Ceylon - Recent economic trends

I gTURN TO RECTRICT ijREPORTS DESKI Report No. FE- 540 ONE WEEK £ This report was prepared for use within the Bank and its affiliated organizations. They do not accent resonsibilitv for its accuracy or comnietaness- The renort mov not be published nor may it be quoted as representing their views. INTERNATIONAL BANK FOR RECONSTRUCTION AND )VVFT.PMPNT INTERNATIONAL DEVELOPMENT ASSOCIATION RECENT ECONOMIC TRENDS CEYLON April 14, 1966 Far East Department CURRENCY EQUIVALENTS Currency Unit - Ceylon Rupee US $1 = 4.76 Rupee 1 Rupee = US $0. Zi 1 Million Rupees = US $210, 000 This report was prepared by a mission comprising 1bssrs. E. Eevan Waide (Chief of Mission), Stanley Please, Maurice F. Perkins, Ilichel Palein and Reo A. Basoah. TABLE OF CONTENTS Page No. BASIC WLTA SUiiiY AND CONUIONS .................................... i - iii. I. INTRODUCTION ....................... i II. TRENDS IN THE CEYLON ECONOMY ....................... h Output and Exports ........ ....................... 4 The Use of Resources ............................ 6 Financial Developments ....... .................. 7 Overall Monetary Trends .......... * ........ .. 9 The Balance of Payments ................ ....... 10 III. GROWTH PRO3LEMS AND POTENTIAL ................ 12 Problems ............ . ... ..... .. ....... 12 The Potential for Growth ......................... 14 IV. CURRENT ECONOMIC POLICIES AND PLANS .................. 18 Dbvel>onent Programs ............................ 18 Financial and Monetary Policies ................. 22 Adrlinnistration and Economic Planning ............ 23 Policies Towards the Private Sector ............. 24 c3117nTAry ... . . . . . . . . . . . ... . . ... ..... . 25 V. TL SCOPE ANKED FDR FITVWR A-TTON............... 27 The Impic-iation for Policy ........... 29 Financial Policy ............................... 29 Possible Courses of Action .................. 32 VI. IMPORT REQUIREÆENTS AND THE BALANCE OF PAYMENTS IN 1966 3h The 1966 Import Program ......................... 3h The 1966 Balance of Payments .................... 37 ANNEK i - ilRT REQWUlE=MElTiSi AND DLANCE4j V. rF PA1.NTS FIA ANNEX II - PROJECTS IDENIM-1FI BY RECENT MISSIONS STATISTICAL APPENDIX - TABLES i - XI BASIC DATA Area: 25,332 square miles Population: (1965) 11,228,000 Rate of Growth 2.4f% p.a. Population Density (per sq. mile): h3 Population Density (per sq mile of arable land) 1964: 1,100 Gross National Product (1965): Rs. 7882 million Rate of Growth (1965): 2.0 Rate of Growth (1960-1965): 3.0 Real Income Growth (1960-1965): 2.0 GNP per capita: US$ 142 equivalent at official exchanoe rate Gross Domestic Product at Factor Cost U964_)_ Rs. 7,10ff million of which. in percentage. Agriculture: 44 Manufacurinpp Construction: 6 Pbhin Adninistration 7 Miscellaneous Services: 35 Percent of GDP at Market Prices 1965 1959-196h Gross Investment: 7 1 Gross Savings: 13 13 Account Deficit: 0 2 T-vestmen T----- a,,ens less 4-~ 1,a1 ess +i 1, -1 Government Revenue: 24 22 Resource Gap as /a~ O. nVestMent:U -1/3 1959-1965 (i77 .LV VCLL. V JJ.Aj-. wu L.J 1 I L%) L1 Time and Savings Deposits: 607 110 Bank Credit to Private Sector 732 7 Rate of Unange in Prices: U.3 1.2 (Official Cost-of-Living Index) -YLU4 0_-) Public Sector Operations (Rs million) 1958/59-1964/65 Government Current Receipts: 1763 5.5% Government Current Expenditure: 1684 6.h% Surplus or Deficit: 79 - Government Capital Expenditure: 574 2.6f Total External. Assistance to Public Sector (net): 100 - IL For reasons explained in the text 1965 deficit was negligible. (continued) (Basic Data continued) Balance of Payments (in US$ million) 1965 1/ Total Exports: 399 Total Dports: 399 Net Invisibles: -1.7 Net Current Account Balance: -1.7 1965 1054-56 Commodity Concentration of Exports: 96% (3 major exports) (in US$ million) Gross Foreign Exchanze Reserves 92 154 Net Foreign Exchange Reserves: 28 131 EKternal Financial Assistance 1965 Average (in U-ST million) 1960-1964 Total Disbursements: 29 20 Grants! 13 10 Loans: 16 10 For reasons explained in the text, 1965 was an unusual year. CEYLON - RECENT ECCNOMIC TRENDS SUluARY A!:D CIICLUSIONTIS The economic situation in Ceylon improved in several respects during the past year. Financial balance was maintained, although stagna- tion in economic activity kept the demand for credit low. This, in combina- tion with low imports and a 7% rise in exports, resulted in a balance in current external accounts. Some margin in foreign exchange reserves was thereby provided in contrast to the "hand-to-mouth" reserve position of late 1964 and early 1965. These improvements took place despite the fact that none of the financial support stemming from the "foreign assistance for Ceylon" meeting in July 1965 became available during 1965. Disbursement of such assistance has begun only recently. These elements of improvement are less encouraging, however, when observed in the broader context of Ceylon's economic problems. While stabiliza- tion is essential to Ceylon's basic economic improvement, economic growth is also essential and the stabilization of 1965 was achieved without adequate growth. Import allocations, after providing for essential consumer imports, were too small to allow for any revival of investment activity, for better use of existing productive capacity or for reducing the backlog of deferred maintenance of Cevlon's productive capital. Added to the exchange constraints on economic activity were the adverse effects of droughts and floods in agriculture. The economic record of 1965 tells the results. Growth in out- put was much less than population growth and although public investment rose total investment in the economy us about 62 les; than in 196L1. Little was achieved in using the capability of the Ceylon economy to improve the volume and variety of goods for the domestic market. Prnhbab1v_ in t1ho hnr)f witiaitinnnl fonrpign assistance in 195 the foreign exchange constraints of the past year were too severe to expect anyT basic imprniovmnf. in Ceon's ae-nnrmjr- cift.in.n Pr)szihi1it.ines fo)r improvement should be better as foreign financial support begins to flow. Nevetheess itisdifMcult to _-seee -.hetime ....en any substann-. 11 laxation of foreign exchange constraints on the Ceylon economy will be possible, griven the b-prospects for Slow gYro-wth in Ceylornts eport. Pearningus and realistic expectations of the trend of foreign assistance. Therefore, if Ceylon can expect to solve its politico-economic _1 4- _i - st n e of~ -i -~ i n nL nL -ra n rnvnr it cY-rTTf. - w"i i t ) seems a reasonable assumption, then the rising growth rate will somehow competition for exchange between consumption uses and growth uses. This policies are followed along three main lines. The first is the allocation of such excuange as is available on an efficient bas wih onsumpoun ueO kept to essentials and the remainder used in a way to increase investment and output as much as possible. Ie second is the preparaton and exeutui of economic development programs which will make the most of established opportunities to speed up economic growth and improve the baance u payments. The third is the acceleration of domestic saving in order both to limit import - ii - demand and to supply the domestic resources which will be necessary, along with foreign funds, to finance the programs necessary for economic growth. As for the first policy requirement, the administration of exchange allocations has been improved in the past year. The exchange budget now reflects an assessment of exchange requirements for production as well as consumption. The assessment of additional foreign assistance needed for the remainder of 1966 at about $55 million is a better based assessment than was possible under the exchange administration of last year. Further improvement can be expected although the extent of improvement will be limited until there is a better picture of public and private import priorities. It will also be limited by administrative capacities and it would be encouraging if the administrative burden of allocations were to be steadily reduced through increasing reliance on the market and price mechan- isms for allotting exchange. This might be accomplished by increased import duties and other measures which would set prices of imported goods some- where near their scarcity value in Ceylon's difficult foreign exchange circumstances. On the second requirement - that of devising and executing programs to accelerate the growth of output and improve the payment position, progress has been slower than in the administration of exchange. The objectives of such programs have been defined in broad terms and the ministries concerned are working out project and program details. Much of this work is impressive but so far there are few cases where definite plans are ready for execution and the rate of progress and quality of the program preparations vary con- siderably from department to denartment. Some of the work suggests very promising contributions to Ceylon's need for faster growth; others only indicate plans for continuing with natternq of nblir invnqtment which have not contributed in the past to Ceylon's economic growth to an extent com- mensurate with cost. Neverthle the wnrk underayn ne scgest.practical possibilities for considerably improving the performance of the Ceylon economy and for doing th-is within the nncnstraintsc of amann nehleba1l once of pyet and a realistic level of foreign assistance. Furthermore, given such a level of forin asnstance it Anoe n+ anon to he beyond Celon's capacity to mobilize the necessary resources. Thisqasstetidpoiyrqieet the need to aceleat( the rate of domestic saving in Ceylon in order to restrain the demand for consmmnt.infn immn-.c: qnA +.n~m-~iA +4- - i+,_ -U1 -P-aon--th 4-in - ___-17 - -_ V - -- -J_ LVaUl L'Jlu r, financial inflows, will finance an adequate development program. For some time.11 inteMuue,teWrns in income and the reu-reen-s of taxation are not likely to allow for major improvements in private saving. Hence, the more significntyi poss,,iilites for in_as_ the1 rate of savin _wil have to be found in the public sector. Clearly this can only be accomplished o of severa yUeaO. .uU it wlL never be accomplishea until a program is devised which sets the public finance targets that will have to be ~ ~ ~ WI reache andU thuim nte specific steps needed to reach them. ,o far tue Ceylun Government nas not definea its financial policy objectives nor indicated specific policy changes designed to mobilize ad- ditional domesIc resources. it is clear that under present policies the trend of ;overnment saving will be downward. It is also clear that the - 111 - options for moving onto a rising trend of public saving are fairly lil,ited. In the ausence 01 an official fiscal program for the next several years, the Bank staff has made a tentative assessment of the problem and measures unLau WaUs be needea. By 1970 it should be possible, if Ceylon's output potentials are developed, to manage with a balance of payments requiring foreign financial assistance of something like Rs. 35U million. This presupposes, however, that government resource mobilization will be adequate to restrain consump- tion (and hence consumption imports) and to finance investment (including transfers to private investment) in the order of Rs. 900 million. If present inancial policies are continued the prospective domestic resource mobiliza- tion of the Government will be only a third of the requirements. The foreign aid assumption would cover somewhat more than another third. Of the remainder some might be raised through tax increases (e.g. higher import duties) but possibilities in this direction do not appear large. Hence fiscal improve- ments will have to be found mainly in economies in government spending and the only substantial possibility for this is in the outlays for subsidies. Much could be done here through higher charges for public goods and services (government manufactures, transport fares and tariffs, etc.). However, considering all the possibilities for saving it seems clear that the main effort will have to be made in the food subsidies and especially the subsidized production and consumption of rice. If the gross cost of the rice subsidies could only be held at this year's level of Rs. 500 million (US$105 million) it should then be possible in the course of the next several years, say by 1970, to reach the public savings objectives that a manageable balance of payments is likely to require. With financial measures of this kind, in combination with productive programs that appear practicable, it should be possible to foresee the time when Ceylon could again manage its balance of payments without an ever mount- ing dependence on foreign aid. So far the Droprams and nolicip. P.sPntin1 to this prospect are not in evidence. CHAPTER I INTRODUCTION 1. This report, written following the visit of an economic mission omy and in economic policy over the past year against the background of the persisen economi prblm whc continue to bese Celn Particula- emphasis is given to developments since the meeting of representatives of aid-giving countrie oni july 28-29, 1965~. The r eport L isL hsaseult the twin reports on Ceylon's Foreign Exchange Problem (FE-WS) and Ceylon's Economic Situation (E-46, which were distributed on july 13, 196, to governments concerned with an enlarged aid program for Ceylon. The back- ground to the july l96 meeting and subsequent events are outlined below. 2. By the time the new government took office at the enu vi March 1965, the economic crisis, of which the foreign exchange crisis was the main symptom, had reached serious proportions. The situation had been growing gradually worse over the previous eight years, reserves had been exhausted and progressively more severe exchange restrictions had been im- posed until by 1965 all imports except certain foodstuffs were being sharply curtailed, as were travel and remittances including dividend payments. The fundamental cause of this crisis has been the persistence with which Ceylon had allowed purchasing power to run ahead of real income, during a period of adverse terms of trade and very low output growth. The growth of purchasing power was made possible by the deliberate use of expansionary financing up to 1964 to enable government and total expenditures to continue to rise despite the stagnation and, in some years, the decline in real per capita national income. 3. Over the same period, the government followed revenue and expend- iture policies resulting in substantial income redistribution, and as a re-- sult, the proportion of government and national resources devoted to invest- ment gradually declined while consumption spending continued to rise both absolutely and relatively. The very slow economic growth, which aggravated the whole economic situation, was caused partly by adverse movements in thE terms of trade, and partly by the low investment rate and low productivity of capital, the causes of which are discussed in more detail below. The overall result has been that despite a high level of export earnings, the demand for imported goods far exceeded availability. Thus, once the in- flated dmand for imnorted consumer goods, mainly food, was satisfied, the volume of capital and intermediate goods which could be imported in the absence of external assistance was sufficient to support only a low level of investment and less than full use and maintenance of existing assets. Now and in the near fnture therefore, the suply of foreign exchange will remain the crucial determinant af the growth and investment rates in K. rom.-,.-, -ti viciou cicl of4 lo.. -,,-1~1w gfrwth andi-sqtriggp'nt import controls required some determined action on the part of the new government tcono re h the pdvers trends d arbedt o e Gn m tsnat on e ob of economic rehabilitation. On the part of the Government of Ceylon, action wJould be neessary±ito achev 4ithree main objecives \c2/~ LW,. c.L ~ nf-~ ~ ~ - mnn+.n-r%r rlomnnrl Qn ns .n 1-w! it in line with the availability of locally produced and imported goods, (b) to reduce to a MI111"um the roQJVh Q''". ~ ~ ri~ .nt,n.+iri1i on imported goods, so as to minimize the growth in foreign and local re- sources devoted tov k'1QU1 4- ~ 4-,. n +r%t4'v +.n1._qrAQ fa ACI -'nni investment rate, and (c) to improve the volume, pattern and quality of in- V~uriiiu~.±U LutjU _1VXpU~.L.I -u e so1~..LU as'- o U-1-rease of growth of output and improve the balance of payments. 5. For such a program to be achieved and to be successful, substan- tial supporting capital inIUlwS frum abuau would be nec%aOOy for sm time to come. At the meeting on Ceylon's foreign exchange situation on july 28-29, 196>, the Bank indicated Tine need for an additional US$50 million in 1966, so as to provide the opportunity for a start to be made on this task of economic rehabilitation. The Bank and participans at the meeting stressed their expectation of an early start to the formulation and implementation of plans for corrective action along the lines indicated above. As a result of this meeting, commodity aid committments amounting to US$47 million were received by Ceylon from participating countries but disbursements, due to unforeseen delays, did not start to take place until early 1966 and will probably not be completed until the end or 19o. 6. Progress in preparing plans for taking the several major econoic problems discussed above has, so far, been generally disappointing. However, action has been taken to restore monetary stability, and net domestic credit growth was sharply curtailed during 1965, partly also for fortuitous rea- sons. Various administrative improvements are evident, particularly in economic planning and the administration of the foreign exchange budget, and there have been some other advances in, for example, tax policy and in pol- icies toward private foreign investment. These improvements, which are dis- cussed in more detail below, cannot be said to add up to a concerted effort to remedy the many policies and practices which are inimical to growth, and on which action is essential if Ceylon is to avoid prolonged dependence on external assistance. 7. It is clear that many of the elements, in a program to accelerate economic growth, demand hard political choices. The short-run interests of consumers and producers in both urban and rural areas would undoubtedly be affected by changes in prices charged by public enterprises and corporations, sianifiennt increases in excise or import duties, or in irrigation and do- mestic water rates, or changes in the various food and crop subsidy schemes. The government. appars to have decided not to run the political risk of making a frontal attack at the present time on any of these issues, and has not yet prEpared a rnaram of action for gradual or later implementation which will have an effect on the allocation of resources between consumpo- +4 wa in.e ment The tgvrnment. is. howPvPr. nrpnarinL investment E:x- penditure proposals for the next few years which, if resources are available for implementation, cold hn th nffoot of int-rPinc the rate of Prowth of output before the end of the decade. 8. The situation in Ceylon today is thus not a happy one. Per capita rea'l consumption h11as been It n ove th pa- fV +--ive yers" despi+e t.hem fnnt that total consumption spending has risen relatively faster than real in- come, mainly because of the low growth rate in output; but the maintenance of real consumption in this situation has led to the compression of imports of intermediate and capital goods, rather than consumption goods, and this in turn provides a major constraint on further output growth. In the short run, therefore, on the one hand there is little room for redressing the :Lm- balance between consumption and capital spending - short of deliberately re- ducing consumption per head - until the rate of economic growth improves; on the other hand, the rate of growth of output and incomes cannot be signifi- cantly improved without an improvement in the foreign exchange supply situ- ation. (An attempt to increase the investment rate without increasing im- ports of capital goods would also result in an undesirable emphasis on pro- jects with low and slow returns.) The commodity aid program, which is already underway with committments of about US$47 million, should if subsequently followed up by additional disbursements of perhaps US$50 million of commodity aid during the latter nart of 1966 and continuing assistance in 1967 and after, enable Ceylon to achieve a significant increase in output and incomes bepinnina in 1966. It is a matter for regret that. given this oportunity, the government has not prepared and has not yet indicated a willingness to imnlement nolicIps along the lines indicated below that will make a start on correcting some of the policy and structural problems of the Ceylon economy. r.T4PT;P'P TT fPTEkMS TAT THE (VVT.ON ECONM 9 * 196 was anotherI disapoMtin year for -jReal output rose by a little under 2%, and real per capita incomes fell, as they hav -n-- - T_ 4.__ nnn __ _1 1^, 1 - +q " m i neave uune z;inace 19*y. 1 mulluy tumo, UX IU J CUUU _1. I /- -- I slowly than in the past, but this slow growth was not matched by total ex- penditures, which were stagnant. As a result, the external deficit temorar- ily disappeared. Since total consumption in money terms rose by only 1%, there must have been a significant cut in real per capita consumption, a cut exceeded only by that of capital formation which dropped absolutely and rela- tively to 12.37% of NP - the lowest level in recent years despite a welcome 1% increase in public investment. This improvement in public investment, aided by a record foreign aid disbursement, was achieved within the confines of a decrease in the expansionary impact of the budget. This, coupled with a decline in private credit, kept the growth of domestic credit witin bounuds, although money supply nevertheless rose by 6%. Record export earnings and a slight decline in the rigidly controlled imports combined to wipe out the ex- ternal payments deficit for the first time since 1956, and net reserves rose healthily, but this phenomenon is more a reflection of the depression of pri- vate sector activity than any basic change in the economy. These recent, trends and the problems they reflect are discussed in more detail below. Output and Exports 10. Output for export in 1965 rose slightly and was a record, despite slight adverse movements in tea and rubber prices, mainly because production responded well to replanting and other improvements in yield - except in the case of coconut products which were adversely affected by weather conditions. Coconut prices rose sharply, however, and contributed to a slight favorable movement in the terms of trade. The three major exports still account for 96% of all exports, as they did a decade ago, and the export sector will probably continnR to annount for about 20% of GNP for the rest of the decade. 11. Output for domestic use increased by only 4% in 1965, compared with a growth of 5% in recent years, mainly because of a serious failure in the rice cron which suff'red both from a cyclone early in the year and a drought. These, together, cut rice output by a third and the cyclone also damaged the fishing fleet, making it n snrv to import more foodstuffs, and causing a further reduction in rural incomes in that rice production subsidy payments were reduced. The narciq+.on+. foreign Awnhange shortage which curtailed pri- vate investment similarly curtailed the output of the construction industry, but other ind iv nt nev4ithclfyi incrpaspd by 10% a year as in the recent past, stimulated by the protective effect of import restrictions. Other_ sizeble inreases- ieen +.-nn-pnrt. andl nthpr qprvice sec- tors, but some of the growth was more apparent than real in that scarcities of vehicles andI other importe goosnavele to riscing prices andi profits in the distributive trades. 12. The slow growth of 1965 represents no particular deviation from thie trendsU of theU 1960's, or_ for th-1Iat matterI7, theU 1./0,s. W er it_ not for the adverse weather conditions, output might have increased by perhaps L0 in real terms, compared with the 1.7% actually achieved, but not sufficiently to have any significant effect on per capita incomes on unemployment. since 1959, real per capita national income has fallen by about 1/2% a year; part of this decline can be traced to adverse movements in the terms of tradE!, as a result of which real incomes increased by only 2.3% compared with real. out- put at 3.2%. Three quarters of the increase in net export output between 1959 and 1965 was absorbed by declining prices. The fundamental cause of the slug- gish output growth has, however, been the low productivity of investment, ag- gravated in recent years by a declining level of investment both absolutely and relatively to GNP. Also, since 1960, the persistent growth of purchasing power in excess of real incomes led, after the exhaustion of reserves, to pro- gressively more severe import restrictions which have now become a symptom of the disequilibrium between domestic demand and output, and a cause of further output restrictions. 