Ceylon - Economic position and prospects

r-m-=-r -ImlmR F t T P~ CPT EDn r"I I TO orta0n it- -- I-.- n I PORTS DESKI F WITHIN Report 1o. FE-20a ONE WEE J I- This report was prepared for use within the Bank. It may not be published nor may it be quoted as representing the Bank's views. The Bank accepts no w Una0ues1ly w1 1se us.%U3U%y or compen s-s Iue con s of tne reporrt. INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT THE ECONOMIC POSITION AND PROSPECTS OF CEYLON April 18, 1961 Department of Operations Far East £. n r - k. iltt irsju i v A v,,t,rr,i 1 CPrlnn riunp = U. . $'0. 21 i U. S. $ = 4.76 rupees i million rupee = u. S. $21u, uuu ThPL 01 C(iT1TST5 Chapter Page lo. Bacic Data.............................................. i Sumiarv and Conclusions................................. ii I. The Political and Social Paclhpround..................... 1 II. The *conomic Situation.................................. 1 Introduction........................................ 1 T-h Financial P it,iuatinr-----------.... 2 iie Palance of Payments............................. 5 Development inc ugust 196& and the Short Run Outlook........................................... 6 III. The Long:er-Termr Cutlook................................. The ote tia........................................ 8 Investment and the Financing Problem.................9 Cred.LJUorLhinlss................................... T TSTI I 7 - List 4 Table Tble I terna PlJicLhL Ue 1e1 -L -xk1 -1, 1 le 1.-UU-L-L - 1. II ,stimated Total Contractual Service Peyments III Uross tJatioc)n al rdc n Gro-SS -JKxpend1ItUresU IV Gross -ational Product by Industrial Origin v Productioun o ritncipal Cros iI Covernnent Revenue and Pxpenditure VII iInancing of Government eficit VIa Domestic Public Debt VIII Government Capital Expenditure IX ietivities of Cormercial Banks X 2,rialvsis of Factors Aff-ectinLg Ue !orley Supp XI Index of Cost of TLiving and Uages XII Balance of Payrments XIII Corposition of Exports XIV Co,position of Imports XV Index of volume and Terms of Foreign Trade XVI Export Quantities and Prices XIII External Assets of Ceylon - - Area 25,332 square miles Of which arable 10,000 cultivated 6,000 Population 9.6 million (1960 estimate) Population Growth (annual ave. 1956-59) 2.7% Gross National Product (1959, Rs. millions) Rs. 6,000 Annual Rate of Growth Since 1956-57 3% Gross Fixed Capital Formation (N of 1959 GNP) 14% Per Capita Income $131 Government Budget (Rs. million) 1958/59 1959/60 Total Revenue 1222 1312 Total Exnenditure 1669 1798 :Deficit L47 486 Balance of Payments (Rs. million) 1958 1959 Exports 1624 1773 Imports 1713 1955 Net invisibles - 119 - 66 Cu,rmrnt Accourntv+ Baac - 208 - 248 Ne Foeg Exchange Asset (Rs illion end yea 1956 1959 1960 1132 525 347 1960 Money Supply (1955 = 100) 127 Cost of Living (1955 = 100) 103 Minimum Wage Index (1955 = 100) Agriculture 103 Commerce and Industry 126 Government Workers 120 - ii - Summary and Conclusions 1. From early 1957 to the end of 1960, Ceylon experienced a steady deterioration in its financial situation. Although real income continued to grow during that period by around 3; annually, total national expendi- ture has risen at twice that rate under the stimulus of the mounting government budget deficits. The main part of the resulting inflationary pressure has found its outlet in increased imoorts. In 1959 and 1960, imports rose to record rates - some 33'/ above the average for the first half of the decade. Thus even though exports also rose to near-record rates in 1960, Ceylon continued to lose exchange reserves at the rate of around 40 million a year, with the result that by the end of 1960 net reserves were down to ,70 million, or less than two months imports. This compares with a ,240 million level (net) at the end of 1956. 2. In July 1960, the present Government assumed office with the first clear parliamentary majority of any government since 1956. In August it initiated the first of a series of measures aimed at halting the loss of reserves. Between August and February taxes have been increased substan- tially, government expenditures cut, restrictions imposed on private credit, and quantitative restrictions placed on a wide ranc.e of imports. As a result the drain on reserves now appears to have been halted. Moreover, some support for reserves has been provided by the t11 million IMF drawing made in March. 3. It is not yet clear whether the tax increases and cuts in government exDenditure made to date will be sufficient to avoid comoletely the need for further inflationary financing this year. However, the fiscal situation is undoubtedlv new much closer to balance. and at the most. only moderate addi- tional action is likely to be needed to ensure that domestic inflationary pressures will not arise in the imme_diate future. ). For the future- the problem nw nrove more difficnilt- (Pvion hns the potential to achieve a significant expansion in its growth rates of real nem and emIoyment, but. +his will require maintaining or incre-in- the rate of investment, currently around lb of GNP. And since about one-fifth of domestic inrest.ment in the nast two years has been financed by7 use of foreign exchange reserves, other sources of finance ill have to be augmented 5Tnh.at,antIaliv if -)4-. the inrvet.ment. rnt.p 1 9 tn e maintined in. t.c)rT)o remnlnr ished even to a moderate degree. Some expansion of foreign aid and loans should be --sSible, but an 1-icrease in thfe r tn of c-- doresi Q_ nf, 11 n rnnc certainly be necessary as well; i.e., the growth rate in consumption will have to be held A--n 4--IA les +k, 41- - - + 1, -n-4 11 achieve this will probably require further fiscal refons - which may be i-U LL,' U.L.LJ..ULU* ..1 ULUliU O- C v r m n nd~1 U UI 1 ti eilU U V L illi _LI _Lc U LLJ tz±1 U C._iiU 1.L~J.1U11O encourages confidence that it will take additional measures if necessary to prevenu a uiturler deterioution in thne !-maiev U mou.es U'Dn I i. s- over, Ceylon's present external debt is snall, involving a service burden of less than 3 s of 1960 earnings even If all existing lines of credit are uti- lized. Taking these factors into account, it would not seem imprudent for Ceylon to incur modest additional amounts of foreign debt, even Though some uncertainties remain as to how the longer term growth problem will be met. Lil- rL)_LLU L "..L CLIIU 'JUk.._L. pJaVzrI.UuUIU , trom ±'-roo, w-en tne GocvVdvC uverament of oi ounn Kute.awaxe wa defeated, until August 1960, Ceylon's Government consisted of a series of shift- ing and uneasy coalitions. The assassination of Prime K-Iinister BandaranaikE in 1959 led to a political crisis which was not resolved until the election last July, when the Bandaranaike Party under the leadership of his widow was returned to office with a clear parliamentary majority. For the first time since 1956, Ceylon now has a government that is not at the very outset prevented by tenuous parliamentary support from tackling the major problems, in particular economic problems, which have accumulated. The Government has announced its determination to push economic development in which it assigns a large role to the public sector. It has also introduced important fiscal and monetary measures, as well as emergency import restrictions to deal with the serious financial problem inherited from the