345 100.0 100.0 100.0 100.0 100.0 Source: Ceylon Customs Returns TABLE XVI Export Quantities and Prices T ea Rubber Quantitv F.o.b. Price Quantity F.o.b. Price (mn.lbs.) per lb. (mn.lbs.) per lb. _.__s Rs. cts. 195h 361 3.11 203 1.36 1955 362 3.30 216 1.56 1956 3h8 3.00 188 1.50 1957 368 2.78 207 1.43 "95Q (Jan- 3 76 171 1.18 oct.) Copra Coconut Oil Desicated Coconut Quantity F.o.b. Pri'ée Quantity F.o.b. Price Quantity F.o.b. Price (Th.cfs) per (.cs) pr rmt. (Th.cwts) per cwt. Rs.cts. Rs.cts. Rs.cts. 1954 921 49.37 1,378 72.69 1,10 72.69 i qc1c 1.67 111.90 1.94$ 58.26 1,157 47.36 1956 i,155 42.43 1,698 58.42 1,275 50.86 19$g 767.99 1.081 62.80 978 56.08 19$8 (Jan.- 434 52.01 677 68.28 968 63.40 Source: Ceylon Customs Returl-n-s TabDe AVAIL Volume and Terms of Foreign Trade (index Nos., 1948 100) Export and Import Volume 1952 1953 1954 1955 1956 1957 1958 Ir T 1 - kian-1vovy. Ep'Ls- te .Uj J ±.L Llcr LC4 "QL -L-4 WL rubber 102 105 102 108 94 101 102 coconut s ~ _L?, QU -LC7 £.U_ _L,>. LU-. >fU All eports 113 116 119 126 118 116 123 Imports - consumer goods 131 .%3 119 126 141 142 149 capital goods 114 141 14) 1146 144 Io 1o All imports 134 135 125 130 142 150 146 Terms of Trade 1952 1953 1954 1955 1956 1957 1958 (Jan-Nov) Export prices '133 136 151 -158 148 142 139 Import prices 128 118 108 102 106 112 104 Terms of trade 104 115 1140 154 110 127 133 Source: Central Bank of Ceylon TABIE XVIII 1/ Disbursements of Foreign Aid and Loans- (Millions of dollars) 1954 1955 1956 1957 1958 Colombo Plan (Canada., A,ustrali-;a and IK. Zealand D. 3.n. . . U.S.ICA evele n Aid --- --4."3". TT, C9 13 1 - n~ .-* ..f N,r r'£ l u.S. ReKVL.Lef ULaL --. 2.7 V. 6.. 9 TT Q' TN T O~~t - u.S. P.L. 4U0 sales -- -- -- -- 6.3 vU.S.R. Relie rnt -- - -- 2. U.S.S.R. Development Loans -- - -- -- 0.5 i.B.RX.. Loans 1.0 1.9 1.8 4.9 2.8 Total 6.5 5.5 6.5 16.0 23.0 1/ Partly estimated by mission.