13. The low productivity of investment has many causes. There has been heaVyr invesment sine the early 19qOts in irrieation and land settlement schemes with fairly generous amenities, which have resulted in relatively low returnse -6m-r a iivn-rpv from mvrav dsoite the probability that some use of other crops might have given better returns. Expenditures on education have been hign and generally unrelateA to th. needs of the economy, but in- vestment in housing and most other social services, government and accommo- dati on, etc.-doe not anar to have been excessive and defence outlays have been small. Some substantial investments in the industrial corporations have bee made-w iAo--+u tnadeqate ran-rd for thir technical. financial or economic viability, as a result of which average returns have been low. On the- _ whole it can be coclde from the public ivsm nprformance i:n re- cent years that there are only limited opportunities for high-yielding in- vestments in tne publC sector and faily are i t r be mobilized in order to achieve a reasonable output growth, basically because of an indifferent resource endowment. On ote and, p r in making investment decisions has often been decidedly lackadaisical, and once an investment has been made, follow-up action to ensure lul uSe of has not been given adequate priority. Some basic research in sugar cane pro- duction and management still needs to be done, for exanple, des-ite--he existence of under-utilized sugar mills for almost a decade. 14. A contributory factor in this poor resource management, which re- lates to both the public and private sectors, ha been Ut e ue of the pre mechanism. The use of prices as a means of income redistribution has seri- ously interfered with the role of prices in guiding the allocauon of re- sources as well as in generating surpluses for financing further investment. Thus, in agriculture the high support price for rice, coupleu wIth te pru- vision of irrigation water either free or well below cost, has seriously reduced the attractiveness to the farmer of producing alternative crops. Artificially low prices for railway passenger fares, electricity, posts and telecommunication, domestic water supplies, bus fares and many other services tend to stimulate demand and hence cause premature investments in these sec- tors. Likewise, the present scarcity of imported goods is not always re- flected in high import prices, and an administrative allocation system of - e - doubtful efficiency is emerging. Thus, the attempts that nave been made over the past 20 years to insulate the consumer from the realities of real costs have, in themselves, directly harmed the rate of growth, and also re- sulted in a declining proportion of investment in total resource use. The Use of Resources 15. The harsh fact which has had to be faced over the past seven years is that real income per head has been falling, and the reluctance of the government to allow real consumption to fall led to large injections of pur- chasing power and hence initially to rapid reserve use, which enabled rea- sonable price stability to be maintained. From 1962, however, the exhaustion of reserves led to the need for import controls, and expansionary finance led to risini prices. Throughout this period, the taxation system was such as to penalize companies and others with high savings rates, and through the system of subsidies and other transfers, make these resources available in an attempt to raise living standards amongst groups with low savings propensities. The result has benn as follows: Rp.oure and Their Utilization 1959-1965 (Rs. million in Current Prices) 1959 1961 1963 1964 1965 1959-65 A. Resources GDP 6457 6757 7064 7561 7788 +20.6 imports 2176 172 203 C OU 6 W .I4 Total 86333 8729 9095 967 9 +1.3 B. Utilization Private Consumption 4678 484o >18o4 O" 5692 r21.7 Public Consumption 881 926 1011 1090 1116 +26.7 Total 5559 _57 O±069> 0731 6606 14 Private Investment 633 552 >1 557 1 t7 -C4.7 Public Investment 436 426 475 466 492 +12.8 Total incl. Stocks lo5y IU4y 999 Yoe YOY - 5.5 Exports 2016 1907 1903 1933 2048 + 1.6 Total 833 8729 5u5 yo1 Yoe> +13.0 16. It is thus clear that the net effect of government policies has been to allow consumption to rise by Rs. 90 million more than the total in- crease in domestic resources over the past six years, while capital formation declined by the same amount, implying a fall in the investment rate from 17/ to 12.3% of GNP. The trend in 1965 represented no departure from that of previous years. In part, the investment decline is caused indirectly as a result of the import constraint. The effect of the emphasis given to main- taining supplies of consumer goods and keeping prices low has meant that all imortant foodstuffs have continued to be imported freely in response to do- mestic demand. Despite rigid controls on luxury and semi-luxury items, the -7- import level of consumer foods at 607o or total imports, was as high during 1964-65, absolutely and relatively, as it was in 1959-61. There was a steady increase in the import of fertilizers and industrial raw materials, more than half of which were ultimately destined for consumption rather than investment use, and as a result investment goods imports were squeezed to 16.1% of total imports compared with 19.1% in 1959-61. Thus, in the recent past and also for the immediate future, the import constraint is the initial barrier to increasing investment and output, rather than the supply of do- mestic savings. The basic cause of these constraints has, however, been the buoyancy of consumer spending and hence of consumer demand for imported goods; it is clear that any recipe for the future must include plans to keep the demand for imported consumer goods to an irreduceable minimum. Financial Developments 17. Developments in government finance were largely responsible for the economic trends described above. Despite strenuous and successful ef- forts to raise taxes over the past six years so that current government revenue has risen almost twice as fast as GNP and now stands at over 22% of GNP. current expenditures have kept pace, with the result that the small cur- rent surplus remains sufficient to finance only about a tenth of capital ex- Pnditures. Unlike current expenditures, capital expenditures themselves have stagnated since 1957. A cash deficit of around Rs. 450 million or 20% of total ePnnditures has thus nersisted for many years, and up to 1964 this was financed largely by massive resort to the banking system, as a result of uhi-h net Fedit to the government rose by 27% a year between 1959 and 1964. This growth became less rapid after 1963 and slowed to 6% in 1965 despite a ght, but wniPnmo n in nnhlin investment durinL the 196h-65 financial year. The overall trends are summarized below: Government Finance 1958/9 1960/1 1962/3 1963/4 1964/5 1965/6 Revenue 1237 1"63 1585 -1613 1763 1810 Ependiture 1o -' i,nn 0 -1519 -I AnQ -1706 -1760 Current Surplus 47 43 66 4 57 30-70 Capital Exedtr / )69 L9 71 4'82 q3q 670o Net Cash Deficit 17 -429 -463 -392 -462 -443 (.600-640) rinancing A. Non-Expansionary 188 221 213 302 400 540 Adminis. Borrowing CU - 1 3 Foreign Aid 2/ 51 27 94 97 100 250 Local Non-BanK Borrowi1g 109 16 1574 206 243 260 B. Expansionary 241 241 179 161 43 60-l00 Borrowing from Banks 179 C" 17 11 Use of Cash Balances 62 - - 45 25 -- 1/ Adjusted. For details see Appendix Table XIII. 2/ Including use of counterpart-type funds. budget in 1964-65, and the beginning of an improvement in 1963-64, can thus Ue~ seto es ul prJmaa--r- j)7ILd ± .J.-U1IL l.1 6. va4utzl aVLj.LCLkJ-LUY V.L .LUILLLO -Ii U11t; non-bank institutions from which the government borrows heavily. There has Ieen no sgnficant change in the current surpls, whih has averagedaround Rs. 50 million recently except in 1963-64 when high sugar import prices cut the net receipts from sugar sales by about Rs. 80 million (sugar is sold at a fixed price, the difference between the import price and the selling price, being in effect, an excise duty) nor has there been any change in the siZe of the overall cash deficit. The growth of current expenditures in 1964-65 was only slightly below the 6 1/2% average growth of the past rive yearsp despite the fact that the partial failure of the rice crop and consequent drop in rice production subsidy payments kept such expenditure about Rs. 30 million lower than usual. In all, over the last six years, the gross food subsidy payments have doubled and accounted for more than half the increase in current expenditures and more than half the increase in revenue. Other subsidy payments, such as to the public enterprises and corporations which could well be net contributors to the government budget, continued to be a further drain, and overall subsidy payments are now on a parity with govern- ment capital expenditures. The problem this inexorable trend poses for the future is discussed in Chapter V below. 19. The significant recent changes have been in the financing of the deficit, in that financina from non-inflationary sources doubled in 1964-65 to Ra 400 million from an average of around Rs. 200 million in 1958-59 to 1962-63. Partly. this was the result of a change in administrative borrowing (mainly from underspent government funds) which tends to increase when capi- tal exoenditures increase. Mainly, however, the improvement has come from the impressive increase in investible funds from the Insurance Corporation which has nassed throunh a nPriod of ranid exoansion. and from the Employees Provident Fund and private provident funds which have been steadily increasing +.hpir cqverao .1..-mnad mingn- jnqtitutions such as the Ceylon Savings Bank, the Post Office Savings Bank and Savings Certificates have also in- crased thoe -ur-+man+t yi Imi E- 'hnnrc Th oveworll offpct of this change in the volume and pattern of financing has been in part to mobilize new savings - a a a2eult, for exranle -f +.h i"eInreA Z-ffo+a made +o an1 life insurance - and in part to transfer more private savings to the public sector. ThiS hal-S MG,ant that less A sai ngs4r ir.7.s wrmilmh1p~ t.n finncen private sector activities; during the 19616-65 period, however, this was not occupied that role. 20. During 1965-66, it will be difficult to prevent the volume of ex- difficult to increase investment significantly yet keep within the ceilings set by Wte LurV b,wUUIWY 14i.1"nCli~ 1rL1%Lu±uu UI11±lu E:Xc4U04J 1- to the government should be kept within a ceiling of Rs. 80-100 million, unless there is a significant use Of LUutjIrPzt UU,3. 1eU e-A outo turn for 1965-66 is shown above: Revenue is expected to slightly exceed Tne estimates mainly because of an unexpectedly succesfuL income tax am- nesty. The original current expenditure estimate, which reflected attempts ro ieep vne grown vi V urreu xpen±u±uure 0u I IIaumwi , a.1 UO uUuVrt1u to be unrealistically low, particularly as rice sales to the government in __ At -_A - -- _ t lyop-oo are likey to be nigner tnan -aZj year. accoruigly, tne currenU surplus is unlikely to differ from the average of recent years, so capital expenditures and the cash deficit can be higher than last year only to the extent that additional finance is available. Foreign aid receipts other than counterpart funds are likely to increase by about 2570. After allowi.ng for use of counterpart funds, a sizeable increase in government capital ex- penditures up to perhaps Rs. 670 million should be possible without resorting to expansionary finance beyond the IMF limits. Overall Monetary Trends 21. Trends in money supply and credit confirm the above public finance trends, although it is clear that the government finance data understates the expansionary impact which the public sector as a whole continues to have on the economy. This is because of the exclusion from the government accounts of bank-financed import bills. A sizeable improvement is nevertheless now re- corded; net credit to the public sector increased by 8% in FY 1964-65 com- pared with 12% a year in recent years, while total net domestic credit actually fell because of a slump in commercial bank credit to the private sector caused by the import restrictions. The liquidity of the banking system rose, despite, for the first time, a significant extension of credit to finance government import bills - credit which may be regarded in effect as an alter- native to finance through the sale of government securities. In effect, therefore, the Dublic sector has been able to get the reduced amount of finance it needs without as much of an effect on overall credit as in the past bE- cause of the artificially reduced private sector demand for credit. The im- port restrictions which limited private sector activity, particularly during the third nuarter of 196q. also had the effect of increasing reserves, as a result of which money supply during calendar 1965 rose by about 6%, only slirhtlv slower thn riinrina the 1961-h nnriod. The unturn in the issue of import licences during the last quarter of 1965 and early 1966 caused the growth in n+. nrpHit. .- he reimeH 22. The Affen. of monetrv noliev in 1965 was thus to allow money supply to rise at over twice the rate of growth of total resources, and it appears that, wit.hin +.he cailings on credit imnn)d hv the TMF. there is room for money supply during 1966 to rise by a further 6-8%, which will probably be in exes o-f reouc g-.m.rth. Thei& slo,wown in, cedit- g-~rourth in 1IQAq 14AS pArtly fortuitous, in that the economy was adversely affected by the weather, and duing-A th lttrkar f 9 h srou hotgeo imprt --f J. ei_ cussed in the next section) also curtailed expenditures. The overall result _vas a S In a M cu9 ~.,t bwaa it Inp, r. iv a to e iAnv 0 MIon t b~.u t a o5 i i - -+.r The cutback in private credit but some continued growth in credit to the quidity restrictions on the Peoples Bank and the increase in the bank rate .LLU 4f0 uO) .)10 d-Lo r ba l hadUJ~J.L U L L111jjC.% U VJIL P9.L.LVC.UO LL0LU U k-W'- .'. _LV ~ theless appear that there is a likelihood of large increases in the Uernandu for credit as a reSuutO he I,Ln~ICrE:a-S L11 P.±L-.LVUf, .LUiyuv u ~LL expected later this year, unless this is offset by limitations on the use of counterpart funds. - 10 -- The Balance of Paymets 23. For the first time since 1956, there was no trade deficit, both import payments and export receipts amounting to Rs. 1,897 million. 1/ The deficit on invisibles was also the smallest for many years. The net effect was the further phenomenon of a large increase in gross reserves as well as a reduction in short-term liabilities (excluding the IMF). Balance of Payments (Rs. million) 195h-56 1960 1961 1962 1963 1964 1965 Exports f.o.b. 1,706 1,796 1,707 1,763 1,708 1,767 1,897 Imports c.i.f. 1,481 2,006 1,794 1,906 1,868 1,959 1,897 Trade Balance 315 -210 -86 -143 -160 -192 0 Invisibles -101 -61 -47 -44 -50 -27 -8 Current Balance 21) -271 -133 -187 -210 -219 -8 Financing (Net) Official Grants s3 41 37 U4 76 60 Long-Term Loans 22 11 38 80 62 48 Short-Term Loans -23 58 - )l 32 -81 Reserves (Increases - ) 220 0 41 42 56 -89 -F Transactions - 54 54 1 2 76 Errors and Omissions -1 -31 25 2 -11 -6 24. The 1965 performance is in marked contrast to the experience of Ceylon since 1957. Over the last nine years, current account deficits have averaged Rs. 200 million a year as a result of the expansionary monetary policies being followed, and deficits of that size persisted up to 1964,, despite the introduction of progressively more rigid import controls from 1961 onwards, imports stagnated but so did exports. Foreign exchange re- serves were run down to the point where net reserves had dwindled to the equivalent of two weeks' imports, and in early 1965, a liquidity crisis was imminent. Many consumer goods were still imported freely, however, and there was thus less and less room for imports of capital goods. 25. In 1965, the Bank, in consultation with the government, drew up an import licensing program on the basis of a projection of the balance of payments which assumed that about US$50 million of additional foreign aid -uni h made available by a group of countries interested in helping Ceylon tide over its difficulties. After bilateral negotiations, donor governments pledged a total of US$47 million, but disbursements did not materialize un- til early L966. The delay was caused by numerous difficulties on both sides 1/ The cut in imports was probably larger than the payments figure would indicate. Payments data do not corresond exactly to trade data, because of differences of timing, coverage and valuation. in~~~~~~~~~~ Ullu IIg-LULIO-U Ly tlu - this commodity aid was not effective during calendar year 1965 led to con- siderable caution in issuing import Ic-ncs. Acu,,e ortags o go sq developed because of a prolonged delay in issuing licences; meanwhile net reserves were increasing, anrd It was not until the end of the year that additional :Licences were issued, which did not materialize in the form of additional imports until late December and early 1Yu. 26. The import licensing program agreed upon amounted to Rs. 2,205 million and was devised so as to increase the share of productive imports. In fact, actual imports amounted only to Rs. 1,803> million, Rs. 37U miMlon less than the program implied. Still more unfortunate was the fact that the program was only 7770 fulfilled with regard to the categories of intermediate and capital goods, and capital goods' imports reached in 1965 their lowest level for at least the past six years, so the basic difficulties pointed out earlier were not alleviated, while the backlog in maintenance worsened. Ac- tual licences issued showed a shortfall of Rs. 85 million over the program. The major discrepancy arose with items related to private industry and trade, for which there was a shortfall of Rs. 127 million. Therefore, it appears that the reduction in imports primarily affected the private sector. Govern- ment departments and corporations slightly exceeded their allocation (which, however, had been determined rather tentatively) by Rs. 35 million. 27. The reduction in the deficit on the invisibles account is basically due to the cut in dividend payments which were only Rs. 8 million compared with Rs. 49 million in 1963 Prior to the declaration of a moratorium on trans- fers of dividends in 1964. Only Rs. 2 million was released in 1965 against the accumulatine backloL. The significant change on the financing side of the balance of payments was the modification in the structure of liabilities and a substantial increase in reserves. The latter were allowed to rise by Rs. 89 million, resulting in a much more comfortable liquidity position than nt thn anri of lQA)) Thp.re were net reductions of short-term liabilities of Rs. 81 million, chiefly reflecting the settlement of balances due to China and other soNialist countrie.s whereas an increase of Rs. L9 million had been expected. Grants and net long-term 'loans amounted to Rs. 108 million. Under an arrangement nluded with the IMF. there were net drawings of Rs. 76 million during the year. 28. All told, the unexpected improvement in the external finance po- StiOn was+emorry and unforunate in a way. in that it was achieved at the expense of a further running down of -the economy. The opportunity might ae bn tken to++.tta a smewab + rno.r rote of ranction of net out.- standing short-term liabilities by making fuller use of the opportunities avaailable for refinanc-ing short-t+er -ihilin ie o r a to have mqie nosSible the issue of more licences to relieve some of the more acute shortages. On U196 U ig i ficaInU, li re Vm , e.L t inLl the rle w -at in u ou tput enandt oe culd 1966, a sigT*ficant improvement in the growth rate in output and incomes could "De achie.~ved - 12 - CHAPTER III GROWTH PROBLEM_S AND POTENTIAL Problems iy. ne Urenlul in Une economy uuring ±yo nave UvU mpIjLIu unaugIe Lo any of the basic problems of the economic situation or of economic policy wnich Ceylon faces, and which the new government is seeking to remedy. The basic problem behind the present economic difficulties is the low historical growtn rate. The reluctance of governments in Ceylon since l957 to accept the implications for consumption of this low growth rate has in turn con- tributed to policies leading to income redistribution, inefficient resource use, and excessive growth in domestic demand as described above which have in effect compounded the problem of growth and led to immediate symptomatic difficulties such as the current foreign exchange crisis. 30. Ceylon is not among the group of developing countries where rich natural resources await exploitation and where the principal obstacles to economic growth are to be found in the lack of investment and in shortages of managerial, technical and administrative capabilities. Ceylon certainly shares these obstacles, but in addition it is poor in opportunities ready to be exploited. Few minerals are found in Ceylon. New arable land is mainly in the so-called dry zone where yields from investment are often low, and slow to materialize. The scope for industrial development is considerable but limited by the size of the domestic market and handicapped by the lack of many local industrial raw materials as well as the absence - so far - of a well-established group of industrial entrepreneurs. Against these handi- caps, Ceylon has the advantage of a well-educated population, but it is also densely populated in relation to its arable land, and its population and labor forces are growing rapidly. The promotion of family planning is still largely a orivate venture. and although the government is giving areater support, population control does not yet appear to be a basic aim of government policy. Considerint all these fators. Cpylon will continue to have a difficult de- velopment problem for some time to come. 31. Nevertheless, the poor record of growth over the past few years was not solely the reflection of Cvi onrs inherent develooment difficulties. There is no doubt that public policy was and remains, in many respects, inimi-n I cn onomic aor.Eh Th main emnhani was on rndistribution. rather than on growth of income. One result of this emphasis on redistributioa was the dissipation in increasing consuimption o0f the SubSt__vi.a1 -n-upst-nbl sur- plus which Ceylon's export agriculture is capable of generating, sothat export agricure-- and II- -- as a whlneedpiT f +-Il nmn.q of' f'i-nona an adequate level of investment. Furthermore, investment in and through the pulic- seto was A gude -lrgly by the nPeci o n +.Iing thabnefits. over as many people as possible, whether as producers or consumers, rather this policy are the land settlement schemes, several industrial corporations an suhrrldvlpment schemes as the progra f or develop-ingthteil industry by distributing over the countryside a large number of looms to be operaueu 1y the ruraL pUpu±aLUonas a seonuary ZoUIce U 1u.m1. 1M uCO given to the price mechanism throughout the economy by policies of implicit - 13 - or explicit income redistribution likewise works against the aim of obtaining maximum productive return. Improvements now with respect both to the division of resources between consumption and investment and to the use cf investment resources are thus prerequisites for a better performance in the long run. 32. In the short run, given the low level of exchange reserves, Ceylon faces the problem of insufficient capacity to import. Theoretically. this situation could be alleviated by depressing domestic demand sufficiently to brine it into line with the domestic and foreign resources presently avail- able. However, this is not a practicable solution, and it is clear that any reduction in living standards below the level enioved in 196h-65 - although that level considerably exceeded the level that Ceylon could afford - would nse the overnment t.hinffiiti. tht. (nnn-t h i rnnrn. TF this indrnrnt is accepted., and considering the severity of existing restrictions on imports, the ev+ornal balann in Ceylons nonnmy ei+s for +.he immediatp futuro, independently of the internal imbalance. In other words, Ceylon's most -n-Q np rl%Ir - +1n ahnv+n(i nrf Crn~ V oir a i -11nyp uhirh1 i;z nno e) +li im- mediate determinants of investment and output - can be alleviated only by ..) Ho11wever, te emergence oi. the. syytomt _ T UAcAJ for-gn exchang con"'~ straint over the past few years - and probably most severely in 1965 - dces not Ue r c ±L1_U11 i t:1tt .LVI L I-d1-y C1;LU 1U 11~VI UILU, P .L iIem .L .v~v 6.LVwUlL . output and the other basic causes of the excess demand for imported goods. As is discussed below, changes in fiscal policy seem essential not only to remove the spectre of further financial instability, but mainly to redress the allocation of resources: the poor inveStUment record and aUverse trends in resource allocation can partly be traced to indisciplined financial policies in the past. One of the main contributing factors to this fiscal ivalance has been the gross subsidy payments on food, etc., whose growth has been con- tinuous and so far unstoppable because of the highly charged political atmos- phere engendered by even a discussion of the issue. The growth in the cost of these institutional subsidies is likely to continue to be high, and the po- litical difficulties involved in any change are in themselves a problem for the economy. As is made clear in Chapter V below, nowever, the need to tackle this problem is unmistakeable. 