past. 2. Following the recent action taken to make Singhalese the official language (thus carrying out one of the Government's main campaign promises), there has again been an increase in communal tensions. Ceylon's population of 9.6 million consists of about 70% Singhalese who are mainly Budhists, 23% Tamils - mainly Hindu, and 6% Moors, predominantly Moslem. (About half the Tamils are Indian Tamils - most of whom do not have Ceylonese citizenship,) There is also a significant Christian group, largely Roman-Catholic which comprises representa- tives of all these races. Until 1956, Ceylon's postwar record of communal harmony was outstanding. But since then, there have been recurrent outbreaks of communal violence - mainly between the Singhalese and Tamils, centering on the issue of whether Singhalese should be made the one official language. Since 1958, there has been no recurrence of the violent rioting and bloodshed which took place in that year, but there have recently been a number of demonstrations protesting the Government's action. articularly in the predominantly Tamil area in the North-east. Troops have been moved into the area, 3. These social tensions undoubtedly have been accentuated by the pressures arising from the ranid growth in the nonulation and the rise in their exnecta- tions. Ceylon's per capita income level is considerably higher than that of Tnia and Pakistan and rnmlyhv .niql to tht of Thqi lqnA Hounver th- -nqtiiral rate of increase in the population is around 3%, and employment opportunities have been growing more slowly than labor force. Moreover. good land for new settlement is scarce. The result has been growing competition for jobs and. land. Comnetition for ecnotional fand l itie :nd onnortunitis amon.. the various ethnic groups is also part of this picture. II. The Economic Situation Introduction 4. During the past four years, Ceylon's growth in real output has maintained the average rate of increase of around 3% annually achieved in the 1950-56 period. However, under the stimulus of increasing inflationary finance for the Government's mounting budget deficits, total national expenditure has grown at twice the rate of real output. - 2 - 5. The main factors in the recent expansion of production have continued to he the stealv orouLh oi' outnut of tea and rice by aronnr 11 anninally and an even faster growth rate in the still relatively small construction and indus- trinl sectorR_ However rnhber ani noconnt n-rorntion hlve nYnqnd1P qt. q -lo1w.r rate. After declining temporarily in 1958, the terms of trade have regained t.hPir relatively favorable 1Q56 relationship A result total real inome has also grown by about 3% in recent years, or about the same rate as the popu- Iption (Tn the nprind betwNen 1/.-50 and 1QA ti growth rate in rnl innm averaged slightly more than 3% annually because of improvements in the terms of tradn A a sl. ignificnt pat 1+ ofP theo inrase:z in p-roductio+n especiallyu in ta, rice and manufacturing has been the result of increases in productivity, so that total emplyment has apparenty nt inreaSed as fast as the laborfo ce in recent years. I/ 6. However, national expenditure has expanded on the average by around 6% a 0-LLUC -L7-J- z3_'11 i U1 1z;IJL.J.J1 uVil L U oL %.J. J--.JAW LULU.Lu t'u ~UV± iUA U UUilou)limp- tion has risen proportionally the fastest - by an average of 10% a year - mainly -Ll, xanded~ sociaj.1 serUvices' F1'LVUUt UU1n'5UJ:ipuUi1 dUu Curru,"t r1i_CU~j) IlUb LbAU gone up faster than real income - averaging around 5% annually. Investment outlays have expanded at an 070 rate, with roughly equalincreases in the prVae and public sectors. In the private sector, a good part of the recent increase seems to have been accounted for by rising residential construction. In 19:)9, total fixed capital formation reached nearly 15% of GNP, as compared to around 11% in the first half of the decade. As the result of these increases, the gap between expenditure and real income corresponded in the 1959-60 period to about 97 of GNP at 1956 prices. 7. in Ceylon's open economy this excess demand made itself felt primarily in sharply rising import demand. As a consequence, deficits in the current balance of payments reduced external assets by about Rs.700 million or 70% between 1956 and the end of 1960. During Lhat period prices increased only moderately. Action taken since August 1960 halted the drain on reserves in early 1961. However, there may be a risk that domestic price inflation will become significant unless further action is taken to reduce expenditures. 8. The recent period of financial difficulties is the second of its type experienced in the postwar period. The first occurred in the years immediately after the Korean boom - 1952/53, when national expenditures also rose substan- tially faster than real income (which was in fact declining because of a deterioration in the terms of trade). During that period, government expendi- tures - and the deficit - rose sharply, and foreign exchange reserves dropped by 50%. However, with a recovery in export prices and the elimination of the government deficit in 1954, reserves recovered by 1956 to their end 1951 level. The Financial Situation 9. To an even greater extent than in the 1952-53 period, the recent period of reserve drain may be attributed to the growth of inflationary pressures resulting from mounting government deficits. These have been the result of I/ See also Chapter III. - 3 - rising expenditures designed mainly to: i) meet the needs of the increasing population for education, housing, and other social services, 11) proviae employ.ment and new land through expanded public investnent, iii) help stimu- late greater self-sufficiency in basic foodstuffs (rice) through a proaucers subsidy, and iv) keep the price of rice low for the general public through a consumerst subsidy. However, revenues have lagged behind expenditures. Between fiscal years 1955/56 and 1959/60 1/ revenues rose by 11%. Meanwhile, exnendi- tures increased by 48%. As a consequence, a budgetary position of approximate balance at the beginning of the period deteriorated into a deficit of Rs.485 million, or a quarter of total expenditures, at the end. 10. In 1959/60 revenue from export duties and income taxes combined was 25% lower than the postwar peak reached in 1955/56 when these sources accounted for half of total revenue. This was the result of declines in export prices and in the profits of the estates. However, revenue from other taxes, mainly import duties, increased by over 40% in the four-year period. Some changes in the system of direct taxation were undertaken in 1958/59 in order to make the structure of taxes more progressive and less rigid. The main innovation was a tax on personal expenditure, wealth, and gifts but administrative difficulties as well as high exemptions have limited collections from it to nominal amounts so far. 11. Total current expenditures rose by 71% between 1955/56 and 1959/60. Expenditures on free health and education went up from Rs.250 million to Rs390 million. Welfare payments and gross subsidies doubled - from Rs.178 million to Rs.350 million. The subsidy on rice alone rose from Rs.160 million in 1955/56 to an estimated Rs.300 million in 1959/60 Annual increments in the rice sub- sidy have been about Rs.30 million until 1959/60, but in that year it rose by R6( million beeaman the nrie of rationed rine was lowered from qn average of 177± cents a pound to 12-1- cents in April 1960. R/ Another factor in the mnnintinc refioit. Em hppn thp rtlptprin otior hv abouit. R.- _0 million in the net financial position of public utilities. Defense outlays also increased but at 12.* In lOQr7/5e cap+Ita enditures-n rose by30 or then na-rerge of +.Tin three preceding years and have been maintained at about that level since. The mnin i - n qqPq lii 'hpph n in narrimil.i-r P~ i r a mrt.l c11Ar11T -r-rimqtion n m l replanting of tea, coconut and rubber. Investment in public industrial under- takings hnas so far& remai ndrlat01 ivelyr smll a.nround Pcsqf0 million, alIthouigh plans have been announced to increase this rate substantially. 1/ The fiscal year is October-September. which is currently twice the world price level. It also provides for a rice ration of 4 lb. a week per person. The current price of Rs.12 cents a pound of rationed rice is about half the world market price. Currently nearly all imports and about half of the domestic crop are used for Unis ration. In the government accounts the rice subsidy is netted against profits from the sale of imported sugar. The latter amounted in 9)59/60 to about Rs,00 million. In tne table on the following page sugar profits are included with revenue while the rice subsidy is included with expenditure on a gross basis. Governmu-ent Finances (Rs. million) 1954/55 1955/56 1956/57 1957/58 1958/59 1959/60 4/ R1 ,9 1v1e5 1 143 1 17Q 1 99 1 121 Current Expenditures 664 791 860 1017 1166 1,308 VuLW.Ut U3L_LWj±L 4.?) .)?Y 4 _LUOzI )U 4 Capital Expenditure 357 431 396 498 493 490 Avaces L") 4- 14y; Q; L 1a Deficit -91 66 262 273 447 486 FINANCING: Foreign Aid and Loans 35 26 28 33 47/ 25 4/ Non-bank Sources 2/ 21 -4 59 119 140 g/ 155 / inflationary Sources -147 44 175 121 260 306 1/ Provisional Estimates. 2/ Some foreign aid may be included in "Non-bank Sources". See also 13. The role of rising current expenditures in the growth of the deficit is Rs.4 million, or less than one percent of cap,ital expenditures, in 1959/60. Non-inizau nnry financing, incluaing the usE u ureign grriU3 anm ioan I.a6 increased significantly in recent years, from Rs.22 million in 1955/56 to Rs.187 million in 1958/5, out by no means fast enough to keep pace witn tne sharp drop in the current surplus. Consequently, resort to inflationary financing rose to Rs.260 million in 1958/59 and is.ju million in 1959/60. 14. Private credit has played a relatively minor role in the recent grovth of inflationary pressures. Gross comcercial bank credit expanded at an average rate of Rs.70 million in the 1956-58 period but this rate dropped to an average of Rs.20 million in 1959 and 1960. At the same time, private savings and time deposits in these institutions continued to Increase at an annual rate of around Rs.60 million. On balance, the private sector has, therefore, actually had a contractionary influence on the money supply in the last two years, although no restrictive monetary measures were taken until August 1960. 15. The net effect of the public and private credit movenents has been a shift from an overall contraction in net domestic credit of Rs.50 million in 1955/56 to an expansion which reached Rs.273 million for the full year 1959/60 (or 24%0 of the money supply) and an even higher rate in the September-December 1960 period. As noted, the main impact of this expansion was on foreign exchange reserves, which declined at an average rate of nearly Rs.200 million for the four-year period ending December 1960. Following the decline in the money supply which occurred in 1957, there was a rise of about 16% through December 1960. The official cost of living index, after remaining more or - 5 - less stable in the period 1951-1956, began to rise early in 1957. and in the course of the next two years it increased by 5%. Mainly due to the reduced price of subsidized rice, it fell 1.6o in 1960. Yney Supply (Rs. million) Fiscal Year 1955/56 1956/57 195758 1958/59 1959/60 1960 Net credit to public sector 1/ -68 153 86 267 299 124 Net credit to private sector 15 28 AS -29 -26 _38 Change in total domestic credit -54 181 131 238 273 86 Change in foreign reserves 104 -200 -105 -182 -218 -56 tolicIge in totalL moneiy supply )V -_V 40 05 1/ Differs slightly from amounts shown in last line of preceding table mainly because of recording lags. The Balance of Payments 16. The change in Ceylon's balance of payments from a current account sur- Plus ofL "s .82i"llon iLn 195 to I anestimated defIcit-L of Rs .240 I--lln in 1960 was brought about mainly by expanded imports. The terms of trade in 1959 and 190 were the same as in 1950 - and also about the same as the average for the entire 1950-55 period. 1957 and 1958 were somewhat less favorable years in this respect. 17. In 1960, Ceylon's merchandise exports achieved a level very close to the record years of 1951 and 1955. As compared to 1955, export prices in 1960 averaged around 7% less whereas the volume was around 3/ higher. But 1955 was an exceptional year. As against the average for 1950-55, the 1960 volume repre- sented an increase of around 140, while it was 87% above the average lor 1956-59. Tea has been the main factor in the secular volume rise, with exports reaching a record level in 1960. Exports of rubber started to rise in 1960 after remain- ing fairly static between 1956 and 1959 while exports of coconut products were again off because of drought. In price movements a 20TO increase in rubber -prices over 1959 brought them up above the 1956 level which helped offset the effects of the steady decline in tea prices that has been underway since 1955. The high price of coconut products in the first half of 1960 was another factor responsible for bringing the average export price index back to the 1956 level during 1960. 18. During 1959, imports rose to a postwar peak and were maintained at about that level in 1960. This level is around 11% higher than the previous record reached in 1957 (when delayed arrivals because of the Suez crisis swelled the total), and was 33% above the average for 1950-55. Over the past decade some significant changes in the composition of imports have occurred. The propor- tion of food imports has fallen in recent years to about 40% of the total as compared to 46% in the 1950-54 period. Within food, most of the basic items - 6 such as rice, flour and curry stuffs have declined even more relative to the higher quality items such as dairy products, fruits and vegetables expanded gnifiantlY, parti4cul arly in 4- 1foffn __ -n"n 1~ -44 sensitive to income changes, having fluctuated much more strongly than other 1OOUsL,U1sJ ULLIJ-16 UNL;__UJ_~ ValdJ _U11b _L11 1iUUVLU Over theU decade. * iL he11 1950-54 period this was also true of textiles, but more recently, quantitative restrictions and rising domestic producuLon have operateu to keep texLiLe imports more stable - at around 20?; of the total. Capital goods and construc- tion materials have signilicantly expanded teir snare of the Total - from around 135 in 1950-54 to 17?; in the last two years. 