34. It is essential that the action taken to increase output - by in- creasing the proportion of total resources devoted to investment and making the best possible use of the capital stock of the country - be effective in raising economic growth significantly ahead of population growth. Unless such a trend is achieved - and it clearly cannot be permanently achieved by external assistance alone - the danger exists that Ceylon will slide from one crisis to the next, continuously requiring either emergency assistance or alternatively facing the necessity of cutting the inflated standard of living. - 14 - --Aa It. n-7ri.J. L 4. U.d -.545 U-11 4- 4 S---± 1 - Dli UWt:n W jUW ZULUQ 7 IV., U11Z %,U LuUiLL'L U11v Un A U OV%, UV. _L _L .V to make to further growth is small, although it is, of course, already re- upoiie ior a ±arge caInt rv buv itJon.u to n unt1 oIiaL -vingS, dUIkAn VCaY.UIJn L .L U 'A nate to have foreign exchange earnings of this magnitude. Overall export earnings may rise Dy 4-:> over tRe recUoU yu, teV-L, w.I UUC UtU h- creasing at around 2% a year, probably in the face of a slight price decline. In rubber, the expected 20% price decline will more than offset tne productun increase, although a similar decline in price will not be entirely offset in the case of coconut products. Little can be done in the short run to increase output of these crops, although some improvements in tea quality might result in higher prices being realized. In the long run, however, output of alJ. three commodities can be increased, and further plans for additional assist- ance to these eVport industries have been prepared and are discussed in the next chapter. New exports are not e3pected to be important in the rest of the decade. Eport prospects thus appear to be as follows: 1/ Export Prospects 1959-61 1962 1964 1965 1966 1970 (Rs. million) Averaee Estimate Tea 1086 1149 1142 1210 1166 1285 Rubber 312 290 290 304 293 285 Coconut 210 227 273 275 233 260 Other 108 100 137 127 135 150 Domp.sfAr P.monnt.. 1717 _76 _ -97 1Q916 T8 27 1 Re-Exports 57 42 34 45 50 Tota Exnort. 1771 170Fi T 7 1 9 t 11972 2030 r. The notentiam for +.hp arowth of outnut of aricultural crops and fish for the domestic market is much greater, and to a large extent the growth .. trnenn+ IrH+.h thia affort.jv ,arntion of government. nlans 19611 out.- put was hit hard by the weather, so 1966 should show a considerable improve- me T heaa+fter, t apps poible for output For domestic ue ton P rr- n t around 5 1/2% a year compared with 4-4 1/2% in the recent past. The increase .LU J .. J L5 U~ U L V ai LI V_LLUVJU0 &LWW WL LJ. M. FCk%j0..' W"r l4 U W "t 1~- '- 1 a year - i.e., a growth possibly slightly in excess of that achieved in re- both by irrigating hitherto rainfed areas and by an extension of the double- cruppeu area. L.lU, which have groLWI 11UL )L U Uy vUuCL v. YC&UU.y CUL acre over the past six years, could well grow faster, because of the large scope for additiona. feratfiZer use (present fertilZer use is olay U,0Vu tons on 1.6 million acres) and the possibilities for varietal and horti- cultural improvements. it would appear feasible to attain an output of at least 65 million bushels in 1970 compared with 50 million in 1964 and 37 1/ Dtails annne in Annndix Table YYTTT - 15 - LL.L-Lun in -7L. ULU a .ULL-1e WOWU 11aCe 1u pUSilUiW LO CU rice um- ports by around 15% by 1970. 37. Probably the fisheries sector has the highest immediate potential. The catch has already more than doubled in the past six years, and there is little doubt that the catch could be at least doubled to 190,000 tons in 1970 using known nearby resources. Such an expansion is probably technically feasible and would almost meet consumption needs at the 1965 level. A large measure of import substitution is thus possible, if the necessary skills are developed, and equipment becomes available. It may also prove possible to .extend operations into the sphere of deep-sea tuna fishing before the end of the decade. 38. There are many problems surrounding the output of other food crops, but an average growth of net output of ).-J should be attainable, accelerating towards the end of the decade, compared with near-stagnation in recent years. The most rapid increase is likely to be in chillies, which account for about Rs. 50 million of the import bill, are not grown on any significant scale, yet can be produced without serious technical difficulty. The main requirements for increasing production are, firstly suitable irri- gated land, and secondly the addition to the present small scale garden and chena cultivation of large-scale commercial operations. Self- sufficiency in chillies would require cultivation of about 40-50,000 acres - not an impossible target for the next 5-7 years. Bombay onions are another heavy import and can also be locally produced, but familiarity with this crop is much less than with chillies and it will probably take longer and require more extension work to achieve the necessary 20,000 acres under cul- tivation. The prospects for the several pulses and potatoes are less bright because of the large acreage reauired and the various technical problem to be overcome, but a start could be made over the next few years in intro- ducing these crops. In short. if the government gives priority in the allo- cation of funds, manpower and equipment to develop the cultivation of sub- sidiary foodstuffs on rain-fed and lift-irrigated areas. output could be increased significantly in the next few years. The remaining field in which significant early orooress seems nossible is that of dairy farming. for which there is a proven potential - both in highland areas and in the dry zone. About Rs. 90 million of milk and milk products are imported annually and it would appear possible to halve this import by 1970 - including com- nlptp imnnr. subtition in nondpne milk and nossibly nowdered milk. 39. Indust,+rial oupthns i1rnnP..civPlv rimihIP.8 -in.p l9Qq al_ frnm Ft small base, mainly because of the protection afforded by import restrictions on imnortPd ennqnmPr aod. Ontnut has annnrntlv nnntinued tn cyrw in t1he pattwo years in both the public and tne private sectors despite the restriction on now working at less than 70% of capacity and an early increase in output would be possible -Upon. re"liefP from Vimpor restriction U Thratr the.- ,_VA0 potentI:.ia.L V - 16 - for f-runer output growWn i conside.r."Ute: e, CUIU UI It; u UU,U_I0m I on the Ministry of Industries to permit new investment would indicate that at least in the immediate future entrepreneurial initiaive is no ar to ac- celerated industrial activity. 40. In the public sector, a considerable increase in output is also possible in the near future, in that a number of investments such as the tire factory are near to completion. On the longer run, the strength of the pri- vate industrial sector will depend in part on the soundness of the investment decision being made and on the ability of businessmen to move into fields other than the production of consumer goods in which the growth potential, for reasons discussed in Chapter V, may not be high once import substitution is achieved. For the immediate future, growth is projected at the slightly reduced rate of 9% mainly because many of the opportunities for import sub- stitution are already exploited and the growth in domestic demand may not be great. Net output may thus rise by Rs. 300 million by 1970. Output of the construction industry is closely related to capital formation and is accord- ingly expected to rise by about 50% by 1970. (d) Summary 41. The prospects for growth in the commodity producing sectors thus appear to be potentially better than in the recent past, but no dramatic im- provements appear likely although some immediate surge in industrial output should follow relief from crucial import shortages as a result of the Commodity Aid Program. Output of the various services sectors is expected to follow suit. Public services are projected to increase at the same rate as current nubli mending other than on transfers. Economic activity in the commodity producing sectors, combined with the investment required to support it, should exert a strong influence on growth in the wholesale and retail trade, banking, etc., although growth is projected at a slightly slower rate in relation to NP than in the past. overall -A. rP.q1i1tnt movement of GDP could emerge as follows: GDP Projection (Rs. million) 1960 196h 1965 1970 - - toam imrn (Prnjction) Value Added In: Export Agriculture 1509 1507 1540 1625 Domestic Agriculture Etc. 1341 1599 1470 2075 Manufacturing & Mining 328 563 620 950 Construction 349 419 410 600 Trade & Private Services 1852 2213 2400 2800 Public Services 7145 859 940 1150 GDP (At Current Factor Cost) 6124 7155 7380 9200 GNP (Current Market Prices) 6493 7541 7856 9600 42. It would appear practicable, therefore, for Ceylon to achieve a rrrowth of GDP at around L 1/2% a year between now and 1970, with an initial spurt in 1966, and later accelerating again towards the end of the decade to - 17 - _/ . w* L . LUU oureseu, however, blab tr Mu rate of growth will not be achieved automatically. It would be the probable result of an accelerated development effort invOlving higher capital expenditures on programs designed to have an early impact on output particularly in in- dusr,y aU agriclture, and with necessary support from an enhanced capital inflow from abroad. If there were to be no such changes from the present S.LuUiVu, 1U lb unIlKely that growth would exceed 3 1/2% per annum. - 18 - 4TMonLTm Vr1PtMTnVT DnT Tr'TQ AM PT.AT-, uu- U~l le ~jLjIM' Uji JJW LU-1 1CLK, Y 5 M n n 43. In this 1capter, teefrsnwbigmd yte ~ t improve the growth rate and balance of payments are discussed. These efforts fall into two related categories. Firstly, tere are the direct pors Ln the public sector which, through investment in infrastructure and production facilities in agriculture and industry, wI nave adiect effec on ouput. Secondly, there are changes which are necessary in financial and monetary policies and in policies toward the private sector wlich are prerequisites to achieving further growth. The need for further action is discussed in Chapter V. Development Programs 44. The planning approach being taken in principle by the government is a refreshing departure from past practices, in that rather than concentrating efforts on the preparation of a macro-economic plan of doubtful operational relevance, the emphasis has been placed on "the formulation of concrete pro- grams for the key sectors of the economy and on the identification and prepa- ration of specific projects suitable for early implementation and, where relevant, external financing. It is expected that the various elements of a comprehensive overall plan would emerge out of this work." The priorities which are envisaged have been so stated - "(a) We must achieve a substantial breakthroueh in domestic agriculture, (b) We must step up the tempo of indus- trial development, (c) We must improve the economic infrastructure - our roads. norts. railwav3. power systems, etc., and (d) We must train and orient our human resources towards development." Four committees of Permanent Sec- retnries wier charged with nroducing initial Drograms along the above lines, and the programs that are emerging for the next few years contain a number of proposal whic, if implemented well. could contribute to a significantly higher rate of growth of output. Most proposals are, however, still at an early Sang+er pl y,&n-atinn _ni qrp likplv to have such an effect only towards the end of the decade. 45. In the agricultural export field, the traditional sector is being promoted wIt a continuation and envaapment of the several subsidy schemes for tea, rubber and coconut planting and replanting. These schemes are de- signed to promote inveStment wa n as an offset to the very heavy taxation of this sector, and are expected to continue to be successful. Although the impact of the enr-g -orms is unikely to be felt for the rest of the decade, the proposed tea factory and machinery rehabilitation scheme, which would have the'- aim. Of improvintea + appars t meet an urgent need and could give an early improvement to the prices realized for Ceylon teas. 46. In domestic agriculture, the paddy production schemes follow the established pattern, with, however, more easisom on fetlie use (from the present 60,000 tons to 150,000 tons by 1970) and on subsidiary programs such as the provision of paddy land preparation machinery, and soUrag f--te for fertilizer and paddy. It should be possible to bring at least 100,000 arsudrn,-, productio th-rougI irrgantion -chle neS - n. in-onn -n irgnn which, combined with the achievement of the expected 25% increase in yield, 'IA I~44~- + i... I.r4- '., 107r) MP11- w'4c.+. acreage between 1958 and 1964 was actually larger (180,000 acres) than is proose LorJ~~ JAJ e U L 7UJ.7I I V per.'~~ Lod; soA, given th LAi 1U%,~VQC21 .5 U1LL.L4 L UAO=5AA.A11 -A. irrigation machinery, this program should be technically feasible. In the have been disappointingly low, and to the extent possible, new irrigated ianu needs to be usea for otner 6uouJary LVUbUi±L ki1e±i1r,u g 11LUL 1" ilu return. 47. A move in this direction is already under way through proposals which also serve to develop import substitution in a number of commnoUdties. The government proposes to devote up to 60,000 irrigated acres to chillies and Bombay onions. These are pioneering efforts in a number of areas here production is technically and economically feasible, although institutional provisions will be necessary to encourage production by pruuceUv liw Lu the crops, and hence it may not be possible to develop the necessary extensive commercial agriculture on more than about 30,000 acres by 1970. An enc:our- aging development has been the application by large private interests for several blocks of land for commercial chilli and vegetable production under the government's recently announced program for the alienation of Crown land to large operators for approved agricultural development projects. Substan- tial progress is also possible in the dairy industry through plans for the development of highland and "villu"l pastures for the supply of milk to a condensary and powder plant. This will require the identification of suitable large-scale milk producers and the import of dairy animals. Again, interest has been shown on the part of financially able private promoters. Progress to date in both the vegetable and milk production schemes has been held up by the lack of foreign exchange for the equipment necessary to make a start on the development of adequate water supplies for the vegetable proposals and for the animals. eauipment and materials which will have to be imported for all projects. Over the longer-run, as in the case of paddy, the main limi- titions to the realization of the technical and economic potentials of the schemes is likely to be the lack of ancillary supporting services once the physinal construction of a project has been completed. The provision of im- proved planting materials and proposed expanded storage facilities by the nPnnrtment of Agrarian Services should help. Also the cooperation between the Irrigation and Agriculture Departments for the lift irrigation projects en' t+.abi nrodction whereby the latter will provide special technical and extension services is a step in the right direction. However, there is much Son-na fn" +.h strengthening. coordination and reorientation of a variety of government agricultural services performed by a number of separate agen- cies whi "e peired for a more intensive utilization of existing and future physical investment. In particular, there are opportunities for co- od_4__ +h work of the existing four extension services and the multitude of field agencies, and for the retraining of extension workers. C,-----ru n and4ninion o vlonts basic food supplies, or any prbles wil 1 hv to- - sle these problems will have to be solved. - 20 - ).R In hbrivo promising nl-;ns exist to make full use of the off- shore potential, and the problem has narrowed down to that of the optimum rat of expasio of' the ; iusty - whninh i.q -in offpct det1.rminnd by the number of fishermen trained in navigation, engine maintenance, bulk fish handling etc. onen7 a4t.- ~ +.,. ,'~nd~ mare~ Pcorpliy hoqt,,-. Tn- vestment in some of the new equipment has already begun, and it appears LIA -L.V LUIUU 11 UVUULJ.416 VJ.L Ud.UI1 S-,y -,/I- 1 I -- 4~9. 111 public id:ustry, siz4,ULeL idasfo the continued epnino the public sector corporations have been put forward, implying a rate of ex- penditure of around Rs. l:50 million a year, consderably higher thnn TTn. achieved in the past five years. More than half the proposed new investment would be on new ventures - a fertilizer acuory, ani r , n a paper products complex. Expansion plans or continuing projects exist in ce- ment, salt, chemicals, textiles, electrical equipment, rubber tires, leather, iron and steel, ceramics, flour milling, etc. The quality of decision-making about most new ventures and expansion projects appears low, and there is every prospect that most of the new investments would be accompanied by technical, operational and other planning errors, as have their predecessors. It is clear from the results of a recent Bank mission that a hard second look needs to be taken at many of the expenditure proposals befor irrevocable com- mittments are made. This particularly applies to the fertilizer plant, ce- ment and plywood expansion, the chemicals industry, and others. Also, man- agement advice and support is urgently needed if losses by new plants - such as the steel and tire factories - are to be minimized. There has clearly not yet been any basic change in industrial policy and no firm delineation of the role of public sector industries, so the momentum of expansion continues without regard to the cost to the private sector in terms of opportunities denied.. Expansion is also proposed against the background of a public in- dustrial sector which has already stretched to or beyond the limit the scarce management and administrative resources available. While many of the exoansion nroiects may be expected to increase thennet output and profita- bility of certain corporations, it appears that at least half the corpor- ations will remain unnrnfithle - the heritage of poor past decisions - and the wisdom of the heavy proposed investment program is unclear. 50. A program of heavy investment has been proposed for transport fa- ilities. nort devalonment. electric Dower and water supply, which by and large are essential to make up the serious backlog of maintenance and reha- biista+tion, espeiali in the rand network. The railway dieselization pro- ject, road maintenance program, telecommunication improvements and the -on- tinu1us imnromants in pnwer and water qunoly should all add significantly to output in the services sectors of the economy, and appear on the whole to be well conceived. H rver- the nren1Qn of low. subsidised Prices in many of these fields may well be inducing premature investment. 51. Overall, the new investment proposals which are emerging include a ndteb n payn t.e Theemes e b lh e iVfpncta dy-Ii tion) -,r on oiinut and -the balance of payments. The established paddy production programs and past industria'l investments wLl" have a Continuing impact on outpuit, WHIP. for the first time sizeable, technically feasible, schemes are emerging for tne produclion of nonh, chillies, dairy products and other subsidiary food- stuffs. Many questions continue to surround the quality of investment de- cisions in the State industrial sector, but the efficiency or the sector appears to be increasing, although it is doubtful whether the priority iLn foreign exchange allocations given to the public industry sector is likely to produce either the earliest or the highest returns. 52. It thus appears possible that the 4 1/2% growth rate in GDP. pro- jected in Chapter III, could be achieved if these projects come to fruition soon. The basic problem which hinders the achievement of this increase in output is the ability of Ceylon to narrow the gap between the potential in- herent in both past, and future investments. and actual nerformnp- Rtter performance involves a large number of intangible factors which government policy and programs can effectively influence. Tmprovrd npply and dst-rihi tion of imported materials and equipment, the supply of ancillary services to agriculture and the creation of an improved climate for mannagoment in the p lic and private industrial sectors should contribute effectively to the nar- rowing of the EaD. - - 22 - Financial and Monetary Policies 53. The National Government came into office at the end of March 1965, halfway through the 1964-65 financial year and no change in financial policy was introduced until the time of the next budget. Shortly after taking office, the government entered into a standby agreement with the International Monetary Fund, as a result of which sizeable drawings have been made. The government undertook on its part to restrain the growth of public and private credit during the year of the agreement (June 1965-June 1966), the criteria being such as to allow net domestic credit to expand by up to about 8% or twice the rate of growth of real product. This was a first step towards monetary stabilization, and up to March 1966, the extension of credit was below the IMF suggested ceilings. In May 1965, the government raised the bank rate from h% to 5% and also agreed to control more rigidly credit expansion by the People's Bank. In February 1966, the government also agreed with the IMF to hold in the Central Bank all counterpart funds accruing as a result of the forthcoming commodity aid programs, and to consult with the IMF on the amount. timing and purpose of ePnnditures out of counternart funds - with the intention of seeking to implement the spirit of the IMF standby agreemnt using counterpa fns a, on addit.inal tool with which to control monetary demand. 54. The government also prepared a budget for 1965-66 which implied that inf-lat,ionary ffla-ce would remmin, withi n limitsa oif Pe- 80-100 Mil Iionn~ agreed with the IMF - compared with an actual achievement of Rs. 44 million iy, iAOc T4I- ^ -- ~ 44,-+ 4-1,^- Tr- - ,.-11 cir-sr in L-opnircp .1 ,.I4.~ h UV ja.jO. L fULJCL'4 VIACLU Vl r VV%- .iJAM11'-- the apparent expansionary impact down to this level, but not because of any MCL-k _L11Y.uv riie ul VkU1 L 11 WAit -LtVt--LU.L jUU6U C:LLdY c)aV_"1iD 11%j± .L ithin~ the- co -t of a greater contribution to the development effort, but rather because of an UUO-eae in Une .Luna.U avaLLau±e rom -ore±ggn aand frum 'Luon to -t-he government by the Insurance Corporation, Employees Provident Fund and other such institutions. The government is also making greater use U! UnU n for government imports - the amount of credit outstanding for such purposes increased during 196 by Rs. 60 million. Given a further increase of Rs. 20 million in the resources available from the above-mentioned institutions, it should be possible only to maintain the level of domestic non-bak linancing for capital expenditure in the present financial year at about Rs. 350 million. Any increase in the level of capital expenditure will thus be the result of the expected increase in foreign assistance, which may rise from Rs. 100 million in 1964-65 to Rs. 250 million in 1966, and the use of up to Rs. 100 million in bank finance, compared with Rs. 43 million in 1964-65. 