19. Ceylon's balance of payments data show receipts of foreign aid and lcans rising in 19?;0 and lyby to around Hs.OU rllion annually as against an average of Rs.40 million in the three previous years. (These amounts are not identical with those in the budget table because not all foreign ait and loans are channelled through the budget.) The main reasons for the increase have been the initiation of a U.S. surplus sales program: under PL48O, which totalled about USQ21 million during 1958 and 1959, and use of the credit line from ainland China to the extent of Rs.1 million in 191;9.1/ Some decline probably occurred in this total during 1960 because there were no PL480 sales in that year. In 1959, net invisible payments were almost 50o"D lower than in 1955 as net income from services rose and payments of investment income and private donations (mainly remittances from resident aliens) declined as a result of stricter limita-- tions and lower profits of foreign owned estates. But these improvements were insufficient to offset the deterioration in the balance of trade. Developments Since August 1960 and the Short Run Outlook 20. The budget for the fiscal year 1960/61 as introduced in August projected a reduction in the overall government deficit to Rs .300 million and in the amount of inflationary financing to around Es.50 million. The increase in expenditure was to be held to 65?, while a rise in revenue of FPs.220 or 175 was projected, mainly on the basis of new tax measures. Some of these measures - increased import duties and excise taxes - with an estimated revenue yield of Rs.5555 million were imposed in August. Others - mainly proposed taxes on income and property expected to yield Rs.130 million - required new authority and as of mid-April none were yet in effect, although the three main proposals had passed the House and one of these had passed the Senate. Partly because of this, but also because other revenue has been considerably below expectations, tax collections in the first 4 months of the fiscal -ear were running 8?; below last year's. In addition, exenditure in the early months aDarentl rose at rate faster than the 6 ? fore- cast for the year as a whole. The result was a cash deficit for the September- December 1960 quarter alone of Rs.200 million. requiring inflationary financing of Rs.120 million. / Other iain items in recent use of loans have been (in millions of US dollars): Disbursement of IBRD loans, $h.9, 2.8, 1.4 and 1.6 in the years 1957 through 1960 respectively; a Canadian loan of 2,5 disbursed mainly in 1959; DLF disbursemlents of 1.5 starting in 1959; US ICA loans totalling 3.0 starting in 1958; and use of USSR credits of 1.0 annually starting in 1958. In addition, there have been grants of about 2.0 annually under the Colombo Plan. Counterpart funds crising from past PLh80) sales amounted to Rs.3 million on September 30, 1960. While these funds may be drawn on in 1960/61, the expansionary effect is likely to be offset by denosits from a new sales aireement. - 7 - 21. Faced with this situation, the Government acain acted to increase imnort duties in late January. The main measure was an across-the-board increase of five DercentaEe points in all duties. In addition. much sreater increases were imposed on some specific items. The revenue effect of this action may be estimated very roufhlv to be in the rnnre of Ps-O - RO millinn rt n mnnunl rate depending on the composition of imports. Moreover, most of the August nronn1sns rniiiri~ng newpgvai nsol bep,ni-i effet,rie i +!e __n September 1961 period, so there is a good chance total revenues will be between 10 and 1 hic- jn +ihe la+ half ofP +ho -Nonl re- +I,, +I e<o+ hTfIP Whether this will be sufficient to avoid the need for further inflationary fi'~~ -SJt"JX.L Y)r T.T. IU I rln n1r Ut±L 4-i 4a n- On t-; -'d the Government called for a 10) reduction below the budget estimate in limited c-tgrc o' exediue luoTvr oectgre are _L.UL U th estimates significantly; e.g., the rice subsidy payments, which were estimated a 1t: he il sa .VUe leve as -;7u I-LUOdePitue thle fCt Uta te _lower.L rIonul priceLt applies for the full year as against only six months out of the last year. 22. The impact which even moderate percentage changes in government expendi- bures can ave on he mone- supp n - IIdVC ~ ~ _L" 01 u uiij bJ4 L ti U1W JUU'1L' L.E.u.1 LIIU -LZIL;L wlau~ u0ucL tures are now running at an annual rate of around Rs.1900 million (or 30' of VNr) wie the L1money supply LZ drounU rIu1 milLion. Thus a _LV; increase in government expenditures, if financed by Bank credit, will mean a 165 increase in money. At present, it appears that any further reduction in public expendi- tures required. to achieve financial balance is likely to be in the order of - 0Au below the September-December 1960 rate. indeed it may be that this has already occurred, at least temporarily, since partial 6+ota indicate that there was no significant resort to Bank credit by the Government dturing January and February. 23. In the private credit field, action was taken in August to raise the discount rate and commercial bank reserve,requirements. The latter were further increased in January. Perhaps of greater immediate importance, advance deposit requirements of 50W were imposed on luxury imports in August. This may have been an important factor in the net contraction of private credit which occurred in the Septerber-Decerber 1960 quarter. However, there was again a moderate increase in private credit during January 1961. Finally, the extent of quantitative restrictions on imports was considerably broadened in the August-February period, and some imports were temporarily banned altogether pending the fixing of quotas. Moreover, some of the February tariffs were so high as to be virtually prohibitive. 24. The net effect of these measures was that the drain on foreign exchange reserves apparently stopped by February. (There was a drop in reserves of Rs.15 million in January, but in February there was an increase of Rs.10 million.) Prices of a number of imported goods have gone up because of the hig:her tariffs, but whether there has been any tendency toward general price inflation early in the year is not yet known. 25. During 1961, it seems likely that total foreign exchange receipts will be moderately above the 1960 level. Export earnings should remain about the same, since the higher volumes expected in all the main commodities should 1arpely offset the effects of lower average prices for rubber and copra. Foreign aid and loans should be higher, with a new PL 480 sales agreement in - 8 - prospect, and the probability that disbursements of committed loan funds (BRD, DLF, USR and China) will rise at least moderately. Moreover, Ceylon has just made a drawing on the IMF of US$1l.. million (representing its 25% gold tranche). It seems quite likely that the level of imports can be kept within the limit of foreign exchange income during 1961, if necessary with use of quantitative restrictions, without requiring major cuts in consumption or investment., As compared to the 1960 level, the reduction in imports re- quired to achieve balance would appear to be less than 10%, and as noted, such a reduction may already have been achieved in the first few months of the year. The problem of avoiding domestic price inflation will depend largely on keep- ing the Government's cash deficit down to a level which can be financed from non-inflationary sources. III, The Longer Term Outlook 26. Ceylon's longer run development problem is likely to be more difficult than the immediate one of preventing a further drain on reserve and avoiding domestic price inflation, The economy has the potential to achieve a rate of growth sufficient to permit a rise in per capita incomes and to avoid further increases in unemployment, But the rate of investment needed to realize this potential will require increased domestic savings, i.e,., the rate of consump- tion will have to be held down to less than the growth rate in real income, rather than exceeding it as in the past several years. The Potential 27. The evidence of development possibilities in Ceylon accumulated in recent studies provides further support for the conclusion cited in nrevious reports 1/ that the economy has a substantial development potential. The out- 1nnok inTlip manin agiut ralrexport, rrv). nth ~ nnt. fo-r arouindi Ov of GNP) appears to be for average growth in earnings at around 3% over the next (iAnnHP - nqqlminc t.hant neosts,. of produtiotn don not. risep ton ther point whe-re. Ceylon's competitive position is jeopardized. While world prices for tea, rubbe)r qndl cocnuts+. are likerlyr tor averge lescz t.han in -rrcent yeanrs, ann expanded volume of output is expected to more than offset this drop. The basis for such an in-raqP in nroduction annPers tobe well s tablishd. Chitnt of tea has expanded recently at an average rate of about 4% per year and by 5% in 1QOO- F ionific'nn±.1Ir tliiq cvr-rnrT.1ihb 'hccn nn-mnnar T-ir n m n -'' c iri o,lde per acre and a decline in the labor force. Output per laborer increased by abouti+ 20% dr1iing theQlas fiver yrsQ T Te future points tow,,ardS'fuXrth,er J -ro-TT, ments, as 30,000 acres are replanted with high-yielding varieties over the six- 28. he otputof ruberxeaie about constant betWeen 196- and1 1960, with minor fluctuations from year to year, but this has been due to the fact is underway. Since 1953 about 150,000 acres, or three-quarter of the acreage trees come into bearing, output should increase very substantially. As in 1/ "The Current Economic Situation and Prospects of Ceylon", dated April 10, L7 )7, -.J. - 9 - the case of tea, however, employment will not rise proportionately. The output of coconut has fallen about 20% from its record level of 1956, as adverse weather conditions have plagued this sector for a number of years, but the rehabilita- tion program underway should lead to some increase in the years ahead. 29. In the case of production for the home market - both in agriculture and other sectors - a growth rate of significantly more than 3% should be feas- ible. Production of paddy, Ceylon's main food crop, has been expanding at an average rate of h% between 1950 and 1960. and the ratio of rice imports to total consumption has declined over the decade from 60% to 50%. The continued exten- sion of the ac:reaEe under irrigation. increased use of fertilizer under a sub- sidy scheme, and the introduction of better seedlings have brought about some increase in average vields and apparently reduced the effects of bad weather conditions on crops. The potential for further expansion of output through continuatinn of thsp programs copnled with large-scale irripntion nroiects seems subst,ntial. On balance, an increase in output by 50% or more in the next tpn v.qr. qPPm: nite attainable Howeyvr an imnortant question to be qns'Mre d is whether, at world market prices (which are about half present domestic prices), l - invPq+.mniq. in rinp mnrlmAn.n uniilr hp ernn)i.cz+.Pn+. -vi.h nn nAimim nqt.+rn of investment resources. In any case, the potential for other food crops also seems at l .t as nrnmizing as for nddy, particularly wh+.hp develpnment of the country's irrigation possibilities. Expanded fish output should also be pos- sbei the plan- tomoorz the fishing fleet ca be r ealized a nd adequate training be provided. Finally, a considerable expansion of livestock and poultry rnUn+.M. cnnlr1 n1+4mi++lv he askl at a rate of around 7% or more since 1956. But industrial production still only accounts For- 6 or7c/ of r1NM A s noted earie,4-~ frlrescl x pansion of government industrial enterprise, but to date the rate of such invest- quite mixed. With greater incentive to private enterprise and better organLza- ton o government efforts in this sector, the rate 01 industrial output could undoubtedly be very substantially expanded. Investment and the Financing Problem 31. The extent to which this potential can be realized will, of course, Ae en .L . F__ __ r7_ __ ____ - ..1__I - uay1u u nlarge part un bne leveIS 01 UI £IiVeaumn1Eiu wnC11 can ue aciLeved, and on the efficiency with which the available capital and human resources are usedo Ueylon's rate of growth of real output in the y50-ou decade has averaged about 3% with an average investment rate of around 12% (it rose from about 11% in the first part of the decade to l4% in 1959). This suggests an average ratio between capital and physical output of around 4:1. For the next decade, the ratio might be moderately lower, because a good part of the past investments in rubber and tea replanting and in land development (e.g., Cal Oya) will begin to show their full results only in the next five years or so. On the other hand, as already indicated, the terms of trade are likely to deteriorate moderately, so the objective of achieving significant increases in real per capita income is likely to require investment at least at the 14% rate realized in 1959, and probably more. In Ceylon's Ten Year Plan issued last year an increase to around 20% of GNP was projected as a target for 1968. The growth objective of the Plan is an average of bo annually, or 37 on a per capita basis. - 10 - 32. Even to maintain recent investment rates will present a financing problem of some magnitude if foreign exchange reserves are to be rebuilt up to the level where they provide a reasonable safety margin. Some increase in foreign aid and loans can probably be achieved in the next few years, perhaos even more than. the average inflow of Rs. 130 million annually projected in the Ten Year Plan. But to rebuild foreign exchange reserves even to the level of four months' imports would require about Rs. 400 million. While this might be spread out over several years, it would obviously substantially reduce the net amount of foreign resources available for financing inve&.ment well below the rate of Rs. 250 million used in the past two years. 33. Thus, if the investment rate is to be increased - or even maintained at recent levels, domestic savings will have to rise significantly above the Rs. 600 million rate (10% of GNP) reached in the past year or so. As already noted, the level of public savings was quite 'Low in the past two years. How- ever, if the revenue and current expenditure targets of the 1960/61 budget can be achieved (say, by next year, if not this), this would raise public savings to around Rs. 250 million. But total revenue would then represent around 25% of GNP and substantial further increases in present types of taxation would hardly seem feasible. (Indeed, some of the current tax rates may be too high in terms of their over-all economic usefulness). If. as projected in the Ten Year Plan, net food subsidies were largely eliminated during the next few years, this could make a further imDortant contribution to Dublic savings. On the other hand, if the present subsidy arrangement continues it will, as shown in the Ten Year Plan document.reoresent a growing burden on the government budget, especially as domestic rice production rises in relation to total rice consumption. Political considerations make the Government reluctant to eliminate or reduce the subsidy at present. 