55. To date, Ceylon has had considerable success in slowing down the rate of monetary expansion, although the effect of the virtual halt in credit expansion during 1965 was partly offset by the effect of the increase in external reserves on money supply, which as a result rose only slightly more slowly than in the -past. The halt in credit expansion hid, however, a further 5% increase in public sector credit (including government import bills) which was entirely at the expense of the decline in private sector credit which took place mainly because of the slackening of economic activity caused by poor output growth on the one hand and a cut in the import level on the other. The increase in the bank rate and the additional savings generated by the - 23 - .L11uaLnUue u.LUUrpurau.LuI 1avu probably contrioued to the reauction in credit growth, while in 1966 the tax relief scheme on new savings (which can offer a high return to people in high tax brackets) will probably add a small amount of new and non-expansionary finance. Overall, however, the increase in economic activity which is expected to result from the increased import level during 1966 may create a large additional demand for credit which will have to be controlled carefully to insure that on the one hand the public sector does not pre-empt the allowable increase in the supply of credit, and on the other that excessive expansionary pressures do not re-emerge. It is thus expected that not all the counterpart funds accruing in 1966 will be spent during the year. 56. Changes in fiscal policy in the 1965-66 budget do not represent a significant change in direction. Nor was a radical change expected, given the short period the government had been in office, although the opportunity was taken to present a sound analysis of the country's problems. As is discussed below, however, this promise has not yet been translated into effective plans for remedial action. The action that was taken in the budget consisted mainly of a reduction in the company tax rate from 57% to 50%, a reduction in personal income taxes with the benefit accruing to lower-middle income families, and other minor adjustments. The consequent loss of revenue of Rs.. 50 million has already been almost covered by the unexDectedly hish receipts from the income tax amnesty - which is indicative of the large unrecorded incomes, much of which Drobably results from trade in scarce imported goods. The impact of the 10% surcharge on import duties, with many goods excepted, was offset by reductions in imnort duties on some foodtmffs and other consumer goods, so as to reduce the cost of living. The indication given to the IMF that the government would review and revise imotne A1+ e as to make the prices of imports reflect the scarcity of foreign exchange, and also to contribute substantially to nblic savings, wam +hu not observed. Nor was the undertaking to make appropriate upward adjustments to the prices of products of nuhlin enternriP and rr atin+ns obsed Over11 4th impact of the changes on the revenue side was to reduce expected revenue., On the current P_Pei+mY-e sie, s!no retrin has k - --A 1-4 bu _n policy changes were made, so total expenditures are likely to increase by 3.2%. sliahtly sl1ower t_han in the past, thus re4-in inasal-urn surplus similar to the average of the past six years. 57. The increase in non-bank borrowing and foreign aid in 196h-65 enh~tegovernment.. - izmmase%---cJ expenditJ-ures0 bY 79% oVer Ute average of the previous six years. This was a welcome achievement (although it took plac in 6 par atV the expenseU of te private setor wILch was re.kEtive- ly more seriously hit by the shortage of foreign exchange) and it may be reeaediW1656, but onl ifVL. aU%&itionaLUc. foEi_gn resources become available. ,e remarwi ag J8ing changes have bven mainly administrative. The most important of these has been the establ-tshment of the Ministry of Planning and -cnondc Affairs~ which has been slowly increasing its staff and rapidly in- creasing its responsibilities. The forreer planning apparatus had fallen into U±ouse Unuer the previous government; the new Ministry has incorporated the - 24 - former Department of Planning and added depai-tments or foreign aid and plan im- plementation - the latteris not yet active - and a small nucleus of economists and administrators. The government has sought a 12-man team for the UIP to provide planning assistance over the next five years. The new Ministry has rapidly expanded the scope of its work, and now is responsible inter alia for the formulation and also part of the administration of the foreign aid budget, for the preparation of the annual capital expenditure budget and related current spending, the preparation of long-term sector and national plans, the administration of foreign aid, and the processing prior to cabinet considera- tion of all cabinet papers related to economic policy. In short, the Ministry has full responsibility for the development of overall economic policy, plan- ning activities and implementaticn. 59. This is a formidable burden. which is well beyond the present capa- city of the Ministry. In some fields, however, improvements are evident, such as in the 1966 foreign exnhann budet which was nrenared systematically for the first time, albeit on unrealistic assumptions on the inflow of foreign aid- Thp Mini stry ha alnbrohi thi fnorpian snendin- of govern- ment departments under control for the first time, with the exception of most set up four committees of permanent secretaries to review projects and programs for the next few year as preare by the exe1uting, MiTJnisztrie Pqndr government corporations. These committees are supported by the work of the Plannin ----4 Depatmen ,c is beinin A4 -A an-eauae- iisris proposals. The responsibility for the initiation and preparation of programs andAprojects- rmiwihteMnsre,adhresevdence a consLdera bly greater awareness of the need for projects with a high and quick foreign exchange saving elementU. The estaUblisment 01 prioVies between scuoL, and the re-examination of old-established programs with a history of indifferent resu.lU - such as the colonization schemes - has not yet been attempted. 1t reorganization of planning in Ceylon is of course only in its initial stages, and such reappraisals will probably have to await a strengthening of the Ministry. rolicies Towards the rivate Sector u. In this area some favorable trends can be seen, although on the whole the role of the private sector, particularly in industry has not been fully clarified. Early in its term of office, the government satisfactorily resolved a number of outstanding issues such as the oil compensation dispute and the questions of policy towards the foreign commercial banks. However, the moratorium on dividend payment - affecting mainly the old-established industries - which was begun in 1964 has been continued and as a result unremitted dividends have accumulated to about Rs. 60 million. Only Rs. 6 million has been released to date against the accumulated backlog. In 1965, as in previous years, the private sector suffered more from the foreign exchange shortage than the public sector, not only because of the remittances but also other exchange allocations which, when available at all, tend to be allocated on an arbitrary historical basis after the basic requirements of the public corporations etc. have been met. However, the attempt now being made, in connection with the administration of the 1966 Foreign Exchange Budget to bring government use of foreign exchange under control, bodes well for the private sector. This foreign exchange problem has beset what otlerwise is an excellent program in the private agricultural field. A change in land policy has led to the alienation to private interests of several fairly large blocks of land (1,000 acres each) for the production of subsidiary food crops in the dry zone. To date, however, the program is held up through lack of exchange for the necessary land clearing and irrigation equipment. 61. An encouraging move has been the publication of a white paper on aovernment policy towards private foreign investment, which unequivocally welcomes such investment and offers a generous set of tax incentives for "aporoved" investments. together with assurances of eQuality of treatment with local investors and guarantees of transferability of profits and capital. Investment on "anoroved" foreion investment is invited. not necessarily with local participation, in all industries for export, and in all industries nroducing for the domestic market excent 10 industries which have alreadv "come to be regarded as the exclusive responsibility of the state". 1/ How- ever fonrnian nnrtininnt.in "that i. of ndvantage from the national noint of view" is also invited in the state industries, albeit the invitation is some- ht amhianinz- Pfth in thPqP 10 inrum+.rianAnr in nthPr.q siih as textiles in which there are already both government and private firms, there are expansion pasfor the govrnmnt plnt, indicatfing t-hat an policy o)f r-nPVi.qf.n(. t.ith1- out assurances of about the future role of the government is likely to continue 0 11M1, 4-n 1 4.. e promising efforts to improve the quality of the investment program particularly .i thle agricu_ltUUal fieLd:.Up, it ILV cannot beLsaidUthat wtese po-lc.y chianges0 Cadd Up to a determined assault on the basic causes of the foreign exchange crisis. As is stressed in the next chapter, and as was euphas"ized y the ank and part- cipants at the first Aid meeting on Ceylon, and as was agreed by the Ceylon government at the time, action was and is necessary on the part of Ceylon to improve the mobilization of resources for developmental purposes so as to reverse the trends described above towards a declining investmenu rate, and v modify the many policies and practices in Ceylon - income redistribution policies, welfare policies, pricing policies, etc. - so as to remove the -avoidable obstacles to a more rapid rate of growth. 63. Clearly, all the necessary changes cannot be made overnight, and many improvements can only be made concurrently with an improvement in the growth rate. Such an improvement is very likely to occur this year, as some of the supply constraints are relieved by the inflow or commodity aid which has already begun. A phased program of improvements mainly in public finance such as was called for at the time of the last Ceylon aid meeting would thus be relevant now, and it is disappointing that no such program exists nor is 1/ Cement, ceramics, paper, mineral sands, caustic soda, plywoods, steel, tires and tubes, fertilizer, petroleum. - 26 - one being prepared. Some preparatory work is being contemplatea; commi tees to examine the operation and pricing policies of the public enterprises, and the food subsidy problem, have been set up, and a tax commission is being considered. The longer-run problems of public finance have also been studied, but the implications for policy have not yet been drawn. There is thus no indication yet of a. willingness to make a systematic start on measures which will result in a bigger domestic contribution to the development effort and a gradual reduction in the present heavy reliance on foreign assistance. The directions that a systematic set of policy changes could take are considered next. - 27 - CHAPTER V THE SCOPE AND NEED FOR FURTHER ACTION 64. As has already been stressed, little can be achieved in Ceylon in the long run. unless the rate of growth is improved. While the foreign ex- change shortage has emerged as one of the immediate constraints on increases in output in most sectors of the economy, this need not be the case in the long run, if steps are taken now to improve the mobilization of resources and the quality of both capital and current developmental expenditure. With- out steps along the lines indicated below, however, the present program of emergency foreign assistance would be little more than a palliative. These problems are appreciated and agreed in principle by the Government of Ceylon - as the last Budget Speech and many other pronouncements indicate. What has yet to emerae is a plan of action. 65. If no action is taken to mobili7e more dompAti rRournpq. it iq clear that Ceylon either will not achieve the modest rate of growth of h4l a year considered feasible in Chnntpr ITT qhovp. or wonild rio - only to the accompaniment of an unmanageable balance of payments situation and thus continued emeraencv forpin niri. rivin the difficniltv na nrnbleam invodirri in raising such emergency aid, it would seem that a minimum aim of economic poliev should h to rinden the halance of noymvnt. r1fieit tn mnnonhble proportions by 1970, while also achieving growth at the modest rate indicated Ihovp-. 66. t is likelythat considerble i-port subst+i+u+in evll t.- place if growth takes place along the lines discussed. The expected increases in then outputn r-orc andl vriosusiiryfodtuf and other consumer goods (mainly textiles) should make it possible to reduce consumer goods' million. Any further reduction would be very difficult, even a level of It is difficult to be precise about the volume of investment necessary to ,achieve thnis rate of growoth of vu4-p uy vuy aJL II-u11fuilluum 19 s 1,-)Vv.,uu would seem to be necessary by 1970, so as to allow an increase of roughly about 16% of GNP which prevailed in 1960-61. Such a trend implies a marginal c'nnv+1 .rsi+,.,+ -'*.4- -P4 -1 -4 3 ff +- 1 a U,.-4..4. __ -4..4 -12 -- ___ - .V - - -k; C- '-. aVL Vi Ula V L, cl 0JLJ=WL1UL1 UULfz;.L UU_.L.LZaU.L Ul capital than has been achieved in the recent past. At present, the import content of capital formation is fairly low and has declined from _5W7 in 1960 to 29% in 1965, reflecting the exchange restrictions rather than a permanent strucuural change. A reverse trend is likely over the next few years, as the backlog of replacements is made up and as greater relative emphasis is placed on inustry aM, for example, fisheries development which have high import contents. On the assumption that the import component reaches 4ujo in 1970, the corresponding import requirement to support a 16% investment rate would be in the order of Rs. 600-650 million. Intermediate inputs such as crude petroleum (assuming that a refinery is in operation by 1970), clinker, fertilizer, etc., are likely to have to amount to at least as. 7>0 mUlion on the basis of expected input-output relationships. Given the export prospects discussed in Chapter III, the demand for merchandise imports and the consequent balance of payments implications would thus be roughly as follows: (Rs. million) 1964 1965 1970 Export Receipts ....................... 1767 1897 1980 Services and Invisibles (Net)..... -27 -8 -80 czl11 +^+ 01 -l 7o MU N) Iet * ........... 1 % .A. 7 --n + 4+- 1 T-4"l TRY o Total Receipts .............. 11839L/ 1220 Composition of Imports Consumption Goods ................ 1172 1065 85o - 900 intermedIate Goods ............... "o 740 I Capital Goods .................... 305 296 650 - 600 otner .. .. ...... ...............ucu- 1/ Net of statistical adjustment for difference between import payments and recorded imports. 67. It would thus appear that there would, under these assumptions, be a need for capital inflow from abroad in the order of Rs.350 million (net) in 1970, and this, given the compression of consumption goods imports indicated, would be consistentwith capital formation of about Rs.l,550 millior.. 68. In order to support the larger volume of public capital investment, and make it as productive as possible, it is also undoubtedly going to be necessary to accelerate current spending by the Government on economic services such as the extension services - as a pre-requisite to increasing output. Expensive technical training is likely to require a boost and it appears likely to be difficult to justify a rate of growth of current expenditures of less than 5 compared with 4% in the recent past. Given these magnitudes, the overall picture emerges as follows: (Rs. million) 1964 1965 1970 1965-70 (Projec- 7/T. tion) GDP (At Factor Cost Prices) ............ 71hO 7h0h 9200 4.5 + Tndirect Taxes (Net) ............ h20 193 L70 -. Less, Net Factor Incomes .......... -3.6 -15 -70 - = PNP ..*. ---------------**ee 70)_ 788k 9600 L.2 MNt Tmno%r+_V----- - +-16 + +;q0 - Toal~cpnitrs ...-77*09 77329 9950) - of which: Capital Formation ....... 983 924 1550 9.5 Public)0( 1onumpio 1... ).~5 5. Private Consumption ..... 56'29 5692 6950 4.0 Domestic Savings ....................... 810 961 1200 7. tL 1/ Excludes statistical adjustment for differences between GNP as derived from product and expenditure sides. 2/ Orer 1964. 1965 was an exceptional year. - 29 - 69. For the next five years, therefore, if the expected rate of gra4th materializes, private consumption expenditure could grow at 4% a year while total investment could and should rise by 9 f> a year. Failure to keep con- sumption spending to such a level would inevitably result in a lower invest- ment rate and a subsequent lower growth rate because of the import constraint. There is also the growing likelihood of an internal finance problem, as is indicated by the need to raise domestic savings by 0o% over the 196h levell. The Implication for Policy 70. It will not be easy to guide the economy along the general lines described above, which represent a marked departure from - and even a re- versal of trends of the past eight years. Some time has already been lost. but it should be possible to introduce measures by the time of the forth- coming budget which will enable the government to benefit from the brenthing space allowed by the emergency commodity aid program. At this stage, it appears that there are four broad areas of poliCV in which action might nrove necessary: These are (a) to manipulate financial policy so as to ensure that a rising proportion of both local and foreign resourcn iq dvotmai to investment rather than consumption, and thus raise savings to a level consist- ent with an investment target of Rs. l.q00 million, net of fnrean cnital inflow of Rs. 350 million; (b) to continue progress towards financial stab- ilization to ensure thnt the ivel of demand, including dAemnA for imports is kept within the limit of aviilable resources; (c) to follow a pattern of Dublic investmAnt designed to nrn- a f+ A to J +l' efficiency of the use of capital; and Cd) to adopt policies towards the private sector (nnd within overnment) de-igned to encourage the best use of resources. Financial Policy 71. The responsibility for manipulating policy so as to achieve the necessary m-rargin-al savings rate of 4'_I fal sqarl on th4 de. The1 A_ L ' various tax relief schemes for savings and the increase in interest rates will- p- bly have a marginal effect on private savings, bu the main source of new savings will have to be the government budget and the related public sector inttuin such asL the publi enterprises- and stte corporVationsI,5 and the provident funds and insurance corporation. The distribution of the a secondary problem which is considered subsequently. N2. It is clear that if no changes in public policy takes place, then the savings Vrget will not be aciUeveu. In an aggregate sense, the important magnitude to be controlled is the level and rate of growth of income remaining in privaUe nds after UeductnUg total government receipts, including the net profits or losses of government enterprises, net of transfers back to the private sector in the form of subsidies, pensions and interest payments, etc. Such government transactions have been projected for the next five years on a basis consistent with the expected trends in the economy, and on the assumption that tax policy, subsidy policy, the pricing policies of state enterprises, etc., would remain unchanged. It emerges that private disposable income is likely to rise at 4.650, or considerably faster than GNP which is expected to rise at 4.2%. - 30 - 19603 Q- 1. GNP 7,175 7,56 9 ,600 2. Less Public Sector Net Receipts Under Present Policies V35 ,7O 1,1u 3. = Private Disposable Income 6,240 6,780 8,500 4. Private Consumption 5,184 5,692 (7,140) 5. 4 as % of 3 84% 64% (84%) 73. Thus, the need to bring private disposable income to a level consistent with private consumption in the order of Rs. 6,950 million appears to require an increase in net government receipts of at least Rs. 200-250 million. These magnitudes are of course only approximations, but they illustrate the nature of the problem. The public finance position is consider- ed next. 74. Both the Ministry of Planning and Economic Affairs and the Bank have examined the prospects in the public finance field, and the implication for further action on both the revenue and expenditure side of the budget are unmistakeable. Assuming that the trends in output, incomes and trade are as projected and assuming no policy change, it appears likely that current revenue crowth would be at around 3.8%. somewhat slower than GNP, with most of the increase originating in import and excise duty collections, with some buovancy in income and turnover tax. Export duties, however, are likely to fall. Current expenditures on the other hand would probably rise at about 6_C0 as they have rvr the nat six vtars. with transfer nayments contributing three quarters of the increase and education almost all the rest. Food _mhqir1Joq ninna 7r Ikrly t inbyrnqP hv 74 Iv 1909-70. a-r.minting for half the total increase in current expenditures and three-quarters of the increase i ni-atranii 'Pr 1 070 rvr~c Tnrl oiil-c ies Tanirl ni''emm+. fn-r an 1-hi rd nf' r'iirrp.nt, expenditures. No allowance is made for any increase in agricultural or other 75. The picture, assuming no policy cags ol ob as follows: (Rs. million) 1963-64 1964-65 1969-70 -1 - 7 ,3e -1 0, r Ltnue _L UiU ±j -L.) 1, f V)' 'L_ of which, Export Duties 277 313 270 Im11port uU.tes 4u - 14)v3 Excise Duties 218 239 352 _Lncomei Tae E: vy Current xpenaiture ±ouy ±,tvy IJeU of which, Food Subsidies 460 474 744 Other Transfer Payments 2o n 295 Education 309 325 436 Current Surplus/Deficit 4 57 - 110 76. It would thus seem likely that a current deficit in excess of Rs. 100 million may emerge, at a time when a sizeable budgetary savings effort needs to be made and additional investment financed. The seriousness of the problem emerges more clearly when the other resources available to the govern- ment are added: domestic non-bank borrowing net of sinking fund contributions may reach Rs. 350 million, compared with Rs. 243 in 1964-65, as the resources of the EPF and the insurance corporation increase. By 1970, the five state enterprises are unlikely to be profitable, but the state industrial corpora- tions should be in a position to make a budgetary contribution, and borrowing from them and other administrative sources might total to Rs. 100 million. In 1970, therefore, total non-bank domestic sources of finance for public invest- ment would be Rs. 3140 million - barely in excess of the 1965-66 position. Out of the Rs. 350 million (net) of capital inflow from abroad estimated above to be necessary in 1970, roughly Rs. 310 million (net) could be for nubli. Rector use and the balance in the form of private foreign investment and reinvestment. Part of the public capital inflow might be in the form of commodities which, on sale, would generate counterpart funds. Total foreseeable domestic and foreign resources thus amount to Rs. 650 million- assuming that no resort s made to expansionary financing. 77. This sun approximately equals the probable level of capital expendi- ture in 1965-66. and nertinlv i inadea tfornlOAo-7n. T1he re+ive magnitude of private and public investment in 1970 cannot be decided accurately now in the absenne nf' __±.nile plansz and prioriti+es for the publc 4setor Considerable private investment by the private sector in the export sector, v~~ , cial4~ ap ic l u d W.L .L UJ U.~1 L-L± UA. achieve the target rate of growth. A target of Rs. 775 million in 1970 - a growth which it will not be easy to finance. For this reason, all new banking resurso will probably nd t b O ve used U te pF1Vate seCLOr. AlSO, an allowance needs to be made for capital transfers from the public sector, through institutions such as the rUFCC, Und via replanting grants. In the past, public sector capital expenditures have included such an allowance, and pubA. capital urmatun incuLuding the state corporations) has consistently been about 86% of public capital expen ures. Applying this ratio to prvoected 0u%,V. co ..ual luruation \kalg Rs. ((5 miLLion) results in an estimate of public sector capital expenditure of about Rs. 900 or Rs. 250 JJ - .A CLU%JVt1 L i LL VcLLL.±LUt-, 1-LjUULCU5 iL1 -LY(U* 7A it ---2- - - - - ,-.1 * ap in puu±"e finance of us. 2>u million tnus appears likely to emerge unless changes in revenue and expenditure policy take place. After allowing for an aUitonal ts. 50 million for current expenditures on develop- mental services such as agricultural extension and industrial research, the new resources which have yet to be found add up, on this basis, to Rs. 300 million. Thus, whether the problem is approached via the need for additional national savings, or via the particular problems of public finance, it is clear that the development objectives discussed earlier cannot be achieved unless aaltional domestic resources of around Rs. 200-300 million are generated - over and above the capital inflow from abroad. The alternative for the public sector is clear: - in the absence of an increased saving3 effort, capital expenditures by the end of the decade are unlikely to rise above the present level, even with enhanced foreign aid. - 32- Possible Courses of' Action 79. In the absence of further investigations, it is not possible to offer precise solutions to this dilemma, but it seems that a three pronged approach to the solution of this problem might be relevant. While the scope on the revenue side is small - with revenue already at 2316 of GNP - some action is both possible and necessary to review and raise the level of import and possibly excise duties. On the expenditure side, the scope for economy is very small (although some economies might be possible in education) and it seems inevitable that a change must be made in the largest and most rapidly growing element - the food subsidies. Thirdly, the several public enterprises could be made to contribute substantially to the budget, as could the state corporations. 80. All three courses of action have implicztions which go beyond the budgetary necessity for action, and which in fact supply distinct and comnelling reasons for change. All three actions imply Drice changes - in the price of imports, the price of essential services such as transport and communinatinns. and thp nrin of food nroducts to nroducers and consumers. These three areas are the principal areas in which the price mechanism has been qbnPd in the pnt. in favnr of ncial ehiPtives surh as containing the increase in the money cost of living, and as a result of which distortions in resource use have emerged to slow the rate of growth. Medless to say. for the same reasons, any change in these areas may well be highly politically charged. 81. Regarding import duties, these at present stand at an average level of/ WAI% onnon-fod itm,mnor duti es e-Jist on some foods ndlr pqszn+.i n1 consumer goods, while unessential consumer goods often have duties in excess of ..J/ . L U4 J .Lv±LV, 6-LVV U1 1 CL%4 "4LL.LD~ L d%V.LV1Z ,V14JI '-- up, goods bearing very high duties are not usually licensed for import at all. 111U~ CL"UUCtL_LU11 LJ. J1U1'0J , jJdVUUUU.LCt1__Ld iliUeL1IIullc' ail .IL v LF '- - w increasingly being handled administratively by the import controller and rull-ib Lry 0. Lruu,5leriU. DWCau Ul 0 ULIt t ECbLV0 u:%Ilu luV L.U.nLi Uu"vuL at present, elaborate price controls on imported goods and some locally produced goods exist and their use is being extended. DVasion is wiudpread, however, and there is no doubt that in some commodities, such as automobile spares, large profits are being realized on resale at many ustao LoUntrolle price. In a small range of goods, price control remains effective; also, fixed prices are maintained in the case of essential gaous such as fou by importing enough to meet the full demand at the fixed price. 82. Some of the pressure on price should be relieved as increased supplies become available under the Commodity Aid Program, and as financial stabilization becomes more effective. However, the demand for imports at present prices (which in effect reflects the current scareity of foreign exchange) is likely to persist as is indicated by the very high foreign exchange requirements even of existing industry in eylon. Under present circumstances, a gradual move towards higher import duties (including duties on consumcr goods but mainly on intermediate and capital goods for all users including government) should bring the benefits of (a) taxing excess private trade profits; (b) restoring prices of imports to a level which better reflects their true scarcity value and thus (c) enabling a gradual dismantling of the administrative apparatus for import allocations to - 33 - take place. The latter is, as in many countries, inefficient and, in anything other than the short period, would lead to a considerable mis- allocation of resources in the private sector. Given a reasonably assured supply of foreign exchange, backed by reserves adequate to meet contingen- cies, it should eventually be possible to move to a better price basis for import licensing or complete import freedom but with high duties. The fiscal impact would be uncertain. 83. On the expenditure side, little opportunity for economy appears possible except by action on the gross food subsidy; the subsidy to rice producers and consumers accounts for 85% of the total. The rice subsidy system is an institution in Ceylon, and an expensive luxury which has been the coin of politics since the war; all attempts to change the system, except those resulting in increased benefits, have been unsuccessful, and the inertia which this history has bred has so far discouraged even a review of the system as it now operates. The effect of the system on the economy has already been described above in earlier chapters. There is no doubt that some production promotion subsidy is essential to promote rice and the output of other crops; there is Drobably a social case to be made also for an income transfer to the rural areas if this is explicitly used to sunoort imorovements in rural amenities. However. the oresent system is little more than an income transfer system, which is likely to absorb three-anuarters of the ewnected increase in revenue during the rest of the decade. Mbreover, it is a system which, by making rice production fairly profitablep- seriously rdi.qtnr+..q tlip irinptiip tn are) - rtn.q nt.bpr than ric.c- For both these reasons, an early review of the present system and the many v~annmo hv n-Trna -irm. T-n the Tm+antie 'enAi-n& t.he emergence of a proposed system which would meet the economic and social ob;c44 - .4- 1 - -, --4 A- 4 , 4-,+ V,-sIA +V q,'kq4~AYr q+ -;+ a -i ,V.L.W C4V .LJd. tAJOV, a AI .LIJ..IJSA IJI LuJ.L-J -*~ L).IJ4I& 'v - - level of around Rs.500 million would, in itself provide a large part of decision is made to hold the subsidy at a given level, the greater will be US 4. Ie case Ior increasing bue profibuvdLiby of au-I puu±LuLIoerries as electric pouer, railways, ports, posts and telecomm,unication, harbors axiu warehus~ing taLL1 .iu 'VtULO UI. j6I1, d&IU CL'I.;JCOJ 0 QuLJ-LO VII %J± U~jL%JAA .L.- 4j.IJJ. Board, is unmistakable. After making an allowance for interest payments and de- preciation the five enterprises together made a loss averaging about Rs. 60 million a year in recent years. The largest losses have been contributed by the railways, and posts and telecommunications. WnIle little information exists on the total assets of these enterprises,- a positive return of Rs. 60 million would probably represent a return on capial ox aoouT 47 - none ambitious a target. Perhaps half the total loss will be eliminated by improvements in erriciency of operation - such as would be given by tne dieselization program for the railways - and by increased sales of power. The balance will have to be sought from price increases. Here, as in the case of the subsidy issue, the problems have been apparent for many years. What has yet to emerge is a plan for action. - 34 - CHA.PTER VI IEPORT REQIREMENS AND THE BALANCE OF PAYMENTS IN 1966 85. In order to enable Ceylon to move out of the slough of economic staLnation which has engulfed the country for many years, an emergency pro- gram to relieve the most immediate import bottlenecks is essential. Probably such a program will still be necessary for at least a year during which the worst backlogs in capital maintenance can be relieved, a start made on intro- ducing a prnaram of crrective meansurs. and then a return made to more con- ventional project-tied aid programs, both bilateral and multilateral. The f nis p r or the rmondity aid has now bmn to flow. On the Cevlon side. however, no effective steps have yet been taken, nor apparently are planned, to make full- use of the breathing Space Uns~ n~ffered-L However. i-f an im- port support program is to continue in 1966 - which will be in effect the frst yO a of -con-mic reovr find hopefullyt -not t.he last+ - t.he nJ t's si 7.e and composition should probably be along the lines indicated below. The 1966 Import Program 1/ 86. A foreign exchange budget was prepared by the Fbreign Exchange gram for 1966 envisaged a total issue of import licences of Rs. 2,679 million, an Increase of a quarter over the 196) licence 0LLoCUion and almnuot hO:? higher than actual imports in 1965. This was considered by the Bank to be an excessively large program and a suggested revised program totalling Rs. 2,305 million plus contingencies was prepared and discussed with the government. This program is seen in Column 4 oz tne adJacent tUle. TUs is still a 27% increase over actual 1965 imports, but this reflects the fact that imports were held to an undesirably low level in 196, and also that 1966 represents, in effect, the first year of the economic rehabili- tation program. The government, although initially putting forward a pro- gram for calendar 1966, has argued that the smaller revised program leaves little leeway for planning import allocation for the first part of _o6. While it is agreed that a longer-run import program, perhaps extending to September 1967 (the end of the 1966-67 financial year), would be ideal for planning purposes, it does not yet seem possible to look that far ahead. The basis for moving to a more effective public development effort is still not established so the case for committing external assistance for a more extended period does not yet exist. It is thus not possible to discuss with any precision the 1967 requirements or part of them. Accordingly, the discussion below is focussed on calendar 1966 alone. However, even the case at this time to justify import support as part of a general pro- gram for economic rehailibitation is not clear. 1/ This program and the related balance of payments implication are discussed more fully in Annex I. Import Program 1966 (Rs. million) 1965 1965 1966 1966 Revised Licences Initial Suggested Progra Issued Progra Revised Program 1. Food Commissioner's Imports 652 646 1/ 504 504 Rice (402) (383) (285) (285) Flour (128) (134) (103) (103) Sugar (83) ( 88) ( 76) ( 76) Other (39) ( 4l) ( 40) ( 40) 2. Other Foodstuffs 280 308 336 317 3. Textiles - Piece Goods 100 101 138 125 Other 12 12 14 14 4. Drugs - Private Sector 25 25 25 25 rnmnt (1 1 (17) 2/ 5 *Perolum11 15 12). 110 A al 1o f0C 17 r,i 1 1. Ue e U~1LI .LU _j. C. u. Government .Deparments & Cr- porations (Industrial & Non- Industrial) 4/ eu± e4u use )UU 9. Private industry, Direct Users & Other Trade Quota Items 561 434 837 637 TOTAL 2,070 1,989 2,535 2,161 Contingencies 70 Tied Imports as a Separate Item 135 131 ;V 1L 144 GRAND TOTAL 22,120 2,679 2,375 Shown here for illustration, as it is now listed separately in the 1966 import program. It has been actually included under Government departments and Cor- porations for easy comparison with previous years. Excludes tied imports. - 36 - 1966 Import Requirements I/ 87. The import program is basically in two parts: about 30% of im- ports - the Food Commissioner's imports, petroleum, etc. - is imported in quantities sufficient to meet local demand, while the remaining 70% is sub- ject to licencing, although government imports are only slowly being brought under control. The suggested program does not differ significantly from the initial Droposal in its estimate of import requirements in the first cate- gory. In the second category, some large cuts were suggested in the allo- cation for Government Deartments and Corporations and private industry and trade. The program is evaluated below. 88. Imports of foodstuffs are largely dependent on the market. Rice crons arp YrnPtPd to b better than in 1965 and rice purchases under the Guaranteed Price Scheme are estimated at 440,000 tons; total imports of 530,000 tons, vauied at R. 285 million. should be necessary. 2h0.000 tons of flour, valued at Rs. 103 million and 210,000 tons of sugar, costing Rs. 76 million, aill have + r i mnorted. As a total - FOOd Commissioner's im- ports would amount to Rs. 504 million, or Rs. 142 million less than licences actU.nlir InaA 1oo+ wr" nri +I-2 h ,t-niii+. Un- inmp ft imnort_ of subsidinrv foodstuffs are based on consumption per person during 1962-64, but the assump- tion of a sha rp Jncreas has not been retainedq, gvin- S- IQ 19Million difference between the initial and revised allocation. The initial allo- cation for 1extiles- f_-_ -1,1 1^7. to Rsp 192 million- aiv~inry an average consumption per person slightly less than in the pre-control period u 198 , aftr allowi ng for the ices ndmsi rdcin vr all, the allocation for consumers' goods is thus modest, and lower per capita Ulle,U LL1 Wit' -LaO U,LWJ YUUL'b E1VtVUVtJ1-, 1± iJ.L;1 LU111;DII Lk ~L' U V up the per capita difference. .89. Estimates of requirements for petroleum and petroleum products were revised downwards after accounting for excessive stocks au the beginUing o the period. The estimate of import requirements for cement was found out of proportion with the levels which have been experienced during the last five years, and the suggested Rs. 25 million allocation corresponds to a total de- mand of 4uu,uu tons and domestic production of 100,0U oUns. 7u. Tne import estimates for Government Deparumenus aIU vo1PUrUV.m, other than tied imports are reportedly based on the foreign exchange com- ponent of the provisions made in the IYO5-66 buget Estimates, but representu an 80% increase over the 1965 licence issue. The proposed increase is not supported by a corresponding one in the total Government budget expenditaures, and it is believed that the foreign exchange component of government expendi- tures has been overestimated. However, given the easing or import restraints expected in 1966, some of the backlog of imported spares, etc., will need to be made up. Accordingly, the suggested revised allocation is Rs. 300 million, which represents a :25% increase over 1965's actual issues of licences. 1 The discussion centers on the import licencing program for 1966. In practice, the timing of the issue of licences, their use (if used) and the consequent payments and customs entries are subject to unpredictable Lags which make precise estimates of imports and payments within any specified time period difficult. - 37 - 91. The initial budget includea a Rs. o37 million allocation for p:r1- vate industry, direct users and other trade quota items. Compared with :Li- cences actually issued in 1965, this is almost a doubling. Unfortunately, there is very little evidence to support the need for such a spectacular in- crease. These estimates were arrived at by the summation of requests received by the Ministry of Industries and Investigations conducted with the Import Control. But a number of duplications of requests for foreign exchange crept in. An increase in imports of the magnitude envisaged would tend to lead to a level of activity which could not be sustained over a long period because the market would not warrant such a rise in production and investment. Ad- ministrative and managerial difficulties and credit limitations would be ob- stacles to the implementation of such a program. An allocation of Rs. 637 million was suggested which still represents a 50% increase over the actual amount of licences issued last year, and which should enable private industry and trade to grow at a very fast pace during 1966. 92. The composition of the suggested import program is shown below. Its implementation would reflect a noticeable improvement in allocation over the past year's performance, in spite of the difficulty originating from the fact that about 30% of total imports are still effectively out of the ccntrol of the Import Controller. However, since the Foreign Exchange Budget Com- mittee has come into ooeration. and once requirements have been estimated and allocations granted., all major departures from the program will be taken up to the FEROM for approval. Struture of Tmnorts (Rs. million) 1964 1965 1965 1966 Actuna Allocntion Actual SuPested n c 1 179 1_n I .OAO 1 .080 Intermediate Goods 410 550 454 650 1/ C1apitaMl Good 30A I+,2,-14 Unclassified 10 20 TOTAL 1,897 2,200 1,835 2,370 - recII±g~Ic I~U L).L "Zi IV 11LLJ.LVJ1 _LQ C&OOUIILUt% K LL'LLL , -. for reducing acute shortages of intermediate and capital goods. The 196o Balance of Payments 93. 196> was characterized by a fairly large carryover of unutLiLe licences into 1966. A number of these are, however, expected to be unused or even incorporated into the 19oo import program. The carryover of unused licences into 1967 is expected to be even greater, because of the accel- eration in the volume of imports and the danger that an expanded import pro- gram of this kind may run into administrative delays and also absorptive capacity bottlenecks in the private sector caused by, for example, financial - 38 - 1966 will be Rs. 100 million less than the size of the import program, or T)S. 2)275 eMilli* :on. E--ort& receipts, in -I-*-- 4.ith th exor foeat r projected at Rs. 1,830, thus giving a record trade deficit of Rs. 445 million and a currn deficit ot±11I Rs.I. )J-V MLIUL±1I. V4. ne latter presupposes a deficit on invisibles of Rs. " millon, caused mainly by the resumption of dividend payments. The government en- visaged only an initial release of Rs. 4 million against the accumulating backlog; it is considered, however, that within the context of the aid pro- gram mentioned below, further releases can be made at a rate designed to prevent any further increase in the backlog - further releases could be made as and w1hen the payments position permits. The release for dividend payments should thus be about Rs. 47 million, or Rs. 55 million in total after in- cluding other profit and dividend payments which were not subject to the moratorium. Balance of Payments 1966 (Rs. million) Credit Debit Net Exports 1,830 Imports 2,275 Trade Deficit - 445 Net Invisibles 180 245 - 65 Current Deficit -710 Financed by: Grants 22 - + 22 Short-Term Loans 53 93 - 40 T3 / -r~ 14seves k±uiuea ie - - J3 IMF Transactions 71 73 - 2 Uthe Trnsatios -14 - 14 Commodity Aid Already Committed 230 Gap to be Filled by Additional Disbursements in 1966 Grants and loans which have already been committed apart from the Commodity Aid Program amount toRs. 151 million against which there will be repayments of Rs. 34 million. Short-term liabilities show a decrease by Rs. 40 million, but it is possible that new credits will be extended, notably for fiour purchases. it is proposed that reserves should be allowed to rise by Rs. 36 million in order to bring the total increase over December 31, 1964, to Hs. 125 million, as recommended by the Bank last year, in order to provide an adequate minimum cushion against month-to-month fluctuations in payments and receipts. - 39 - yo. Tnere appears a gap in financing o Rs. 4o million. i1 tne pledges which emerged following the aid meeting of July 1965 materialize in disbursement during calendar year 1966, requirements will be reduced by about Rs. 230 million, leaving a gap to be filled by new foreign aid and other dis- bursements of Rs. 255 million (us$55 million). 97. After taking into account the possibility of offsetting part of the reduction in short-term liabilities by the extension of some additional credits for food imports, and bearing in mind the opportunity to make further drawings on the IMF should the need arise, it would appear that the rendered financing gap of US$55 million could be filled, and an enhanced aid program successfully executed, with additional aid committments of US$50 million during 1966. This sum would need to be committed and largely disbursed during calendar 1966 if the momentum of the import program is to be sustained. Total disbursements under the aid program would, on this basis, thus add up to US$95 million in 1966. It should be stressed that, while a program of this size will bring very considerable short-term benefits to Ceylon, the question of whether the breathing space so obtained will be used to make a start in tackling the larger-run problems, has yet to be demonstrated. ANNEX I IMPORT REQUIREMENTS AND BALANCE OF PAYMENTS FINANCE CHAPTER I THE 1965 EXPERIENCE Background 1. In mid-1965 the Bank, in consultation with the Ceylon Government, prepared an import program for calendar 1965 which was intended to be the first step in an economic rehabilitation program. A disbursement of around US$50 million in commodity aid was suggested for 1965, and perhaps $100million for 1964 to give around 18 monthd breathing space, the additional assistance being to increase Ceylon's capacity to imoort scarce intermediate and caoital goods and thus enable the country to start to escape from the vicious circle of low arowth and imnort constraints. At the July meeting. it was made clear both by the Bank and by donor countries that this was an emergency operation desig- ned to Live Cevln eiphteen mnths' breathing snan. and that a comnrehensive program of corrective action should be prepared. Subsequently, donor countries made pledges totallin- almost US0 million- The 1965 Import Program 2. Thp imnort nrogram for 196 vhi-h wn drawn un in r.nnq1itAtion with the Government amounted to Rs.2,205 million, or a 16% increase over 196J, actual imnorts. and rPuniri- an n1ditional R. 90 millinn of aid. In the absence of such aid, increased imports of foodstuffs, because of a failirp in the 196 rice crons unlA have imnlied a low level of imnor. of intermediate and investment goods precluding adequate use of existing nrndinftivp annnn ifAH amnd A veiI+i ncl in flnI-+hIam" A ator'i nnAtinn n-f .hM # nD +.M1 stock (there was a considerable backlog in maintenance). Accordingly, a nrAam wsevised ke eping imp+ t S _ f nnme a t t+hn. minim,Wm. ,e r compatible with stability and at the same time increasing the allocation for industrial raw materials, vehices '-ysprpatanohe essential productive inputs. An idea of the new trend that was to be i n i +I. 4'. ±± -Ail -LL - ±*__ P 1, Iprs- -Inca -104f (Rs. million) 1965 -L7-? -L71JU _L7U_L _Lyve ± u_) Lu" xrugrail ±ItrI±ULtUU UOUQ: _)o 11 JO 14U>1 _I(Z Wu 'W investment Goods 389 355 339 337 324 305) 5o Uncassified 17 13 0 13 10 5 Total 2,005 1,90 .1,703 1,733 1,628 1,897 2,205 ANNEX I ofluMuMf A1un nAT AMtO nV DAVLM'KTMcZ T1iTr' TABLE OF CONTENTS Page No. I. The 1965 Experience............ . . . . . 1 Background. . . . . . . . . . . . . . . . . . . 1 The 1965 Import Program . . . . . . . . . . . . 1 The Outcome . . . . . . . . . . . . . . . . . . 2 Invisibles . . . . . . . . . . . . * . . * . . 4 The Change in the Structure of Liabilities . . 4 II. Import and Foreign Exchange Requirements in 1966 . . 6 The Import Program 1966............6 Food Commissioner's Imports . . . . . . ....8 YLubsidiary Foodstuffs........ . . . . . .. . Textiles. . .*.................8 Petroleum . . ................. Cement. . . . . * *............ . . . 9 Government Departments and Corporations . . . . 9 Private Industry, Direct Users and Other Trade Quota Items. . ....*.*. 9 fistrihution of Imoorts . .....10 The Financing of the 1966 Revised Import Program 10 Tie noT-ic-it nn Alnrrpnt Anount..... . . . .. 10 Invisibles.... . . . . . . * *.. . . . ... . .11 rh, Avuil-nhi Finanninp and the GaD . . . . . . 13 The Outcome 3. As far as the external situation of Ceylon is concerned, 1)b5 did not unfold in accordance with expectations. It can be seen from the balance of payments statement, given in Table 24 of the Statistical Appen- dix and summarized in Table II below, that for the first time since 1956 there was no trade deficit. Exports receipts have been higher and import payments lower than forecast. Although no "emergency" aid flowed during calendar year 1965, Ceylon was able, with the help of a substantial drawing on the IMF, to reduce its short-term liabilities by two-thirds while foreign exchange reserves were considerably replenished. However, in the context of the country's most urgent needs at the present time, the 1965 performance is not satisfactory because the main cause of the equilibrium of the balance of paymunts was stagnant imports and excessive caution in the issue of licenses. As a result it has not been possible in 1965 to initiate trends toward the elimination of the basic deficiencies in the field of external trade. Table II Balance of Payments 1965 (Rs. million) Expected Actual ExDorts 1.810 1.897 Imports -2,205 -1,397 Trade Balann -375 0 Net InvisiblR -20 -8 Current Deficit -395 Financed by: rants. and 1nni+e-m Innno (ne+) -). 108 Short-term loans (excl. IMF) 49 -81 TMF (net) 65 76 Reserves (increase -) -75 _89 Commod±ty aid 252 Residual - -6 4. It is estimated that a total amount of Rs.2,120 million of licen-e were issued duig1965f Ti fel shor of th 1-4 _- 2,20- million - 4- recommended allocation by Rs.85 million (see Table III). The implementa- have been better than foreseen, rice imports remained below the allocation. U_ - - - -. - -__ - _r -t -- -t _ --- - - I However, ipUUl LUUUbUUL15 ouUs.ue b1le vooa Commissioner's controL overran the allocation. The net excess over the allocation for all food- stuffs appears small. Altogether, basic consumer goods were well kept under control. It remains true however that Food Commissioner's imports reflect the demand, not the allocation. Licenses for petroleum and ' - 3 - fertilizers were granted according to schedule. Part of the shortfall on cement can be accounted for h-tr orPYnment oA-+;es o ---e41 without debiting the corresponding allocation. Major discrepancies arose with items relatAd to nrivate industry and te (Private ITn-r ny, - -D-ie Tbers and Other Trade Quota Items) which fell short of their global alloca- ti on byv R.z197 mi I ~~4 I~4- i nn TqlindU±LJ exceeded theirs by Rs.35 million. The latter, however, had been deternined verv t.nP,n.