'If this cannot be done, the pos- sibility exists of introducine taxation of a tvne which would restrict orivate consumption (e.g., a sales tax on consumer goods). The alternative to some such action would anneqr to bp a continued low rqtp of nnblic savings- ;nd reduced public investment. 34. Private savings in the 1957-59 period averaged about Rs. 530 million, _n ln-apanrt o-P -whiichrpetdretane arnincrcz G ivern nnpprnnpriate+ policies, it should be possible to induce a higher rate of private savings in npvion.. RYnni on ofq nvinrr. inqtit-t.in nd rontribut. to thi . Ent an even more important factor probably will be the range of opportunities open to nrivite investors - fornpian as well . Anom+.ie - for nrnfit.nble investmen. In recent years, moreover, the private sector has been cautious about invest- ing nqrtl AhPnnim of' nncertain+ies orpr government nolicie writh epnn+ + nationalization, taxation and industrial relations. 35. Industrial relations have apparently improved significantly in the -past yTear J11ryin -1 C V,T f n +In . ~ A, +1- -1-+ In.4 1~- P-.---, __,,- average of 800,000 annually in 1957-59 to around 150,000 in 1960. On the other .9 -. -a - JCC± .Ull ~ C L 1 CU1UJ., CL1iU .L U Ull-Lo C uirlUeS for any length of time, it could have an important inhibiting effect on economic be achieved in mobilization of human resources (including key managerial and rtehnical is)n ito shu hperLot at surreft Or moderatelyiri sm rates of investment, to achieve the growth rate sufficiently to permit some - 11 - rise in per capita incomes and to reduce the level of unemployment. Creditworthiness 36. Ce-lonls present external public debt is quite small. At the end of 1960, the amount of foreign loans disbursed and outstanding stood at around US$L66 million, comprising sterling loans equivalent to $20.2 million,"15.6 million from the two previous IBRD loans, $2.0 million from Canada, and the equivalent of $8.2 million from creditlines of the Soviet Union and Mainland China. The undisbursed portion of the IBRD loans amounted to $8.3 million. Under the established creditlines $39 million could still be drawn from the Soviet Union. 87.9 from Mainland China. and 815.4 million from Yugoslavia. In addition negotiations are currently underway with the U.K. for a1 2.5 milli on sunli_erst credi t. with the TRT for a A15.0 million loan. and with Germany for a long term credit of DM 40 million. If these loans are made and all existing creditlines utili7ed. rvlionts rntp-Tne nnbli I Aht wnflrl reach $134 million. Annual services on this would at its peak amount to about $12 million nr aron 3 n of nresent n-crrn. earni-ncq While not a maoinr rden_ this amount constitutes a significant share of GNP (around 1%) because of the other countries. 37. The action taken by the Government in the past six months appears to havetro be---. su cssful i hali4ng theo rin n. r-s-cr-, and ni on i" n r;n+l1 r reducing use of bank credit to finance government expenditures. While some further action may b0e required to eli41minate the ,- r k O dnrOm-t 4rf nt+ the recent measures encourage confidence that additional action will be taken if neceSS,rr t avoi aV4, d-etr---,-n J n~ h Jmmeed-atcn s-+-+4-n the extent of any further action likely to be required is modest compared to -(--. Luil Ut:V.:_U jjlUlU p.LU_Lt_1l _L i -.q-L UU Utz CL IIiU± L LI±LUL L/ one if Ceylon is to achieve satisfactory rates of growth in income and employment. For to obtain the necessary grcwth in domestic savings may require further fiscal reforms and perhaps a temporary slow down in the growth of consumption which may be politically difficult. The outlook is further complicated by uncertainty in the cormunal situation. 39. These uncertainties in the economic and political outlook limit the extent of foreign debt which Ceylon can safely incur at this stage. However, taking into account the effectiveness of the Government's recent action tc deal with its immediate problem, and of Geylon's relatively low level of cebt, it would not seem imprudent for Ceylon to incur modest additional amounts of external debt, in spite of these uncertainties. Table 1: CEYLON - EXTE NAL PUBLIC DEBT GLTSTfNDING INCLUDING UNDISBURSED AS OF JUNE 30, 1960 (In thousands of U.S. dollar equivalents) Debt out- stand ing Of which Item plus un- dH ~isrsed disbursed June 30, 1960 TCTAL EXTE NAL PUBLIC DEBT 101,033 4,208 Publicly-issued bonds /a 18,071 18,071 Privately-placed debt 1,882 1,882 IBRD luans 23,160 13,987 Loans from other governments 57,920/b 10,268 uan,ada U2,016 U.S.S.R. 30,000 5,417 China 10,50h 2,83 Yugoslavia 15,400 - /a Net of sinking fi:ds. 77 Excludes a £ 2,500,0 loan from United Kinclom which is under nefotiation. Table TT RSTATED i T-, TjT, CNJTT rTUTLT SERVI P1 YN7I\TS PY CUTPRRNCY OF PW PIE'RFMT (N EXTERNAL PUBLIC DEBT OUTSTANDING AS OF JUNE 30, 1960 /a Other foreign Year Total U.S. Pounds currencies dollars sterling j___ 196,y ,8 23..,17 3,.h. 1961 9,524 366 2,633 6,525 1962 7,9.7 C13 2 ),1 n 51 -L, vc- 1 C4l>4JJ , . Lkj -1 ] 1963 8,183 528 1,990 5,665 1961. , 2o)3 n 0 12)7 5, 73)7 1965 8,830 230 2,961 5,639 1966 7 23 n1, 5 7 1967 7,120 230 1,452 5,h38 1968~- 6,72 23 1,42 50 1969 6,636 230 1,452 4,954 *19n7n -,7 23 1,68 0,,866 /a Includes service on all debt listed in the Table 1 above with the excepticn of the $.h million credit line from Yugoslavia. IBRW - Economic Staff TABLE ITT (Rs. million at current prices) t~~~ or,. -1. Orr a~ rQIJ.LOUU t4I expenditure 3,778 4,155 4,296 4,495 Government consump- Private gross capital expenditure 297 320 312 389 Public gross capital expenditure 396 _77 412 407 Gross Expenditure 5,156 5,71 5,850 6,2)4 Net Exports of -oods and Services?/ 119 -178 -171 -252 GNP at market prices 5,275 5,393 5,679 6,002 1/ Provisional 2/ Excludes receipts from foreign grants. Source: annual Report of the Central Bank of Ceylon. TABLE IV Grn.q Natinrl Prndunt. 'hv Indust.rinl Oriryin (Rs. million) lorA I97 199 IQ i11/ Gross Domestic Product Mining and quarrying 17 17 10 15 C,. A. U.L -L-i, l±Oc1- X.L C-L .L U -- Construction 459 451 496 539 pu arnu UUmiUulu an _)Uu _,, ( )ur Wholesale, retail trade 414 431 482 516 Owrlershf-ip of dwelling.S 108 12<14 131?- Gov't administration and defense 273 2oo 2o7 Co Govtt social services 257 278 314 349 Other services 3V2 4U bd2 4 Gross domestic product at factor cost 5,039 5,14 ,443 5,69 Import and excise duties net of subsidies 277 285 263 325 Net factor income from abroad -1 -32 -27 -21 Gross national product at market prices 5,275 5,393 5,679 6,002 GNP at constant (1956) prices 5,275 5,319 5,505 5,766 1/ Provisional Source: Annual Report of the Central Bank of Ceylon TABLE V Production of Principal Crops 1950 1951 1952 1953 195 19955 1956 1957 1958 L959 1960 Export Crops Tea (million lbs.) 306 326 317 343 367 380 376 398 h05 413 431 Rubber (thousand tons) 114 105 96 99 94 94 95 98 100 91.7 98 Coconuts (million units) 1,925 2,185 2,376 2,264 2,203 2,20 2,520 2,080 2,03 2,314 2,0h0 Domestic Food Cros Paddy (million bushels) 24.5 24.3 :28.9 21.9 31.5 35.7 27.1 30.6 36.6 .35.8 / 35.7 Onio nsQ (thousand tons) 14.7 15.1 21.6 25,0 2".2 44.0 20.0 48.7 32.6 .37.9 Chillies (thousand tons) 11.7 11.3 15.5 17.5 18.8 16.7 16.v 18.10 13.1 10.1 Pepper (thousand tons) 4.3 3.8 4.8 5.2 2.8 5.8 6x0 5.9 6.0 5.9 1/ Provisional, 2/ Provisional estimates. Source: Department of Census and Statistics, Ceylo; Statistical Abstract of Ceylon. TABL_1, Governmrent Revenue and Expenditure (Rs. million) 1954/55 19,55/56 1956/57 1957/58 1958/59 1959/60 ?