-irly-r Licanses Sse Against1- 1965r imrt - "-gra- (Rs. million) Licenses Program Issued Food Commissioner's Imports 652 6h6 Rice hO?)(303) Flour (128) (134) Other ( 39) ( hl) ume rmmose200 30b Textiles Piece gCods 100 101 Other 12 12 Drugs (private sector) 25 25 Petroleum 115 11. Fertilizers 95 91 Cement 25 18 Government Departments 100 131 Non-industrial State Corporations 50 60 industrial State Corporations 55 ( Private Industry 270 231 uirect users 30 46 Other Trade Quota Items 261 2c6 Total 2,070 1,989 Foreign Aid Commodities n.i.e. 135 (121) Grand Total 2,205 2,120 5. Actual imports amounted only to Rs.1,835 million, showing a gap of Rs.370 million in the implementation of the program (see Table IV). The large gap between import licenses issued and actual imports is due a) to the issue of licenses for imports of laid" commodities, which were not utilized in 1965, b) normal underutilization of licenses, and c) underrecorded imports. Disappointing but also inevitable was the composi- tion of imports. In the categories of intermediate and investment gondR imports only amounted to 70% of the program, while imports of investment goods reached only Rs.296 million which is the lowest level recorned in the recent years, Table RV Composition of Imports - 1you and 1yo- (Rs, million) 1964 1965 Actual Program Actual. Consumer Goods 1,172 1,200 1,065 Intermediate Goods 410 550 s45L Investment Goods 305 450 296 Unclassified 10 5 20 Total 1,897 2,205 1,835 6. Naturally, the fact that consortium aid has not been flowing in until early 1966 had the effect of reducing the scope for imports. There have been long delays involved in the negotiation of aid. Some were due to the difficulty of reconciling supplierst and importers' requirements, a difficulty inherent in the commodity aid program. Some administrative delays have also been evident. The Government was also cautious in granting licenses, notably to the private sector. Invisibles 7. There are two major explanations for the reduction of the deficit on the invisibles account (Rs.8 million in 1965 as against Rs.27 million in 1964). One is that private remittances for dependents abroad and migrants' transfers went down by about Rs.12 million. The other one is the partial cessation of remittances of dividends abroad on account of the moratorium. Some evaluation of the backlog of untransferred dividends will be discussed. in the next chanter when dealinp with the 1966 ForeiLn Exchange Budget. Suffice it to recall at this point that the Bank had Drolected some relaxation nn thp mer;4+.rninm_ nllnrino fnr a rlP1. nf Rs,16 million, plus Rs.2 million on account of leave and other foreign travel restrictions- Actually. only Rq-5 million were released late in 1965. The Change in the Structure of Liabilities 8. The main feature in the capital account of the balance of pay- me.ntsq is the sholi ft from shor"t.ten-m Ir ontr h^ r4 ne- (M TI-, TT and Statistical Annex Table 24 ). New official long-term borrowings were mlo -rahi,-h +.+.nl lmr Pc 7A - 14,v 1/ Af-P- Ae A- 1- reamet,th net increase in official long-term liabilities was Rs.51 million. Grants the IMF was drawn in July (Rs.71.3 million). At the same time, short-term ,tj UL. La.;o m±u10 IDEv; Rs.1.4 million. Canada: Rs.12.5 millon. Germary (F.R.): Rs9.7 million. China (P.R.): Rs.9.5 million. France: Rs.0.4 million. liabilities decreased by Rs.81 million, whereas a Rs.h9 million increase had been projected. This is mostly accounted for by the liquidation of the balances due from Ceylon in relation with bilateral agreements with the Eastern Bloc. Rs.39 million was repaid to China, Rs.21 million to the Soviet Union, and Rs.9 million to Rumania, while balances due to Ceylon increased by Rs.14 million. Part of the financial resources have also been immobilized in the form of increased gross external liquid reserves, which grew by Rs.89 million. Liquid assets had also reached in September the level they kept until December (Rs.160 million as against Rs.20 million in June). This reinforces the feeling that it should have been possible, combining some extension of short-term credit and some use of international reserves, to release more of the foreign exchange needed for imports. Table V Gross External Assets and Liquid Assets during 1965 (Rs. million) 1964 1965 Dec. M.arch June Sept. Dec. Government .8 1.0 1.0 7.3 11.3 Government Agencies and Institutions 107.0 108-1 77-? 780 Eh , Central Bank 1Aq_9 1117 121 9 Anh, A 2A Commercial Banks 107_1 190 1in n 12< A 91 A Gross Assets 351.0 341.3 351.4 516.3 439.9 kof WIcII, liquld assets)= k266.6) - -- 35 Cpntral Rnk Payments AgrpPmnt Balance due to Ceylon 17.9 18.6 165.5 50.0 21.2 Securities 68.3 68.3 97.5 94.1 101.6 Liquid Assets of the Cent.ral Ba-nki 10.7 -1. 40. 607 1cn -I Iff 0 11 7 e% 1/ Gross assets, less payments agreements Balances due to Ceylon, and Sterling sinking funds. 9. A foreign exchange budget for 1956 has been prepared in the Ministry of Planning and Eccnomic Affairs. It has been discussed in regular meetings of the Foreign Exchange Budget Working Group composed of high officials representing the various interested Ministries and Agencies of the Government. In January 1966 it was reviewed and finally adopted by the Foreign Exchange Budget Committee comprising the Permanent Secretary to the Ministry of Planning (Chairman), the Senior Economic Adviser and the Director of Foreign Aid of the Ministry of Planning, the Director of the Economic Research Division of the Central Bank and the Controller of Imports. 10. This foreign exchange budget was in the form of a program for the issue of import licenses which reflected the Ministry of Planning's estimates of import requirements for 1966, and was supplemented by a projection of the 1966 balance of payments. A more rigorous approach than in previous years has been used in the determination of the foreign exchange allocations and therefore this is a field where some significant Droaress in Government policies has been achieved. It is true that most food imports requirement are still function of the market, but the various interested narti h;vt hAn nonsulted and their estimates of their needs analyzed more critically. Even though there were still many fields where the anli+y nf tzqtimat.q of ruirements left much to be desired. there was at least attempt to bring all sectors of allocation under control. Tht- r -1 Mnl ho n nnrv iffiiimnt. enntrnl q nnstprioris when the im- port program is finally approved by the Cabinet, the granting of licenses will hav to + n wnmruith its frame. The Ministry of Plannina is now in charge of screening the applications. Any request for a major change in the absolute amouno the distri n of ehana alloction .ill hanvr to be taken up for approval to the Foreign Exchange Budget Committee whic~ h iS U~U~L'.I t e f o entru te U4-C 4-1.- +-. -"+"^L' Ll ~ 1 tJJ. of economic priorities. 11. However, the mission did not entirely agree with the initial esti mate of Iport reUiements nor col it- SUStain them V7MM1c sestAM::+e of the foreign aid requirements. It has therefore suggested a revised This revised budget is discussed below. The import program which emerges .i-ro -- am un d.IUUi* LA) _l,)(. 12 ILL.L"V1. 0)UUII CL11 L111YU1_U Y1J L~1 W-L.L 1 C sitate additional foreign aid in the order of US$ 50 million to be dis- UUrseu-o ±1n L.;UU, The import ProgrfM 1966 12. The initial import program for 1966 envisaged total issue of import licenses of Rs. 2,679 million, almost 50% more than 1965's actual imports and a 23b increase over 1965s allocation. The mission suggested a reduction to Rs. 2,375 million. This is still a 29% increase over 1965's actual imports but reflects the fact that (a) imports were held to an import rrogram 19oo (Rs. million) 1965 1965 1966 1966 Commodity Revised Licenses Program Suggested Program Issued Revised Program 1/ 1. F.C.'s Imports .......... 652 646 501 504 Rice .................... (402) (383) (285) (285) Flour ................ (128) (134) (103) (103) Sugar ................... (83) (88) (76) (76) Other ................... (39) (4i) (4o) (40) 2. Other Foodstuffs......... 280 308 336 317 3. Textiles - piece goods .. 100 101 138 125 other ........ 12 12 l4 14 4. Drugs - private sector .. 25 25 25 2/ 25 2/ Government ...... - - (17) (17) 5. Petroleum ............... 115 115 124 119 6. Fertilizers ............. 95 91 95 95 7. Cement .................. 25 18 30 25 8. Government Departments & Cornorations (Industrial and Non-industrial) 3/ .. 205 240 432 300 9. Private Industry, Direct Users and Other Trade Quota Items ............. 561 434 837 637 TOTAL ................... 2,070 1,989 2,535 2,161 Contingencies ........... 70 Tied Imports as a Separate item ............... 114 1/ Estimate. import program. It has been actually included under Government Depart- meunu orporations for easy comparison witn previous years. / Excludes tied imports. O unaesiraoly low 'evel in 1yo5 ana ko 1900 represents, in efzect, tne first year of the economic rehabilitation program for Ceylon.(See Table VI) 13. The 1966 initial import program differed from that of 1965 essentially by the heavy emphasis put on Government Departments and Gor- porations and on the private sector. There were also marked differences with respect to consumer goods. While Food Commissioner's import require- ments were in regression, other imports of consumed goods had received an increased allocation. The main elements of the import program, and the Bank's suggested revision of the total and the allocation, are discussed below. Food Commissioner's Imports 14. Rice requirements for issues on the ration during 1966 are estimated at 970,000 tons (compared with issues of about 960,000 tons in 1965). Including sales outside the ration system (for hospitals, etc.), total requirements would be 975,000 tons. The Food Commissioner estimates purchases under the Guaranteed Price System at 440,000 tons (compared with 415,000 tons in 1964, the last normal year for crops). Allowing for a reduction in stocks and for slackage, total imports of 530,000 tons, valued at Rs. 285 million, will be required. The main suppliers will be China, Burma and Thailand. 15. On the basis of average, weekly issues, imports of flour during 1966 have been estimated by the Food Commissioner at 2hO.000 tons, valued at Rs. 103 million. Suppliers will be Australia, France, U.S.A. (PL 480) and Canada. 16. Tht- Fond frmmi.q.-,inPr hi. t-,;tAm;;t.t- the nt-wi for smnr imnnrt..' at 210,000 tons, corresponding to the average consumption per person for the npriod 1960-64. The nost of these imnorts will h R.q 76 million- Other Food Commissioner's imports show little change. Subsidiary Foodstuffs 17. Volumes are based on consumption per person during the period 96-4, bot -o -,-- imprt and othe itm -o each of these tNo categories two valuations had been made: either with 1964 or with early was adopted. Textiles 18. The initial allocation was based on a level of consumption per perso oL. 11.14 yards wichLL was~ LIe avrg ULUL-.. L,1 Ulm UU.,U±p~rU of 1958-60. It was thought that a 25% increase over last year's allocation souu be suffcient to relieve the pressure. This corresponds to a con- sumption per person of 16 yards. Rather than increase imports, the growth of domestic production 6noulI satisfy most of the adlitional demand. -.9- Petroleum 19. The Petroleum Coroation had est.mated itq neAQ fnw imnno f fuel and other petroleum products to be Rs. 73 million and Rs. 21 million. -o -ev- the former estmat 11 1J1C.L% %AWL Wj 1. .? 11.LL.U1 to account for excessively large stocks at the beginning of 1966. The pro- -vliion of- PRa. 30 m:114n mAe --- -- --:! main and -Avito Thel whi brings up the total to Rs. 119 million is matched by an entry with the CV 41U PEUOs assumpuion that domestic proauction wil-L reach 100,000 tons is accepted as reasonable. However the estimate of total demand was scaled down to about 4UU,000 tons. This is believed to be sufficient to take care of foreseeable increase above previous years' levels which only rose from 295,000 tons to 330,000 tons during the period 19614-5. Government Departments and Corporations 21. The initial estimate was based on returns stating the foreign exchange component of the provisions made in the 1965/1966 Budget Estimates. Although the 1965 allocation was in fact tentative and was overrun by Rs. 35 million, the proposed amount of Rs. 432 million represented more than a doubling of the allocation. This appears to be an overestimate and also unrealistic on account of the fact that such an increase cannot be traced to a corresponding increase in total Government budget expenditures between the two fiscal years. The FEBCOM had itself adopted a high coefficient of under- expenditure which brought down the total by Rs. 125 million. On the basis of the information available regarding Government proiects. an estimated 2qT increase over 1965's actual issues should be suitable, thus raising the allocation to Rs. 300 million. Private Industry. Direct Users and Other Tra Chmt. Tptms 22. Taken together. these three interrelated items covering thp nrivptp sector of industry and trade received a spectacular increase in allocation in the initial imnort nroarnm (R. 837 million comnared with the 196 pz CR ( million allocation). This represents almost a doubling over the amount of licenses acnalir issue in 1965o 23. The iniAn locto was b-A p-ty+1- nmraino rq t for foreign exchange addressed to the Ministry of Industries. However, many riTt-q+Ann.; in +ha ro-nests harre be-. nP-A rM .4 A +.... + 1+ +1,,- proposed increase in allocation exceeds that actually warranted by the size of~~~~ th maktfrj'~ ~ ~ i ould ''* ea a lev-1 of act -t which could not be sustained over several years. At any rate, financial plitatn adip ntainiosUiv and amaagetiuroal d cumlt, would preclude the implementation of such an ambitious program of industrial exa ns i on., For tEE abUove: rE U0s, theI UIitAl dLLoc-Utio01 was redaucedl 10 - by Rs. 200 million: since last year the Government failed to release Rs. 127 million against the private sector allocation, the suggested revised allocation of Rs. 637 million still represents a 507 increase over the amount of licenses actually issued. Distribution of Imports 24. The allocation of suggested imports among the various categories of goods follows the same lines as the 1965 program (cf. Table VII), It assumes an approximate stability of imports of consumer goods, at a lEvel comparable to the low one experienced during the period 1961-63 (cf. Table I) given the increase in population. There are provisions for substantial increases in imports of intermediate and investment goods, while these remain within the limits of what can reascnably be achieved in a single year, The unclassified items includes Government Departments' imports and R-. 70 million contingencies to give some flexibility to the program. This should preferably be used to cope, if necessary, with shortages occurring in the nnt.aries nf indiustrial intermediate and canital goods. ThT VTI .qhninnmwA nf TmnnrtR (Rs. million) 1964 1965 1965 1966 Cosmr od 17)? 1 9 r) -i n4c 1 nqr) Intermediate Goods 410 550 454 650 %/ kJpL Uck JVUU. 14 Unclassified 10 - 20 - The Contingency item of ns. 70 milion is assumed to be utilied equally for reducing acute shortages of intermediate and capital goods. The Financing of the 1966 Revised Import Program 25. The export forecast of Rs. 1,827 million for 1966 made by the FEBCO after consultation with the Tea and Rubber Controller and the Commissioner for.Coconut Rehabilitation has been retained. The main assumptions on volumes and prices are summarized in Table 2 of the Statistical Annex. The Deficit on Current Account 26. The figure of exports which appears in the merchandise account of the balance of payments, for practical reasons, is the Exchange Control record of export receipts, while projections reflect actual movements of goods. The two sets of data differ because of leads and lags in payments, - 11 - L)U U'UI al:U.LSO some~.JI Uiff.ren.CeS W wih resUeC V -LILF coverage. Unfortunately, there is no available quantitative analysis of these discrepancies so that no adjusmn ca be mae. t is not possie either to get any idea of a trend by comparing the two series in the past. From L959 to 1964, the difference between Customs au EXianage ovolu data has erratically oscillated between - 81 and + 79 million rupees. In 1965 it was Rs. 19 million. Consequently, receipts nave been estirabudto coincide with the estimate of movements of goods, i.e. at a rounded amount of f N t .* _In Rs. 1,830 million. For imports, the essential assumptions are (a) that all licenses will be used and (b) that there will be a net carryover of import payments of about Rs. 100 million into 1967, so that a sum of Rs. 2,375 million is accordingly reported in the Merchandise account. Whenever possible, account is taken in the capital account of grants, payments on account of 1965 imports and credits on 1966 imports. With these assumptions, the projected trade deficit appears to be Rs. 4h5 million (cf. Table IX). This,indee is much larger than any of the deficits shoim by previous balance of payments' statements. This is explained by the enhanced import program which will permit a considerable acceleration in Ceylon' s recovery. Invisibles 27. The main difference between the FEBCOM projection of the Services and Current Invisibles account and the mission's is in respect of remittances of profits and dividends. In fact, the Government released only Rs. 2 million in 1965 and at the moment only envisages a further release of Rs. 4 million in L966. It appears possible to make additional releases to prevent, at a minimum- any furt.her nklog formation. without nreiudicing the import program. Such a minimum would approximate Rso 43 million a year. Allowing for R- A milion of remit+anes of dividends on qnonnt of new industries, which have not been subject to the moratorium, total payments under Profits and DivTrA.,,A chnn-l,4 +h- amn +n +r Pc nillinn- Minnr ndiustmAnts on transportation, foreign travel and non-monetary gold were made on the .LJ . l .9 *J Z'.. k J..'JII U LL . I . Ir,'J V1 LJS -L Tv . -.L -I---- - changes amount to a Rs. 18 million reduction on the debit side. According the U.Inisibl) e accoLzU ad.LVJJU Lulz) , laLft of R s1 . 510 ml on the curen the Invis:ibles account, and a deficit of Rs. 510 million on the Current - 12 - Balance of Payments 1966 - (Revised) (Rs. million) Credit Debit Net A. Current Account Exports 1,830 Imports 2,275 Trade Balance - 445 Net Invisibles (excl. dividends) 179 191 Dividends 1 55 Net Invisibles 180 246 - 65 Current Deficit - 510 B. Capital Account Grants (Food Commissioner) 7 + 7 Grants (non-focd) 15 + 15 Loans 129 34 + 95 IBRD 10 7 Canada 19 5 China 7 5 Czechoslovakia Poland 3 U. K. 5 7 U.S.S.R.12 West Germany 41 4 Yugoslavia 20 Suppliers' credit 10 Banque de Pari- Short-term 53 93 - 40 Petroleum imports 4 6 No-ndsrilState Coprtos7 ExtenalAssts Ince - )--6 - 3N IMF Transactions 71 73 - 2 Oil Compensation 11 - 11 Total Capital 250 + 25 Commodity Aid already Committed 23() Gap to be filled by additional disbursement in 1966 +25 Ihis figure will be larger ii credit terms are negotiated with Australia and France for flour shipments in 1966. - 13 - 2.The Government ofP-- Ceylo ha -lrAy obtaine aboutI+ Rs. 1 l millions of aid outside the aid group. Rs. 144 million represent grants and I~~~~, - n s -^ +. includes Rs. 129 million of loans against which there will be repayments of as )3 milion during LU. Loans u Lfm he Eastern LVck may civun tU Rs. 43 million, compared with Rs. 3? million last year. Gifts of flour made by the United. States under HL 480, as all aid coming unUer the L9u, Consortium pledge, is not included in the Rs. 151 million. 29. Unless credits arrangements are negotiated with Australia and France for imports of flour, there will be net repayments of short-term liabilities amounting to Rs. 40 million (10 million on account of rice from Burma and 29 million on account of purchases of flour from Australia and France). It is hoped that Ceylon will be able to benefit from roll-over arrangements in order to alleviate the burden of financing the import program, External assets increased by Rs. 89 million during 1965. In order to meet the target fixed at the time for the end of 1966, i.e. an increase in reserves of about Rs. 125 million over December 31, 1964, these should be allowed to grow by a further Rs, 36 million during 1966. This would more or less bring Ceylon back to the cash position it had in middle 1963, before the acute phase of the foreign exchange crisis which took place in 1964 and early 1965. 30. A drawino of Rs. 71 million on the INF is scheduled, in accordance with the agreement concluded last year. This arrangement allowed the Government of Ceylon to draw a total amount of Rs. 1L2 million in two equal annual tranches (the first drawing of Rs. 71 million was made in July 1P65). ioever, rePnrchases in thp nmonnt of Rs. 5h million and an increase in quota of Rs. 19 million will slightly more than offset the benefit of the drawing. On the other hand the increa s in nota will Prtend Cevlon's capacity to draw on resources of this institution. 31. Taking stock of the foreign assistance which has been so far firmly committ+d N Ceylon outside +h nonltative Group there appears a gap of Rs. 485 million. If the Consultative Group's pledges of July 1965 mater~i alize in. ^^-~4t,+ for -; A i dui ng caleondri yea,i-nr I QAO~ - the. requirements will be reduced by approximately Rs. 230 million, leaving a not excluded that there might be a rescheduling of short-term liabilities IMF, it can be estimated that the financing of an import program of the size recommended, in conjunUtion with a satiLactory increas in reserves and some relaxation on the moratorium, would be compatible with additional foreign aid disbursements in Tne order of UO$ ,u milLion ‘뀝 넓 ；징 ！겸 ；놂 ！·브 빽力 i츱 l겸 ！름 -1 ;& ！」 ―蘆 《a .- ；旁 ；즈 꽉결 ANNEX Il PROJECTS IDENTIFIED BY RECENT MISSIONS TABLE OF CONTENTS Page No. Introduction . . .. . . . . . . . . . . .. . . . . . . . . Infrastructure . .. . . . . . . . . . . .. . . . . . . . . Railway Dieselization . . . . . . . . . . . . . . . 1-utU--'L::Lc 'Bus Transport . . . . . . . . . . . . . . . . C. Roads . . . .. . . . . . . . . . . . . . . . . . . . 2 Truck Transporl .. . . . . . . . . . . . . . . . . . . Telecommunications . . . . . . . . . . . . . . . . . 3 Electric POWer . . . . . . . . . . . . . . . . . . . Agriculture and Fairal Development . . . .. . . . . . . . . 4 Machinery and irrigation Programs . . . . . . . . . a) Tea Machinery . . . . . . . . . . . . . . . . . 4 b' Paddy Cultivation . . . . . . . . . . . . . . . c) Irrigation Department Machinery and Equipment. 5 d) Lift irrigation . . . . . . . .. . . . . . . . . .5 Storage Facilities . . . . . . . . . . . . . . . . . 6 a) FertiliZer Storage . . . . . . . . . . . . . . 6 b) Paddy Storage . . . . . . . . . . . . . . . . . 6 Dair,y Projects . . . . . . . . . . . . . . . . . . . 6 a) Villu Pastures . . . . . . . . . . . . . . . . 6 b) Highland Pastures . . . . . . . . . . . . . . . 7 c) Coconut Estate Herds . . . . . . . . . . . . . 7 Fisheries . . . . . . . . . . . . . . . . . . . . . . . . 8 ART\TMY TT PRO.ETR'.. TEnPATTTPT)D PV PVPP%T MT..TrAT.q ~. ~SA% JJ V. el C.1. "0 V C JjJ IU .L Vr,.LCU1I 11LO LJU ,IA tA11kIJ.LUVU U' L J Ceylon, it is possible, from among individual projects nearing completion, . I I 4 . L U . I " U L J V LU.L ± " %I U L U ±L ~.L LL t u l d L I ~ V U CZ_ i ~ V jill"_ 1 1 t P L U.L r l a lll and which might be suitable for external financing. For this purpose several IL LLn ha~ve -V~ Lote Ce- nz- recenyVII 11 £I-tl1 W11LIL16~. A DEUIM HU Uul WLdUUl Ulu needs for power in September, 1965. An FAO project identification mission examineu a number of agricultural projects in December, 1965; a PAO fisheries project preparation mission reported on a fisheries project in January 1966, and a Bank transportation mission recommended several programs in this field in February, 1966. Each of these have recommended several projects and programs as being apparently technically sound and economically feasible subject, in some cases, to some additional work prior to further evaluation. Further work on project preparation is necessary in several cases. These projects, as discussed below, could be considered as suitable for consi- deration for lending purposes. The reports of three other reconnaissance missions - on education, water supply, and public sector industry - are under preparation, as is a report on the organisation of economic planning in Ceylon. Infrastructure 2. Two IBRD missions have recently reported on the status of transportation and power in Ceylon. The following represents a summary of investment possibilities as contained in these reports plus further infor- mation provided by the relevant ministries in Ceylon. 