/ 1960/61 6 RevenueS Export duties 369 321 323 324 306, 285 258 Import duties 258 286 30 292 367 389 431 Other indirect taxes 59 71 81 94 131 157 220 Taxes on income and profits 207 300 272 265 201 191 337 Other taxes 45 46 45 52 59 75 89 Receipts from government enterprises (net) 2/ 15 15 11 - - - 20 Other income 3/ l4h 146 C-7 152 158 162 167 Total ~ 1,097 1,185 ~,13 1,179 1,222 1,312 ,52 Expenditure Current Expenditurps Administration 7/ ihl 149 172 200 208 229 243 Social services 23h 257 278 314 377 392 22 Economic services 81 67 69 65 87 15- 117 Payments to government enterprises (net) 2/ - - - 17 8 10 - Food subsidies (gros«s) 83 167 159 193 245 300 300 Interest on public debt 34 34 35 39 44 53 66 Grants to local govern- ment 23 24 26 33 35 36 37 Othe transfers to public 68 95 121 162 162 139 16l Total tns 66rs791 tpl60 1,017 l,1,308 L,346 Net paygents on advances h/ -15 29 149 -63 1ý n.a. i.a. Capital Expenditure 357 431 396 498 493 490 505 GRAND TOTAL 1,00 1,251 _0 i,h52 ,669 1,798 1,851 Surplus/Deficit (-) 91 -66 -262 -273 -447 -486 -329 * See next page for footnotes. Footnotes to TABL LI 1/ Expenditure is defined here to include expenditures chargeable to revenue, to loan funds (including foreign loans), the National Development Reserve, the Reserve, Extension and Renewals Fund, the Rubber Replantng-' Subsidy Fund, foreign aid and net payments on advance accounts. 2/ Postal and Telecommunication Services, railroad, Department of Electrical Undertaking, Broadcasting Depart- ment, ports. Gross expenditures are classified by the Central Bank partly under gross payments to govern- ment enterprises and partly under utility services. In the following table these items are grouped under gross expenditures. Budget (Rs. million) 19 b/g 1955/56 1956/57 1957/58 1958/59 1959/60 1960/61 Gross receipts '145 155 163 162 179 184 202 Reimbursement and debt service to government 15 17 17 20 27 27 28 Total receipts 1W 172 18 UT 211 230 Gross expenditures Th5 157 169 193 214 221 210 Surplus/Deficit 15 15 11 -11 -8 -12 / Includes the following profits from the sale of sugar (Rs. million) 1954/55 195!/9 1956/57 1957/58 1958/59 1959/60 1960/61 83 85 53 81 98 100 100 / Includes net payments as receipts arising from settlement of bilateral trade balance. 5/ Totals are provisional estimates; details of revenue and current expenditure are revised estimates and do not correspond to the totals. 6/ Draft estimates. -7/ Includes the following defense outlays (Rs. million) 195/1,155 1955/56 19r6/57 1957/58 195/59 1959/60 1960/61 TABLE VII Fin,ncing of Government Def icit (Rs. million) Budget 9519/6 l956/57 1957/8 1958/59 1959/60 / 1960/61 Market Borrowing Net borrowing from banking system -71 36 130 50 180 239 ./ Net borrowing from non-bank scurces 3/ 21 -h 59 119 140 15:5 Total 32 1899 320 ~3 Foreign Borrowing Gross bcrrowing 13 7 21 2, 36 31 Sinking fund contributions, repayments 4 h 4 U 7 6 Net borrowing 9 3 17 20 29 ) 111 Foreign Aid 26 23 11 13 18 n.a. ) Reduction in Cash Balances -76 8 45 71 80 67 9 TOTAL FINANCING -91 66 262 273 4h7 686 300 1/ Estimate. 2/ Excludes Rs. 37 million advance from the Central Bank for increased IF subscription. 3/ Includes "administrative borrowing" from the following sources: various deposits with the government, including unexpenidd .oreign aid; miscellaneous trust funds. 1954/55 1955/56 1956/57 1957/58 1958/59 1959/60 1960/61 27 -16 21 2~ 70 n.a. Source: Annual Report of the Central Bank of Ceylon and the Central Bank of Ceylon Bulletin. Table VIIa Domestic Public Debt (Hs. milion) September 30 Rupee=' Treasury Central Bank Other Total L:oans Bills Advances 1955 693 60 - 753 1956 731 66 - 799 1957 794 65 96 9 964 1958 806 140 83 8 1,037 1959 867 320 121 14 1,325 1960 970 550 164 6 1,690 Dec. 1960 1,054 625 191 10 1,880 Source: Annual Report of the Central Bank of Ceylon Holding of Gross Domestic Public Debt2/ September 30 Central Bank Commercial Banking Govt Financial Other Pon- Banks System Institutions Eent Public 1957 13 28 41 48 11 1958 18 24 42 49 9 1959 26 18 44 47 9 1960 35 16 51 42 7 Dec. 1960 36 16 52 40 8 Source: Central Bank of Ceylon 1/ Bae onldta sinkin f ndts. /Based on data of gross debt, i.e. debt before deduction of sinking funds. TABLE VIII Government Capital ExPenditure (Rs. million) 195L155 1955/56 1956/57 1957/58 1958/59 1959/60 1960/61 Administration -18 21 4 ik99 Defense 9 8 7 21 32 27 25 Civil Adminis- tration 9 16 A 18 14k 22 1L Social Services gn ini 97 P0 77 121 99 Health 18 20 17 10 21 15 Education 1/1, P1 7 20 28 39 39 General Housing 40 39 32 32 2.6 43 29 Rir,l dRv.1nenP.nt A 19 Q 11 1 A Fno-nnmin W.ri. 27 9)CA 9r 7 qn, qq q9f 37A A Utilities 118 122 129 118 121 169 150 i, +120 I o 1/0 1 79 I _QIAor Manufacture, Mining, Financial Assets/ 12 50 31 76 50 - 19 Grand Total 357 431 396 498 493 490 505 of which maintenance 41 49 51 76 77 70 66 Capital exp. in percent of total expendi- ture 33 33 26 32 28 26 26 1/ Includes irrigation and fisheries. / The total is provisional; details are original estimates and do not correspond to the provisional total. / Draft estimates. 1/ Consists mainly of loans to the private sector and local authorities, SOuRCE: Annual Reports. Central Bank of Ceylon. TABLE IK Activities of Commercial Banks (Rs. million) End of Period 1955 1956 1957 1958 1959 1960 Assets Loans and Advances 324 407 453 502 5o9 54b Government Securities 1/ 249 294 288 285 284 288 Treasury Bills 35 53 39 14 46 4o Foreign Exchange 2 156 98 56 49 51 56 Liquid Reserves ./ 201 224 164 191 195 209 Liabilities Private Demand Deposits 675 718 601 546 609 607 Government, Demand Deposits 60 68 85 113 62 72 Private Time & Saving Deposits 152 187 216 261 300 36b. Government Time & Saving Deposits 13 41 31 24 20 9 Ratios (in percent) Liauid Assets 1 to Demand DeposirS 61 55 45 49 51 57 Loans & Balances to Total Deposits 36 40 48 53 51 52 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 the Central Bank and other domestic banks and items in nrnnRss of nnllection. )I/ Cornszist of: cash o?n nd, Ibalrance duii fromA Cepntral Bannk, foreign cur- rency on hand, balances due from banks abroad and Government Treasury in process of collection are excluded. Source: Annual Report of the Central Bank of Ceylon and the Central Bank O. kipy-L . )U _.L±e..LII, Table X nalysis of Factors 'ffect-ng the Boney Supply (5s. million)__ Dec. 1 eptember 30 1955 1956 1957 1951 1959 1960 19601 public )ector Central _k. loans adv.to Govt. - 96.3 82.5 123.6 163.7 191.3 Centrtl -k.holdings of Govt.sec. 19.0 14.0 43.9 14).7 23i.3 514.3 Comm.Bk. holdings of Govt.sec. 285.3 326.6 325.5 292. 295.4 29.0 335.4 Gross bnk credit 304.3 340.6 470.7 520.4 700.3 975.0 1,095.4 Le ss: Govt. rupee cash balLnces2/ 146.1 209.3 203.8 183.3 108.0 37.4 91.9 Central Bk.inisc.acc,.