3. Railway Dieselization. The Ceylon Government Railway is technically well operated but a financial liability. Revenues are inadequate owing to low passenger fares and a fairly stagnant volume of goods traf:ic. Costs are high due to short hauls, the maintenance of uneconomic sections of line, excessive numbers of staff, high pension costs, inadequate manage- ment of stores and accounts, etc. In consequence the railway operates at a loss and after allowing for interest and capital charges, the total b u r den on government funds is approximately Rs. 60 million a year. Due to these losses and the non provision of depreciation charges, the railway is unable to nrovide the funds necessary to meet necessary caital expenditures. i. Tn the I3RD missions' oninion, there are good reasons for the continued operation of the railway, though not necessarily in its present size and form. Savinas of the order of Rs- 10 million a year in foreign exchange could be obtained by the dieselization of the remaining steam locomotive servinps at a forpion tehanoe nst of Rs. -2 million- The railrnOP6 is technically capable of carrying through a program of complete dieselization. Other reduction in +he definit nould he nahieved hv rdlnina, naenger subsidies, non-paying subsidies, by introducing traffic costing and rating and b reducing pesnent Agh costs. heso o sche poliies howevemet. largely with government and are outside the scope of the railway management. - 2 - 5. The railway also has plans for investment in rolling stock ULUAL~ U4 A G14 A J VI II WLVU0 U J.1LJA .L.L.L.Le UeVeJ.10AP-Ment. aJAU t-er "1-aIJld a d..LL *yald-wOrk totalling Rs.41 million in foreign exchange. 6. Public Bus Transport. The Ceylon Transport Board since nationalization in ly5 has made commendable progress in rationaizing its equipment and operations to a point where financial losses incurred in the first five years of operations have given place to small surpluses, after allowances for depreciation and payment of interest. It has not yet been able, however, to repay its original capital advanced as a loan by govern- ment nor to clear accumulated deficits. The improved financial position has been achieved by a reduction in costs rather than by an increase in fares which are among the lowest in the world. In the face of present and probable future demands for wage increases the Board's financial position is pre- carious. A permanent improvement will require the standardization and increase in fare rates and a reduction in the number of unremunerative routes. The power to accomplish these improvements, however, is not vested in the Board. 7. The Board has worked out a ten-year development program on the basis of a 7 percent annual increase in traffic which appeared reasonable to the IBRD mission - at least for the next few years. The scheme envisages an expansion of the bus fleet to about 8,000 by 1975. This will require the purchase of 5,600 buses (1,330 second-hand ljondon double-deckers, with the remainder being new vehicles (mainly Leyland and Yercedes Benz, the two makes on which the Board is trying to standardize) at a foreign exchange cost of Rs.157 million. The IERD mission recommended that this should be divided into two five-year programs. 8. Roads. Ceylon is fortunate in that it has a comparatively large road system. but a considerable nronortion of the mileaae and a large percentage of bridges are inadequate for present and future traffic condi- tions. Roads are genrally tnn narrow with sharn curves: many are subject to flooding and, in the mountains, land slides. This situation is aggravated practices and inadequate funds. Mich of the existing stock of construction and maintenance equipm-rnent f thea pi,hin in rinq nerartmon~nt. J worn nut anA needs replacement. 9. A road study made by a US consulting firm in 1961, under a US AID hemeAL', proide bas V JJ-T r.S 46*~ continued to a point where a long-term road development plan could be proposed a five-year program of road investment but this has not yet been approuve' bIy govern1mentLL. rumdis caO~l.ls .Ur a. 4-4- exe--Iur of DoA 1,9 'J;~ - of which Rs.195 million is in foreign exchange, largely for equipment and 10. One IBRD mission recommended tnat Ceeyon shoulud imeuately sek technical assistance funds for the engagement of consultants to prepare a highway master plan, a highway maintenance study and a plan for the prove- ment and/or reorganization of the planning, design, construction and administrative sections of FWD. To accelerate assistance to FWD and fit in planned expenditures with the governments' investment program, the - 3 - consultants shouldpresent a preliminary report within four monbhs cf commencement of the work to identify and Justify InImum nvestment reouowe- ments in a selected pilot maintenance district. Construction would also benefit from the development of an indigenous private sector group of consulting and contracting firms. 11. Truck Transport. There has been little increase in the private truck transport fleet since 1960 as a result of import restrictions. About 16,000 of the present 27,000 vehicles are over 10 years of age and most vehicles have been overutilized in recent years, due to the shortage of replacements and overloading. Unless there is a significant increase in imported vehicles over the next five years the number of cancelled registra- tions will be such as to produce a real shortage in road freight capacity. Trucking costs already have been inflated as a result of import scarcities including spare parts and tires. Part of the increase in costs may be attributed to the poor condition of the roads. 12. The IBRD mission considerd that on the basis of pre-1960 trucking t r e n d s. which are comnarable to those found in many developing countries,the assessment of truck import requirements for the next five ears nf 8,700 vehicles csting Rs.171 million is reasonable. In addition to allowances for new truck imports, additional foreign exchange needs to T3. -" qTke peseznt. +.1nhrnP system is outmoded and overloaded. Delays and disruptions occur due to a high fault rate in trUM" routes. ZI program to develop an isand.e doline system has been drawn up on the basis of two reports by the International Telecommunications first - M'- X!-i--- 4'--- 0-1-1 was rmQrnp hV a UILonA. nt lirdu pIte, uVQ.oLiVlg wnu UU.mLI1V Cwo,- U.K. Government loan. This will be completed in 1966-67. 14. The second phase, which will extend the system throughout the island, will require a foreign exchange expenditre ofs ns. 71 m----n .- program is likely to be subject to delays stemming from shorbages of skilled labor and supervisory staff for which present training fi e are inadequate. A similar situation prevails as regards operation and mainte- nance. Steps are thus being taken to establish a training school .with - assistance at a cost of Rs.1.9 million in foreign exchange. This has not yet been financed nor have final plans been drawn up. Proposals for development of overseas telecommunications involve a further foreign exchange expenditure of Rs.15 million. 15. Electric Power. Existing programs for hydro power development centered on the Maskeliya Oya Stage I project now under construction wil meet the forecast power requirements to early 1972 or 1973. Current projects include the Jaffna 132 kv transmission line for which the main bids have been received. No contract for this line has been let but this may occur in April/Ply 1966. Part of the foreign exchange requirements for Maskeliya 0ya Stage I have been obtained but a further Rs.28 million is required to complete the financing of this project and a further Rs.64 million in foreign exchange is required to complete the associated transmission and distribution works which include the Jaffna line. 16. For the purpose of meeting power requirements up to 1974-75 the committee of permanent secretaries, which is examining investment proposals in the infrastructure, have recommended the construction of the Samanala Wewa Multi-Purpose Project with a generating capacity of 90 to 150 NW, rather than Maskeliva Stage II. Feasibility studies were made in 1960 and 1965 by consultants and work on subsequent modifications to the project is now nearing completion. It is honed to begin construction in 1967-68 and complete in 1971-72. Foreign exchange costs are estimated at Rs.127 million of' which About RL. C nillion wuld be Allocated .n irricration asnects of the project. A further Rs.22 million in foreign exchange is required for associa ~+tedI+~nvm andi d-J--+rhi-,+jnn Tan-inq vin +.r% +.him inne ri f 1 971- 17. The decision to go ahad -i- 4-- --anl -eaPr0-~ ~5t heavily on the assunption of fairly high irrigation benefits, such as would be rom4', product~-~Aion. o f Sub-Sicam" crps ratimr~? +h;qn ri-li ng exclusively on the traditional paddy. There are a number of obstacles to problems before making an irrevocable commitment. Agriculture and Rural Development 18. The Ministry of Agriculture and Fbod have completed a five-year proposed development program covering the mJorl Sous of Ceylon's agriculture, i.e., plantation crops and paddy plus minor crops such as vegetables and fruit, mi1K, meat and eggb. IU mIntOUry U an, r1iGaUn and Power has also submitted proposals for rural development including major and minor irrigation and drainage schemes ani d nu l oanidnu±u. An FAO Project Identification kission examined these programs in December 196. for the purpose of determining projects which were most nearly ready lor implementation and which would have an immediate effect on the foreign exchange position. The following projects and programs have been identified: Machinery and Irrigation Programs 19. a) Tea Eachinery. Increases in tea production have not been accompanied by adequate maintenance and expansion in tea processing machinery due to the shortage of capital for investment caused by heavy taxation and difficulties in securing foreign exchange. A number of tea factories are being worked beyond their rated capacities apparently with adverse effects on the quality of tea produced and consequent lower prices. Investments which have been made in tea replanting, therefore, cannot make their maximum return until better and more processing capacity is available. 20. In order to overcome this problem, a project has been developed by the Tea Control Department of the Ministry of Agriculture and Fbod. This comprises the sunly of foreign exchange to the extent of Rs.35 million for the import of the necessary machinery and equipment. In addition the proect wuild provide the tea comoanies with credit at low rate of interest. Arrangements have been worked out by the Bank of Ceylon for the extension and repayment of creitand nbinet anprnval is now being awaited. The project could be implemented within three months. Increased annual earnings of Ds .12 are Wnticipat-n+ed by 1070 n. A rsult of the imnroved tea quality resulting from the project. It is not clear, however, why the - 5 - project needs to be tied in with a credit program for all participating companies, as many of them are in a sufficiently strong financial position to make their own credit arranaements through commercial channels. 21. b) Paddy Cultivation. The program involves making available the necessary foreign exchange for the import of the machinery and spare parts and a credit scheme for the financing of sales to tractor onerators. Tae use of machinery is necessary in certain areas for land preparation in the dry zone due to the very she-rt (30C-A) neriod between the commencement of the rains and the last possible sowing date. It is estimated that a million acres i: in,rvl iwhich11 eqmires c nn00 t.n.racr ith n-nnrnnrint.p snare narts. Existing machinery is in constant need of repair and spare parts are becom- over the next five years is involved. A net saving of Rs.100 million in foregn exchange for ric i.npou ove a ta-.e kje,w --f-w- from land which would otherwise go out of production. 22. A means of determining the best distribution of the equipment is Importan UCin 11 ofL:: thJE large ntMIU1e of scattUEr.ed prouCersO who1 reuireJ.L such services. A distribution primarily to a small number of relatively -Lrge operaVors who perform custom tractor Ser-v±CU to farmrsau wuulU puVUly be the best solution. To date the necessary credit and distribution arrange- mens have not been made. 23. c) Irrigation Department Mach-nery and Squipment. In view of the rundown condition of the Department's machinery re-equipment will be necessary, if it is to carry out its stepped-up program of 200,000 acrezi of water control schemes during the next five years. The estimated cost is Rs.41 million in foreign exchange. However, as the M1inistry of Planning is intending to undertake a review of the irrigation program, and as part of the program has not been adequately studied technically, the RO ldentifica- tion 1ission has recommended that the requested amount of machinery be reduced to Rs.17 million initially. The general review of the program and the technical studies had not been made as of April 1966. 24. d) Lift Irrigation. A project has been proposed consisting of 25,000 acres of highland land to be developed by means of lift irrigation, consisting of 15,000 acres utilizing surface water and 10,000 acres using groundwater in the dry zone in major colonization and youth settlement schemes. The land would be used to raise vegetable crops, largely chillies, which are now imported. The project is to be planned and operated jointly by the Department of Irrigation and Agriculture to ensure that there is adequate technical support for water utilization. 25. The FAO Identification Ivission recommended that the project be reduced to the 15.000 acres of surface water as the groundwater resources had riot been proved and that traditional farming areas in addition to major colonization and youth settlement schemes might be included. Further work was required to finalise preparation of the project including: a semi-detail-ed soil survev. a check on adequacy of water suolies in each area, the preparation of layouts for all units plus a detailed design for - 6 - one or two units, the preparation of more accurate cost estimates, demonstration on the colonization schemes that the producer could handle chilli Droduction in addition to his paddy and a decision as to the responsi- bility for land preparation (government or the farmer) and the basis and amount of water charges. As of March 1966 this additional preparatory work was not completed. A further three months will be required. The capital costs of the nroiect are included above in the reauest of the Irrigation Department for machinery and equipment. Storage Facilities 26. a) Fertilizer Storage. The proposals of the Department of Aricultuirea fn_or.r-mncnr fa-r+Aliy 'aov.1i+A1i,7nAnn will riequirez an inr;s in fertilizer distribution facilities particularly for paddy and sundry crops vuih a r'1 ne p, r od don a 1 .S.. - - - "" _' --~.nd f-vo- T+ T +r_ to construct fertilizer stores and ancillary equipment at three levels - 0..L_L 0.1.LO .1._% V, =LJAA .L .J U - a.L (X L.L 'C--'4L&L1 54 ..4.*~*' 44 4.4..~* The FAO Identification Iission in reviewing the project recommended that it to justify the location and size of each store, to analyze the relationship bebween transportation and the need for storage aunud ou esUals u institutional relationships for the extension of credit. 27. b) Paddy Storage. The present lack of paddy storage at village centers limits the efficacy of the Guaranteed Price Scheme and CauSes sSeS through damage of various kinds. Similarly losses occur and demurrage charges have been incurred as a result of a lack of storage and other facilities at the three main ports and distribution centers. A project for paddy and rice storage and related equipment including the replacement of 50 trucks is estimated to cost Rs.22 million in foreign exchange. In reviewing this project the FAQ Identification Mission indicated that a similar analysis to that for the fertilizer storage project would be required to complete preparation. It should also be noted that one feature of the storage scheme is to ensure that producers would be able to benefit fully from a very high support price for paddy. Both the fertilizer and paddy storage projects could be prepared in a month. The difficulty is to get the responsible ministry to prepare the project in an acceptable manner. Dairy Projects 28. a) Villu Pastures. A condensed milk plant is being constructed at Polonaruwa intihe Dry Zone for which an expansion in milk production will be necessary. It is proposed to utilize the villu pastures of the flood plain of the Mahaweli Ganga, covering some 70,000 acres and which are pro- ductive for some nine months in the year, by the clearance of jungle and the establishment of castures for suporting the livestock during the three-month flood season. The proposal is to alienate extensive blocks of Crown Tard +. l.qarscale nrivate farmers. Fbreign exchange of Rs.17 million are required largely for the importation of buffaloes. The establishment of paures, bildins,etcequnire la apnil l Fnrpipn exchange savings are estimated at Rs.7 million annually upon completion of the project. - 7 - cluded that there was sufficient technical and economic information to proceed to the preparation oi the project. However, further work was required on the provision of credit to new farmers, the development of the small farms alreauy in the project area, the possi.le effect of future public works on flooding and thus on the Villu pastures, the availability, price and quality of the milk buffalo to be imported, and the applicabi.- lity of the data on operating costs submitted in justification of the project in relation to private farmers. Questions still outstanding as of April 1966 include the availability of buffaloes of adequate milking capacity and arrangements for their import, specific identification of suitable private farmers, credit arrangements and the ability of the farmers to manage dairy herds technically and economically. This pro- ject is thus not yet ready for appraisal. 30. b) Highland Pastures. It is the intention of Government to establish a milk powder factory in the highland area in Nuwara Eliya for which an expansion of milk production will be necessary. The project proposal is to make available Crown Lands on tenancy to large-scale farmers "with appropriate clauses in the conditions of tenure to ensure good animal husbandry". In order to establish pastures it will be nec- essary to clear jungle growth and plan with grass in order to expand the current area under pasture. Temperate zone dairy cattle will have to be imported and buildings and facilities established. The pastures are not highly productive and require special treatment. Also there is infestation by leeches and tick although as a result of good veterinary control none of the existing animals in the area have been lost by tick fever. Reauirements are Rs. 1.2 million in foreign exchange. Foreign exchange savings for milk powder imports are estimated at Rs. 6.7 million upon completion of the nroiect, 31. The FAO Tdentification Mission's reommendatins a +.ha+t +.he availability of a milk powder plant needs to be assured that, disease nroblems will k ht be a robhm unAen pr4ra+e oeati+n, that adeqnate arrangements are made for land distribution and credit, and that the cost estimates submitted are realistic in relation to private farmerso As of March 1966 the situation in this project was similar to that of the Villu platres namely,W arageet on thea private sectr sideas read credit arrangements, land availability, identification of farmers and assu1rflla 4,ances of adequate managerial nd techN.A ca expe arie nce. Mreoanavr, this project cannot be initiated until arrangements are made for a milk ment has been reached. 32. c) Coconut Estate Herds. Establishment of the condensary and, more particul&rLy, the mIA powder plant w113 draw off milk now going to the Colombo milk-shed. It is proposed to substitute for this loss by expanding milk production in the lowland coconut plantations for whicn Rs. 8.4 million in foreign exchange is required. The FAQ Identification Missionts observations are that this is not an immediate project until the milk powder project approaches a reality. -8- Fisheries 33. Whilst Ceylon now imports some Rs.90 million in fish products each year, the local catch represents only h4 of consumption on a fresh weipht basis. This is due to the fact that fishing is largely confined to inshore waters, whereas it is known that a substantial but unproven amount of fish in offshore waters is unutilized. Some of the varieties available are suitable for export markets. There thus exists a favorable opportunity to become self-sufficient in fish sunolies, except for esoteric varieties. and a possibility of developing an export market. 34. The Ceylon Fisheries Corporation has proposed an immense ten-.year nrncpr.m M'1 imflo.Q+.mP-+. in f.~iii oat n+. OA1mrl-.hih,' -nd~-.~P Anti processing and marketing facilities in order to exploit fully this potEntial resource. The proJect w'ould inrolve n" -ies-tmnte- of Is .1 billion nozelI ten-year period of which Rs.990 million would be required during the first Y.&a1 "I' J'_I Jq . .L jJ.O A t-41LJa~h i £ l, 4O 1~ - -.L /,' 51~ -.t* I~ - - in 1965 to over 680,000 tons in 1975 of which 220,000 would be exported. J.11.Lo P . L L 1 L t I U U " W",L-L VrY.l U.1LLVi JJ t 'J.ct,La U'J ..YLWAL .VW and also would be an excessive financial burden. 35. An FAQ Fisheries Project Preparation Mission which visited Ceylon in October 1965 recommended a five-year program involving a Wal invesument of only Rs.58 million, of which Rs.39 million would be in foreign exchange, as the first phase of a fishery development effort to increase produCtion by 25,000 tons. This modest program was recommended on the grounds that the potential yield of the continental shelf was not auequately establishned that large-scale tuna fishing for export needed to be developed slowly in view of the declining catch rates in the Idian Ocean and the que5tion as to whether the international market could absorb exports at the rate and prices forecast in the Fisheries Corporation plan; and that major structural changes would be involved in the industry under such a high rate of expansion. Moreover, the government was considering the possibilities of participation by the private sector in the fishing industry. 36. A fisheries project is one of the best that could be developed in Ceylon at the present time and could have a significant impact on output and foreign exchange earnings. The question is what should the rate of development be? The Fisheries Corporation program is too large, for the reasons given, whereas the FAO proposal may be too small to have an adequate impact. Ihsofar as the FAO mission has stated that the results of present operations and experimental fishing "would support an increase in fishery operations which should at least double current production" (of 95,000 tons), it is suggested that the FAO proposals might serve as a basis for operations during the first two years. The project could be re-examined during its second year to see whether or not it would be feasible to consider a further expansion of the fishing fleet in the third and subsequent years, in addition to the proposed development of harbor and shore instalations with the object of doubling the current catch. It would be necessary to establish .afnegaAr apinst overe3nansion relative to market absorption and the acquisition of experience and management in modern fishing methods. Such a prjct wiA he ninkly ieveloned on the basis of the data available from the two proposals and could be made ready for appraisal with a minimum af 'JnI Mi. SO.1 . .J STATISTICAL APPETDIX Table No. I External Public Debt II Estimated Service on External Public Debt III Gross Ibmestic Product by Industrial Origin IV Expenditure on Gross National Product V Gross Dbmestic CaDital Fbrmation VI Gross National Savings VII Real National Income and EDr)enditure VIII Production of Principal Crops Ty Prboiution Aerpaap and Yield of Pxnort Crops X Production, Acreage and Yield of Paddy YT Pd nei n nA Tmnv-,i nrff TN.q) XII Value of Industrial Production YITT nmLar -AP nnrr.annon+ AnSnnP..n iniancing XIV Governm.ent Revenue .