(net) 47.9 80.5 85.6 84.4 91. 117.ß 118.9 Total deductions 194.0 289.8 289.4 267.7 206.8 205.2 210.8 !"et doimstic credit to public sector 110.3 50.8 1 1.3 252.7 493.5 76<.8 384.6 riv te Sector Commn. Dank credit 295.5 328.6 403.3 453.9 423.6 52 .2 513.0 Less: Time & svings de-osits, net liabilities of coymm. banks 200.3 215.9 262.2 275.3 327.2 392.9 419.4 _djustments for iterns in transit -2.2 0.5 1.1 -2.6 2.4 1.1 ic n6 1 -v , ~ Q' I2 'Y 'O Toal deducilons 998.9 ). .37.2 395 Met domestic credit to private sector 97.4 112.2 140.5 185.7 156.4 130.9 92.5 Total domestic credit 207.7 163.0 321.8 433.4 649.9 900.7 977.1 Externml Sector External -ssets of Central Bank & Conm.Banks 804.0 900.8 723.7 633.6 478.1 280.7 231.3 Total money supTly 1,011.7 1,063.8 1,045.5 1,072.0 1,128.0 1,181.4 1,203.9 Change in money supply +52.1 -18.3 +26.5 +56.0 +53.4 +27.5 l1 7Provis ional 2/ These figures d-iffer from those given in the table on "Financing of Government Deficit." This is apparently due partly to differences in coverage and partly to leads and lags in the recording of transactions. Source: Aknnual Report of the Central Bank of Ceylon, Central Bank uf Ceylon Bulletin 'PAPTF YT index of Cost_of av and Wav-es (1952 =100)- End of Period 1955 1956 1957 1958 19259 1960 Cot of Living 1005 1002 1u5o 1u52 1u035va MinW4UmAU wage rates Agriculture 1066 1071 1087 1102 1102 1099 industry and Commerce 1014 1029 1045 1161 1288 1280 Goverunment 1058 1072 1of4 1267 1267 1267 SOURCE: Central Bank of Ceylon Bulletin TABLE XII Balance of Payments (Re. million) First Half 1955 1956 1957 1958 1959 1959 1960;' Merchandise Exports (f.o.b.) 1,893 1,772 1,669 1,624 1,773 866 878 ImDorts (c.i.f.) -1.478 -1,576 -1.764 --1,713 -1,955 -909 -952 Trade Balance 415 196 -95 -89 -182 -43 -74 Other Current (Net) Transnort and Insurance 56 4 43 76 73 36 37 Investment Income -61 -50 -53 -41 -37 -17 -20 Other Tnvisihle -26 -50 -51 -76 -L6 -28 -26 Private Donations -78 -83 -66 -78 -56 -33 -22 Tnt.i -109 -142 -127 -11Q -66 -42 -31 Current Balance 306 54 -222 -208 -248 -85 -105 Financing Items Privra+T. -o -10 -1 -4 -15 -8 ) ) 1+ -' -1 --/16 /7 Private Short- erm -7 29 3 11 10 ) ) Public nts 17 28 27 55 44 Use of Official Loans 9 9 23 23 42 ) ) Reamns- -A '-i Other Official2/ 1 -3 22 - -26 ) ) Total Financing -317 -39 223 224 250 99 99 Errors and Omissions +11 -15 -1 -16 -2 -14 +6 1/ rreu in mnary 2/ Receipts of aid in kind are not recorded in the exchange records, and adjustments are made only on an annual basis for balance of payments purposes to include known items. It is for this reason that virtually no grants are reported for the half yearly totals in the last two columns. Moreover, the series shown above appears to understate donations even on an annual basis, judging from U.S. records of its sales and relief under its PL 480 program. These totalled around Rs. 60 million in both 1958 and 1959. / Includes the following U.K. loan repayments (Rs. million) 1955 1957 1959 1.9 21.7 9.6 and, in 1959,, the payment of Rs. 35.7 million for increased subscription to IMF. 4/ Comprises short-term assets of Government, Central Bank, and commercial banks; foreign security holdings of Government and Central Bank; short- term liabilities, including liabilities to INF. Sources: annual Report of the Central Bank of Ceylon IMF Balance of Payments Yearbook TABLE XIII Composition of Exports (Rs. million) Annual Average 1/ 1950-54 1955 1956 1957 1958 1959 1960 Tea 845 1194 1044 1021 1131 1045 1120 Rubber 396 350 293 300 258 298 390 Major coconut products 254 225 213 156 164 244 194 Other domestic exports 103 102 111 9 105 j.g20 Domestic exports 1588 1872 1652 1588 1652 1692 1824 Re-exports 81 68 82 93 59 62 _5_ Total 1669 1940 1734 1682 1711 1754 1883 Percentage of Total Exports Tea 50.7 61.6 60.2 60.8 66.1 59.5 59.5 Rubber 23.7 18.0 16.9 17.9 15.1 17.0 20.7 Maior no-onut nrnducts 15.2 11.6 12.3 9.3 9.6 13.9 10.3 Other domestic exports 5.6 5 5.9 6.5 58 6.0 6 -4 DATmPat1( P.rno~ts 02 QA.A 95.3 94-5 96-6 96.5 96.9 Re-exports . 3.5 '23 To an inn n 1nn.0 nin-n- ninOn ninn-nf n0o0 100o 1/ First 10 months 1960 expressed at annual rate (not seasonally adjusted) Source: Ceylon Customs Returns Table XIV Composition of Ivports (Es. nilliocn) nnual verage 195U-4 1955 1956 1957 1958 1959 19601 Food 690 60 681 712 693 729 752 Flour 128 t7 86 67 106 61 Sugar 76 R3 9 82 87 75 86 Fish products 48 68 78 80 92 89 105 mar products 37 63 58 83 7'7 Fruits and vegetables 33 66 75 8L 96 93 104 Curr- stuffs 38 3? 30 36 28 32 )" Other food 42 22 23 26 27 28 28 Beverorges and Tobacc 19 21 22 2h 22 23 2h Capital Goods and Constr. Ilaterial 192 U7~ 2 32 2,7 259 367 77 7 acie SS7 -9T -~3 -M7 ¯k Passenger cars ) 35 53 54 69 50 60 f-her t s ei n ) 70 3 3 3 3n -1297 n/, Cement 16 13 17 28 13 22 18 IDase metal U-L l-6 5 0 1 7 ulier Iirtuu ;su UU U6 (4) uCU2 U' Petroleumi prod:ucts 110 127 111 202 125 137 13 Fertilizers 37 9y :5 70 7 61 583 ChemicP1s, drugs, etc. 31 50 56 61 63 8h 87 ianufactures of netal 39 L6 h5 h3 55 50 Paper and cardboerd 25 28 30 31- 29 3b. 38 Electric appiances 23 2 60 33 39 6 '9 Rubber manufaetures 13 13 16 19 22 26 20 klood and cork manufactures ii 16 20 18 17 18 Instruments, optical goods, watches lh 17 22 23 34 51 Textiles and clothing 189 172 200 196 21h 210 23:2 All other 109 110 119 120 125 141 Total 1,87 1,840 1,629 1,804 1,717 2,005 2,002 1/ Fiirst 10 -onths of 1960 expressed at annual rate (not seasonallv adjusted. ource: CeyTlon Customs Peturns .L1I~A .!. V 0LU.1I~ UIr .1 A J nT 1 D± V I '.-J .d (1948 = 100) import and Export Volume 1955 1956 1957 195b 1959 1960 ' Exports Tea 122 118 124 139 130 141 Rubber 108 94 101 100 99 110 Coconut Products 165 155 105 101 125 111 All Exports 126 118 116 123 121 129 Imports Consumer Goods 126 141 142 153 162 159 Capital Goods 146 144 176 14 195 187 All Imports 130 12 150 151 169 164 Terms of Foreign Trade Export Prices 158 148 142 139 145 17 Import Prices 102 106 112 103 102 104 TerMs nf Trade 15 i,0 127 135 )2 1i1 i1/ n,w Jnry, - N\ oember. i1960. Source: Celor ofth of Ceylon Bulletin. TABE XYIL Exmort Quantities and Prices Tea Rubber Co-ra Coconut Oil Dessicated Coconut mill, mill, lbs. Rs./lb, lbs. Rs./1b. cwt. Rs./cwt. cwt. Rs./cwt. cwt. Rs./cwt. 1955 362 3.30 216 1.56 1,367 41.92 1,945 58.26 1,157 47.35 1956 348 3.00 188 1.50 1,155 42.43 1,698 58.2. 1,275 50.82 1957 368 2.78 207 1.43 695 47.91 1,081 62.81 978 56;03 1958 411 2.75 207 1.25 554 52.88 887 69.79 1,135 63.70 1959 384 2.72 206 1.45 852 60.56 1,389 84.45 1,00 71.42 1960 1/ 352 2.65 197 1.65 526 56.08 939 73.58 937 67.12 1/ January - October, 1960 Source: Ceylon Customs Return. TARTF. YTT (Rs. million) 'W l -P ne - A I (g in rj- 1 0 r17 I Orl 10 C0O - ,-r J-1L U i -- - LL)U 47 .1 ~1 6 Government and Government Central Bank 659 745 590 531 380 173 1 1"6 -l-1 7r7 1 -I 7r Uommercial Banks Lto 1 4- U4 1 t Credit Balances under Bilateral Trade Agreements 3 a1 _ o __)U Gross .ssets 1,186 1,243 1,031 875 701 511 Deductions: Sterling Loan Sinking Funds 75 OU U 1uu 77 ou Central Bank Liabilities - 1 12 47 72 57 Commercial Bank Liabilities 28 21 19 26 27 Z7= Total Deductions 103 111 121 173 176 164 Net Assets 1,083 1,132 910 702 525 3471 Change Between Periods +49 -222 -208 -177 -178 1/ Estimate Source: Annual Report of the Central Bank of Ceylon, the Central Bank of Ceylon Bulletin, and International Financial Statistics