&V %." . L± Lv.'V.L J. , U J. :AU.L 4j - XVI Government Capital Expenditure XVIII Revenue and Current Expenditure of the Five Government XIX Analysis of Factors Affecting lbney Supply XX Composition of .U-ne,y oupply XXI Consolidated Assets and Liabilities of Commercial Banks Xxii Ownership of Deposits XXIII Cost of Living Index Xxiv Balance of Payments XXV Composition of Exports XXVI Composition of Imports XXVII Index of Terms of Fbreign Trade XXVIII Actual and Projected Exports XXIX Gross and Net External Assets XXX Official Grants and Loans XXXI Commodity Aid Program for 1965 Tnble T CPVTfT1m L-YPMTTAT UrnnTTM- AuTn TATn- mVO /1 TTMTTn nrqnrn nTrtomAnnvurw? ~ ~LIJ.4' .UJr ' 1.'MJ.J .4%J1U.LLUtX / .1. I V.L4jJ.L JJ ;1_ U U1.1.1U ) wM J-a2U INCLUDING UNDISBURSED AS OF DECEMBER 31, 1964 WITH MAJOR REPORTED nt.AITOtC TAATTTADV I 1 r nm rn - I 1- r VLU%JL 1&~J . UJULVWJU%~.L L, -L;?V? - 0LJC.L1WJDZna Vj, L7U,) Veu aepuyuLe in roreign Currency kin thousands of U.S. dollar equivalents) Debt outstanding Major reported December 31, 196t changes Item Net of Including January 1 - undisbursed undisbursed September 0, 1965 TUTAL XTENAL PUBLIC DEBT 73,660 121,163 - 601. Publicly-issued bonds /2 12,928 12,928 Privately-placed debts 31 1,620- IBRD loans 28,L13 34,h33 - 60-1 Loans from Western governments 10,071 27,607 - Canada 1,560 10,773 - Germany 3,092 9,875 - United Kingdom 46,522 6.062 - Yugoslavia 896 896 - Loans from Sino-Soviet Bloc 21 817 h4,576 /3 China 7.507 11.276 - Czechoslovakia 14 14 - Poland / 286 286 - U.S.S.R. 114,010 30,000 - /1 Debt with an orieinal or extended maturity of on vanr or moep 72 Net of accumulated sinking fund, $9,735,000. 7 Doe not include the following renort.ed in .he nWa n hnna -nn+ 'A in the first half of 1965: .t) , 9 - nno nnr -rt- Vn+" Mnisan Rs.50,000,000 from U.S.S.R. Source: IBRD-Economics Department - November 16, 1965. Table Ii: CEYLON - ESTIMATED CONTRACTUAL SERVICE PAYMINTS ON EXTERNAL MEDIUM- AND L - P 'BLI DEB T 1,r1m'jrTT rTUTTTADIN TTIL N rUCNISTRTD A n DTECEME1 31, 1 CY6. 1 lj.lvu-lzJrwi JrunljJÅu 1=1~ uu I .ii'.IvKa.UiU UjLJ k11j MI, IJJMjlLLu4iL j., .J,-~~4 WITH MAJOR REPORTED CHANGES JANUARY 1 - SEPTEMBER 30, 1965 Debt Repayable in Foreign Currency (In thousands of U.S. dollar equivalents) Page 1 GRAND TOTAL DEBT OUTST DEBT OUTST (BrTh FrI PV.PTDN påvmwhRPERID (BEpnIN OF PPTOT) INCLUDING AMORTI- DISBURSE- NET OF VWEAR UIT TR1M 2/ 7ATIN TERST TPAT MENTSe3/ S 3/ 1965 6 1 962 , 2 ,792 1.966 832,255 5,385 3,802 9,186 4,471 77,384 1967 77,573 5,812 3,59 9,501 1,l.00 76,173 1963 71, 409 5,994 3,407 9,401 - 71,409 1969 6,6-9 6,0() , - nK, 6 9 99 o 1.970 58,639 6,212 2,831 9,043 - 58,639 1071 5 21136,7 2 L9o t , r69 - 1 5-3 1.972 45,790 5,053 2,272 7,324 - 45,790 I973-4Åå 59,.7n2 2 ,DJ3 7,11 - 1,1J70 1974 35,156 5,133 1,892 7,024 - 35,156 1,2,7 La,.16 -,LJ2 LC,C3 - 29,71 1976 18,740 4,335 932 5,268 - 18,740 107' J. l. ni' 1.« ,~r, 0, LL49 ,j2 145.?2 7 14 U,O5U - 14,405 1978 10,269 2,669 521 3,191 - 10,269 7, 2,02399 2,27 - 7,600 ..L7 11 PTUT TtTV- ISSUED BONDS DEBT OUTSTANDING (BEGIN OF PERIOD) PAYMNTS DURING PERIOD GROSS NET .2/ AMORTI- INTEREST TOTAL ZATION 1965 22,663 12,928 1,646 967 2,613 1966 17,500 10,82 2V5 735 980 1967 17,500 10,299 245 735 980 1968 17,500 9,732 245 735 980 1969 17,500 9,141 245 735 980 1970 7,500 8,524 316 617 964 1971 14,000 7,894 210 560 770 1972 14,000 7,1435 210 560 770 1973 14,000 6,958 210 560 770 1971 14,4000 6,461 210 560 770 1975 14,oco 5,944 5,783 280 6,063 Table 11: CEYLON - EST ATFD CONTRACTUAL SERVICE PAYMENTS ON EXTERNAL MEDIU1- AND LONG-TERM PUBLIC DEBT OUTSTANDING INCLUDING UNDlISBURSED AS OF DECEMBER 31, 1964 1/ WITTH MAJOR REPORTED CHANRES JANUARY 1 - SEPTEMBER 30. 1969 Tht Rpnavhle in or,nign Ciurrren (In toanof U.S. dllareqivlet- Page 2 PRIVATELY-PLACED DEBT DEBT 0UTST DEBT OUTST (BEGIN OF PERIOD) PAYMENTS DURING PERIOD (BEGIN OF PERIOD) TKTMNTLUDflG AMORTI- fTSBURSE- NET OF YEAR UND ISBURSED ZAT ION INTEREST TOTAL MENTS 3/ UNDISBURSED 3/ 1965 1,620 249 43 293 1,189 431 1966 1,371 249 59 308 - 1,371 1967 1,122 249 48 297 - 1,122 1968 873 249 36 286 - 873 1969 623 249 25 275 - 623 1970 374 249 14 263 - 374 1971 125 125 3 127 - 125 IBRD LOANS DEBT OUTST DEBT OUTST (BEIN OF PERIOD) PAYMENTS DURING PERIOD (BEGN F PERpI) INC LUD IDG AMORT I- D ISBURSE- NET OF Fjr;NIS TRSETDPO 7ArTIOm I TT TnTOåT. MEmr.q i/ TDSRTTPPD _3/ 1965 3,33 1,381 1,77), 3,15 6,020 28,13 960 32,h51 1,429 1,70h 3,133 - 32,451 967 31099 1 1,3 ,0 - 31022 ,968 29,552 1,546 1,552 3,098 - 29,552 1969 28,006 1,629 1,69 3,098 . 28,u06 1970 26,377 1,712 1,384 3,096 - 26,377 1971 2-,665 1,80 1,29$ 3,100 - 2,665 ,972 22,860 1,899 1,198 3,097 - 22,860 1973 20,961 1,999 1,098 3,097 20,961 1974 18,962 2,104 992 3,096 - 18,962 916,858 2,21L4 881 3,095 - 16,858 1176 14,644 2,333 764 3,097 14,644 ? 1340 12,311 1978 9,853 2,253 509 2,762 9,853 179 7,600 2,028 399 2,(27 - 7,600 Tal IIT: fLOV N - ESnhT TIM ATD COTrflT. RTI. PA 1TR ON 7ITERIA METDIM- AND LONG-TERM PUBLIC DEBT OUTSTANDING INCLUDEG UNDISBURSED AS OF DECEMBER 31, 1964 1/ T.TTM17 MA T RTD EVDIIVTIrUAIWLC TAAESJNUARY 1 -ETmp 3, 1I6 In trouisands of U.0. UVllau equ.LVaLets)UI Page 3 LOANS FROM WESTERN GOVERNMENTS - TOTAL DEET OUTST DEBT OUTST (BEGIN OF PERIOD) PAYIENTS DURIG PERIOD (BEGIN OF PERIo. INCLUDING AMORTI- DISBURSE- NET OF YEAR UNDISBURSED ZATION INTEREST TOTAL IENTS 3/ UNDISBURSED 3/ 1965 27.035 1,8oh 1,178 2,982 l1,465 9,å99 1966 25,231 2,545 1,304 3,849 3,071 22,160 1q67 22A6 2,962 1,26 hP,208 - 22.686 1968 19,724 2,617 1,084 3,701 19,724 196Q 17,107 2,598 935 3,53 -- 17,107 1970 1,508 2,598 786 3,384 . - 14,508 1971 11,910 2,598 637 3,235 - 11,910 1972 9,311 1,607 514 2,121 - 9,311 1973 7, 70) 1,182 h25 1,908 - 7,7Qh 1974 6,221 1,h82 340 1,822 - 6,221 1907K 739 1,2 250 -,736 - ,7 39 1976 3,256 1,582 168 1,751 - 3,256 1977 17 1,257 71. 3,4 , ·· 1 1978 416 416 12 429 - 416 LOANS FROM SINO-SOVIET BLOC DEBT OUTST DEBT OUTST (BEGIN OF PERIOD) PAYMENTS DURING PERIOD (BEGIN OF PERIOD) INCLUD ING AMORT I- D ISBURSE- NET OF YEAR UNDISBURSED ZATION INTEREST TOTAL MENTS 3/ UNDISBURSED 3/ 1965 14,290 930 - 930 3,969 7,521 iO6 iAA -1 ' 4o4-1 - 1 I.n- r14 n 963316 - 9L,14VM 1V,56UU 1967 12,hhh 916 - 916 1,400 11,044 196F8 11,528 1,336 -- 1,336 -- 11,528 1969 10,192 1,336 1,336 10,192 1970 8,856 1,336 - 1,336 1971 7,520 1,336 1,336 7,520 197 6 -,8n4 1,-33 =, ,3,6 -68 1973 4,848 1,336 1,336 - 4,848 1974> 12 C,33u - 1,336 3,512 1975 2,176 1,336 1,336 - 2,176 1976 80 20 h20 - 8h0 1977 42, 420 - 420 - 420 -/ Includes service on all debts listed on Table I prepared November 10, 19615 except: $ 30,000,000 from U.S.S.R. $ 286,000 from Poland $ 571,000 from Yugoslavia 2/ Net of accumulated sinking funds. 3/ Assumed for the purpöse of calculating interest. Table III Gross Draestic P:rodu,t b.y indstrial Origin (Rs. million at current factor cost prices) 1959 1960 1961 '1962 1963 196h 1965 iercent of -- - ......-.... -..-. ...- -..----- - .GDF :in 1,964 1. Agriculture, forestry, livestock, fisheries 2 763 2 2 ' 7 2.907 2.983 3.112 3,062 4 (a) for export ] 10 1 107 ~ (b) for domestic use 1,298 1,363 1,h08 1,447 1,553 1,65 1,22 2. Mining and quarrying 11 11 11 12 11 10 12 . 3. Manufacturing (excluding construction materials) 271. 317 353 417 499 553 611 8 4. Construction (includLing construction materials) 384 3149 .385 429 4214 419 464 6 5. Transport, storage and commu- nication 471 512 498 523 545 610 669 9 6. Wholesale and retail trade 6147 6147 624 662 719 768 851 11 7. Banking, insurance, finance 48 52 56 59 68 71 74 1 8. Ownership of dwellings 169 178 196 205 223 238 254 3 9. Public administration and def ense 397 402 1403 444 469 493 5C1 7 10. Services n.i.e. 731 784 799 806 826 865 907 12 GDP at current factor cost prices 5,89L 6 124 6,182 6,464 627 75114 71404 100 GDP at constant 1959 prices ,6 E 6,6,620 6,95 LL-- Source: Central Bank of Ceyor Table IV Expenditure on Gross National Product ilion in curirent4 IJ 1 pL'cs 195,9 1960 1961 1962 19653 1964 1965 A. Private Consumption Expenditure h,678 4,991 4 849 5 010 5,184 5,611 5,692 Imported goods and services 1,99 2,065 1,5 879 ,69 1,867 1,720 Locally produced goods 2,093 2,208 2,282 2,h16 2,650 2,806 2,952 Locally produced er-vices 94 488 5U 52 S4 564 Other (net) 1/ 123 243 225 209 320 424 456 B. Government Consumption Expenditure 881 911 926 979 1,011 1,090 1,116 C. Private Fixed Capital Formation 2/ 733 649 637 668 607 682 582 Planting and replanting 62 63 63 6W 70 70 - 5 Transport 153 109 85 92 63 50 63 Plant and machinery 119 77 113 113 154 177 119 Building and construction 336 341 320 3L2 262 331 306 Other 64 59 55 57 59 55 :29 D. Public Fixed Capital Formation 336 317 341 364 384 341 387 E. Stock Changes -10 -45 69 -1 8 - ho -15 F. Gross Domestic Expenditure 6,617 6,823 6,822 7,020 7,193 7,714 7,732 G. Less imports/exports of goods & non-factor services -160 -198 -65 -99 -128 -15 +23 H, Expenditure on GDP at Market Prices 6,h57 6,625 6,757 6,921 7,065 7,561 7,755 I. Net Factor Income from Abroad -37 -h -h0 -h7 -53 -34 -15 J, Residual Error -177 -88 -185 +16 + 163 +1.4 K. Expenditure on GNP at Market Prices 6.2), 6.Q3 6Ckg , 9Ron 71 ,7 d , S 17i.e. net of goods and services Durchasedby non-residents. Source: Central Bank of Ceylon. 7/ Includes public corporations. Table V (Rs. million in current market prices) ~~- nf- I' nA- I" MC15 ~JA Comorations (a) Fixed Capital Formation rlanting replanting o o-) 0 1 04 (v 7u O> Building, other con- struction 336 11 20 jU 32 262 331 306 Plant & machinery 119 77 113 113 154 177 119 Transport 153 10 o 92 63 >0 63 Imported capital goods n.i.e. 6h -59 55 57 59 55 29 Total 733 649 637 668 607 682 582 (b) Change in Stocks 1/ 12 -31 16 -hl 3 -36 -67 (c) Private Capital Formation 745 618 652 627 610 646 515 IT. Government and Public Enter- prises 2/ (a) Fixed Capital Formation 336 317 341 364 384 341 387 (b) Change in Stocks 3/ -22 -lL Sh o 5 -5 +22 (c) Public Capital For- mation 11h 1O 395 hO1 189 136 L09 1TT. Total Canital Formation (n) r,-.A FirP nital Formation 1,069 966 978 1,031 991 1,023 969 (b) Changes in Stocks -10 -45 69 -1 8 -ho -45 (c) Total. 1,059 921 1,047 1,030 998 982 924 1, Includes only changes in stocks of tea, rubber and livestock. / rulic enterprises conist Of Railway, Port Commission, Department of Govern- ment Electrical Undertakings, Post and Telecommunications, National Salt Corporation. / Includes only changes in stocks of imported rice, flour and sugar; paddy neld under the Guaranteed Frice Scheme; and arrack. 6/ Preliminary. Source Central Bank of Ceylon. M n +4nlI qnvincyT z (Rs. million in current prices) 1959 1960 1961 1962 1963 1964 1965 Gross Domestic Investment 1,059 921 1,047 1,030 998 982 9214 Less: Net Borrowing Abroad 2/ -208 -221 -94 -14o -168 -148 -98 Gross National Savings E 700 953 890 7Z 4 -826 Net Factor Payments 37 4h 40 47 53 34 22 Net Remittances and Transfers Y/ 12 -22 11 7 13 40 37 Gross Domestic Savings 900 722 1,h 75 -74 908 T7 G-ross I4I.aat--Lon,=-l a.insS JinO % of GNP 13.6 10.8 14.6 12.9 11.6 11.0 10.7 Gross .uimstoviU savings in % of GDP / 14.3 11.0 15.3 13.6 12.4 12.0 11-4 1/ The data presented in this table are derived solely from the relevant nationalo inncomenA t Not.fmate of spvinops mxists. 2/ Includes loan repayments to the United Kingdom and use of external reserves. 3/ Consists of private remittances and public grants. statistical discrepancies between estimates of gross national product and gross national expenuLure. Source: Central Bank of Ceylon. Table VII Real National Income and Expenditure!/ 1959 1960 1961 1962 1963 196h 1965 Production for Export 1,65 1)515 1,638 1,686 1,64o 1,754 1,709 Production for Domestic Use ,i26 ),607 1,663 h.8q7 5.031 5.L99 q.33C Paddy, Tea, Coconut Products 642 723 731 788 844 866 700 Government n.i.e. 702 755 79 792 821 869 902 Other goods and services 3,082 3,129 3,173 3,277 3,367 3,166 3,728 Gross Domestic Product 5,891 6,122 6,300 6,543 6,670 6,953 7,038 Net Factor Income from Abroad -37 -440 o -0 -51 -34 -14 Gross National Product 5,854 6,078 6,260 6,493 6,620 6,919 7,024 AdjustmedD for Current Export Price2/ - -14 -173 -102 -262 -346 -309 Tea 2- -39 2 -13T -7 -212 Rubber - 39 -25 -114 -156 -94 -04 Coconut Products - -33 -111 -96 -79 -105 -12 Others - 6 1 5 6 9 Gross National Income 5,854 6,064 6,087 6,391 6,358 6,572 6,703 SIllA d are at constant 199 factor prices. 2/ Calculated as the difference between the value of export at constant 1959 prices and the actual value at current prices. Subject to revision. Source: Central Bank of Ceylon. Table VIII Production of Principal Crops Average 1954-1956 1959 1960 1961 1962 1963 196h 1965 ExpDrt Crops Tea (million lbs.) 37 413 435 455 467 485 482 503 Rubber (1,000 MT) 94 92 97 96 102 10h 111 117 Coconut (million nuts) 2,h60 1/ 2,313 2,183 2,60l 2,811 2,557 2,999 2,681 Domestic Crops Paddy (million bushels) 31.4 36.5 43.1 h3.2 4B.1 49.2 50.5 34.1 Manioc (1,000 cwt) 4,h22 2,865 5,195 5,842 5,553 n.a. n.a. n.a, Onions (1,000 cwt) 731 758 736 815 734 n.a. n.a, n.a. Chillies (1,000 cwt) 372 202 28'3 41 307 n.a. n.a. n.a. Peppers (1,000 cwt) 100 117 151 225 126 n.a. n.a. n.a. Kurakkan (1,000 cwt) 658 587 733 726 580 n.a. n.a. n.a. Maize (1,000 bushels) 303 319 332 363 301 n.a. n.a. n.a. Sweet Potatoes (1,000 cwt) 9b5 529 901 l4,18 84 n.a. n.a, n.a. 1/Partlybased on rough estimate. Source: Department of Census and Statistics. Table IX Productioni creage and Yfield of Export Crops 1954-1956 19,59 1960 1961 1962 1963 15,64 1965 Tea Production (ill. lbs.) 374 4:L3 4.5 4S5 467 485 503 Acreage (1,000 acres) 570 510 582 587 591 587 592 (of which replanted) (00) (1.2) (2.5) (4.3) (6.5) (5.7) n.a, Estates 1/ 499 502 502 504 505 498 496 n.a Small Holdings 1/ 71 70 80 83 6 9 9 I Yield per acreTibs. 656 713 7147 775 790 826 814 1sa, Rubber Production (1,000 tons) 94 !2 97 102 104 .11 117 Acreage (1,000 acres) 660 668 669 671 674 675 669 5/ n.a. (of which re lanted) (13) (23) (2179) (7) (T) (300) (313 n.a. Estates 17 479 477 476 476 476 n.a* n.a n.a Small Holdings 1/ 180 191 193 195 198 n.a* nLa, n.a Acreage in Production 2/ 586 537 522 504 528 525 531 ri.a. Yield per acre (lbs.) 36 3 Z*1 6 Coconuts Production (1,000 nuts) 2,h6o 2,314 2,183 2,601 2,811 2,557 2,999 2,681 Acreage (1,000 acres) 3/ 1,100 1,lO 1,100 1,100 1,100 1,100 1,100 n.a. (of which replanted) 47 (37) (95) (11) (136) (155) (178) (202) n.a. Yield per acre (nuts) 2,236 2,lo 1, 985 2,65 2,555 2,325 2,726 n.a I7--tate-s-ar-e-definedI as hodnscomLprising TO-T3cres3 or more, small holdings cover less than 10 acres. V/ Defined. as total area planted with rubber less acreage that has not yet reached tappable age and acreage left untapped. 31/ This is an estimate! as no accurate statistics are Icept., ~/Includes only replanting under Coconut Rehabilitation Scheme. Rough estimate derived from the number of seedlings distributed. 5/Decline due to resurvey of acreage planted by large estates. bource:~ Admiistration- Rer)ort of the Tea Controller, A4dm.ni st--)t.--'n Rep:)lt of the Rrbber Controler crirt of Census and St(1tistic,) (()n(3re) (ar6 of( Ceyn,n Table X 1/ Production, Acreage and Yield of Paddy - Average 1954-1956 1959 1961 1962 1963 is64 Production (million bushels) 31.4 36.5 43.2 48.1 h9.2 5o.4 Acreage (1,000 acres) Gross acreage sowm 1,280 3d30 1,472 1 $36 1, 562 L85 Under irrigation ~720 6 .. 93 Major Schemes (362) (395) (473) -- (508) (516) Minor Schemes (311) (325) (389) n.a. (426) (421) Rainfed 607 610 610 628 6b5 Gros.creage Harvested 1 202 1,228 1,h07 1,h92 1,253 Under irrigation 632 669 835 - 920 917 Major Schemes (345) (378) (459) (501) (5el) Minor Sehemes (287) (291) (376) n.a. (419) (-13) Rainfed 570 559 572 605 618 Net Acreage Harvested 1,010 1,0h4 1,195 1,268 1,297 1,305 Yield Per Acre (bushel) 31.1 35.0 36.2 37.9 37.9 38.6 17 Annual figures are totals of both Maha and Yala seasons. / Includes 20,000 acres estimated to have been under cultivation in the Gal Oya Colonized Area. Source: Statistical Abstract of Ceylon; Department of Agriculture. Table XI Production and Import of Fish (000 cwt.) 1956 1958 1959 1960 1961 1962 1.963 Production of Fresh Fish 765 779 896 980 1,124 1,500',650h Imprts 812 967 858 960 764 666 736 Dried Fish 682 797 702 792 588 425 666 Fresh and Tinned Fish 130 170 156 168 176 241 70 / Data refrs to fiscal years 9/6 and 1962/63, repetively Source: Department of Census and Statistics; Ceylon Customs Returns. Table XII (Rs. million) 1960 1961 1962 1963 1964 1965 Miscellaneous Food Preparations 144.0 146.9 147.8 147.6 160.7 n.a. Preserved and Canned Fruit, Vegetables 1.3 1.6 2.3 3.4 4.5 Biscuits, Confectionery 11.5 18.2 21.9 28.8 30.9 Cerated Water 8.3 7.8 10.0 11.4 13.4 Beer and Stout 3.1 2.4 2.2 2.4 2.7 Tobacco 30.0 29.0 35.0 39.0 46.2 Garments 19.4 19.8 29.3 38.4 54.9 Footwear, Leather Products 8.3 8.5 19.6 22.3 23.4 Misc. Chemical Products 36.4 40.3 51.5 56.0 73.7 Paper and Paper Board 12.5 13.9 15.4 18.2 30.1 Metal Products 7.4 9.1 11.2 15.1 38.5 Manufactured Products, n.e.s. 1.5 3.7 h.3 5.8 11.0 Ceramics 1.0 1.1 1.9 2.5 2.4 Rubber Products (excl. Footwear) 6.8 8.3 10.9 13.7 17.0 Plywood 2.3 2.9 3.4 3.9 3.9 Mineral Sands - 0.1 0.1 0.1 0.9 Basic Industrial Chemicals - 0.2 1.1 1.2 1.0 CemPn1% Cpmpnt Produrts 19-6 17-9 20.2 22.' 21-0 Toal11 ' A 117 V8A-n ),ip- O 08. Based on a survey carried out by the Central Bank. In 1964, a considerably greater number of firms reported than in 1963. Therefore, the increase in output shown in 1964 over 1963 does not represent the actual increase that occurred during the year. Data for 1965 again are not available on a comparable base. Source: Central Bank of Ceylon. Table XIII Surmmary of Goverment Accounts and Financing (Rs. million) 1958/59 1959/60 1960/61 1961/62 1962/63 1963/6h 1964/65 1965/66 Revenue 1,236.6 1,331.8 1,h 3.4 1,595.3 1,58.9 1,612.8 1,762.9 1,795.9 Current Expenditure 1,155.7 1,272.,7 1,378.7 1,h53.8 1,495.2 1,589.1 1,683.6 1,697.0 Surplus 80.9 59.1 64.7 141.5 89.7 23.7 79.3 98.9 Losses of Govt. Enterprises 1/ -34 -16 -22 -19 -24 -20 -22(es) -22 Overall Curren Surplus 16.9 43.9 42.7 122,5 65.7 3.7 57.3 76.9 Capital Expenditure 493.0 495.7 519.1 585.6 489.0 517.6 573.6 674 Advance Payments (net) 5.8 1.3 14.2 14.6 -13.7 -16.0 -35.0 n.a. Overall Surplus/Deficit -452.9 -453.9 -490.6 -478,1 -409.6 -497.9 -481.3 ~594.1 Adjustment 2/ 24.0 27.0 28.0 22.0 18.0 35.5 38.8 20 Net Cash Operating Def icit -428.9 -426.9 -462.6 -.456.1 -391.6 -462.4 -442.5 -574.1 Financing (a) Non-Expansionary 187.8 179.8 221>2 269,7 213.2 301.8 400.o 475 1. Administrative Borrowing 27.6 57.4 29.4 104.5 -33.8 -1.1 56.7 25.0 2. Net Foreign Loans & Grants 51.2 35.9 26.6 55.8 93.5 96.8 100.1 175.0 3. Non-Bank Borrowing 109.0 86.,5 165.2 109.4 153.5 206.1 243.2 275.0 (B) Expansionary 241.0 247.1 241.4 186,4 178.5 160.6 .42.5 99.1 4. Bank Borrowing 179.3 241.1 241.4 226.6 178.1 115.2 17.7 ) 991 5. Decline in Cash Balances 6,1.7 6.,0 - -40.2 o.4 45.4 24.8 ) 6. Declize in U.S. Aid Counter- part Funds -52.5 4.0 -.7.5 4.o -16.5 2.3 -2.5 n.a. 7. Expansionary Impact of the Budget (4+5+6) 188.5 251.1 233.9 190.4 162.0 162,9 40.0 99,1 _/Excludesirterest and amort ization(except in the case of the Electrical DepartmiEt). 2/ Extra--budgetary funds such as the rubber and tea subsidy and electrical department's reserve expenditure. Table XIV Government Revenue (.millioriJ (Est.) 1958/59 1959/60 1960/61 1961/62 1962/63 1963/64 1964/65 1965/66 I. Customs Duty 1/ 695.9 706.4 731.0 756.3 676.4 758.9 748.8 847.7 (i) Export Duties 328.9 299.9 29r.7 291.4 278,7 277.4 312.9 292.7 (ii) Import Duties 367.0 406. r 435.3 465.0 397.7 481.4 435.9 554.9 II. Excise Duties 2/ 108.0 135.4 135.8 168.7 210,8 218.4 239.3 248.5 III. Turnover Tax 16.0 34.8 34.0 IV. Profits from Sale of Sugar and Flour 102.6 122.8 132,4 189.6 199.5 84.4 184.2 207,7 V. Taxes on Income and Profits 3/ 201.0 195.5 282.7 306.4 307.2 308.8 321.4 275.5 of which: Income Tax 194.8 189.5 258.8 262.4 259.1 285.0 292.5 254.3 VI. Other Taxes 4/ 58.9 73.0 77.4 73.9 90.4 102.7 107.3 89.8 VII. Miscellaneous Receipts 5/ 70.2 98.7 83.1 103.5 98.6 123.6 127.1 92.3 TOTAL REVENUE 1,2 36.6 1,331.8 1,4143.4 1,598.4 1,582.9 1,612.8 1,762.9 1,795.1 / IzclT<th g tea tax and license fees on imports. 2/ Excludes tea tax and turnover tax. 3/ Comprises income tax, surcharge on income, surtax, profits tax, land tax, personal tax, National Development Tax, foreign exchange tax (abolished in 1965), and rice subsidy tax (abolished in 1964). 4/ Consiats of stamps duty, estate duty, licenses, export duty under MWO, Social Security contributions and Bank debits tax (abolished in 1965). 5/ Excluces receipts from uoverment enterprises. Scurce: Central an,k of Ca-lon, Tble X Government Gurrent Expenditure (Rs million) (Est.) 1958/59 1959/60 1960/61 1961/62 1962/63 1963/64 1964/65 1965/66 I. Administration .............. ...179.4 208.5 216.5 216.1 2n6.8 218.0 2t.0 212.3 (i) Civil Administration ...... 138.9 162.4 160.9 16-.4 15h.c 164.7 189.3 184.o (ii) Defence ................... ho.5 44.1 55.6 55.7 52.8 53.3 54.7 58.3 II. Social Services ......... 372.9 415.3 411.8 430.5 446.0 465.2 482.0 502.5 (i) Educ ation ..................... 227.5 270.4 264.2 279.5 291.5 309.3 32,4.5 334.5 (ii) Health ................... L0.5 139.2 111.0 143.2 145.2 147.8 151.14 159.0 (iii) Housing .......... ... 0.7 0.8 1.14 3.1 2.9 3.0 3.2 3.2 (iv) Special Welfare Services 4.2 4.9 5.2 4.7 6.4 5.1 2.9 5.8 III. Economic Services .... ....... 1g09.0 105.3 115.0 112.8 113.4 116.1 142.4 124.8 (i) Agriculture & Irri.gation .. 63.6 71.7 76.5 77.9 77.3 79.7 95.5 86.9 (ii) Fisheries ....................... 1.7 2.0 2.9 2.3 2.5 3.2 2.4 2.2 (iii) Manufacturing and Mining 11.5 9.9 12.7 10.0 10.9 10.2 10.8 11.8 (iv) Trade ..................... 20.8 9.8 lo.0 10.3 10.6 10.7 10.8 10.3 (v) Comunications ............ 11.14 11.9 12.9 12.3 12.1 12.3 22.9 13.6 IV. Transfer Payments .............. 490.2 541.3 626.6 695.4 717.1 784.6 807.9 823.5 (i) Food Subsidies (Gross) 248.8 312.7 380.14 425.0 425.3 459.8 474.2 480.2 (ii) Interest on Public Debt .hh.o 53.1 68.6 83.1 98.1 113.7 105.9 114.9 (iii) Pensions ............ 91.11 93.1 99.9 108.8 115.4 130.2 113.2 145.9 (iv) Direct Relief ............. 43.2 39.2 40.3 37.9 37.5 37.3 43.2 38.2 (-v) Other ..................... 28.0 7.5 1.h l4.6 2.9 3.8 2.7 4.0 (vi.) Grants to Local Autor ities 34.8 35.7 36.0 36.0 37.9 39.8 38.7 40.3 TOTAL CURRENT EXPEND1TURE ............. 1,151.5 1,270.4 1,369.9 1,454.8 1,493.4 1,583.9 1,676.3 1,693.1 Table XVI Government Capital Expenditure 1958-59 1959-60 1960-61 1961-62 1962-63 1963-.64 1966i-65 I. Administration 46.2 37.3 30.8 29.0 19.4 17.5 17.0 II. Social Services 76.5 70.0 78.9 99.0 92.1 101.9 07.7 (i) Health 9.6 11.4 13.0 13.0 13.5 11.4 9.2 (ii) Education 28.2 25.9 33.4 29.5 35.6 46.0 44.4 (iii) General Housing 26.0 21. L 19.7 37.h 27.0 33.9 32.7 (iv) Rural Development 12,7 8.6 12.8 14.1 16.0 10.6 11.4 Ill. Economic Services 320.5 332.8 362.2 376.14 367.6 369.1 432.4 (i) Public Utilities 121.4 126.3 119.5 147.5 162.2 139.0 157.5 (ii) Agriculture, Irrigation and Fisheries 178.7 175.4 185.0 L65.9 148.1 146.1 165,4 (iii) Manufacture, Mining & Trade 20.4 31.1 57.7 63.0 57.3 84.0 109.5 IV. Acquisition of Financial Assets 49.8 55.6 47.2 86.2 9.9 29.1 26.5 Total Capital Expenditure 493.0 495.7 519.1 585.6 489.0 517.6 573,6 Table XVII Consolidated Financial Position of the Government Enterprisesl/ .L7j7VV1'. V-LJUJ L7v-/ Ua J.7uU_?U .L7UJ/ ULt JU~LL J.:ILIJ VLYL-L0t; 201j-:e - 2014 213 ee 22 237 CaurrenT, zxpemcu-bure 217ez 22 232 2e4142 Current Su:rplus/De.icit -16 -22 -19 -24 -20 interest and Annuity 2/ 12 14 15 17 19 Depreciation 3/ 16 17 10 21 23 Profit or Loss -44 -53 -52 -62 -62 1/ Since no allowance is made for interest payment and depreciation for most of the enterprises, the current deficits do underestimate the position. This table tries to give the true position. 2/ Interest and annuity of railways only. 3/ Only for the electrical department and railways. Computation for the railways was 5% depreciation on rolline stock. plant and equipment. For the electrical department is was 140 on all assets in operation. Table XVII Revenue and Current Expenditure of the Five Goverrnment Enterprises 1959/60 1960/61 1961/62 1962/63 1963/64 I. Railway Revenue ..................... 85 85 88 92 100 Current Expeliture ..u...... 108 109 109 116 121 Current Surplus/deficit ..... -23 -24 -21 -24 -21 1/ Interest and Annuity~........ 12 15 17 19 Depreciation ...,...-..-----...,. 9 9 10 11 12 Profit or Loss ............. -h -47 -45 -52 -52 Ii. Electrical Department Revenue ...................... 35 39 hl h6 48 Current Expenditure ......... 24 27 31 35 37 Current Surplus/deficit. 11 12 10 11 11 Depreciation ................ 7 8 8 10 11 Profit or Loss .............. 4 4 2 1 0 III. Port Harbour & Warehouse Revenue .......*....... 30 27 28 26 30 Current Expenditure 21 22 22 21 23 Current Surplus/deficit 9 5 6 5 7 IV. Posts & Telecommunications Revenue ..................... 43 å6 47 47 50 Curr ent Exp enditure ......... 60 63 65 66 69 Current Surplus/def ic it ..... -17 -17 -18 -19 -19 V. Broadcasting Revenue ..................... 8 7 9 9 9 Current Expenditure ......... h 5 5 6 7 Current Surplus/deficit ..... h 2 4 3 2 / Pemen cf i.nterest wa par?n+.l-y avd Table XIX Analysis of Factors Affecting Money Supply Septenber 30 December 31. 1955 1959 1960 1961 1962 1963 1964 1965 1964 1965 A. Public Sector i. Government C. B. Loans and Advances - 124 164 1,86 1,66 203 183 213 210 238 Government Securities in C. 13. (1) 19 281 514 687 878 997 1,162 1,115 1,148 ,10 Government Securi.ties in Commi. Banks 285 295 297 340 408 430 395 502 152 4'5 Gross Bank Credit 304 700 97 1223 1,2 1,3 1, 18 1 0 1,9 ieductions Government Cash Balance 1/ 146 108 88 110 166 197 203 184 174 180 Cournterpart Funds n.a. 54 50 58 54 70 68 70 70 70 Total 146 162 138 168 220 267 271 25 2144 ?5c Net Credit to Government 158 4'38 837 1,055 1,232 1,363 1,469 1,576 1,566 1,6;,2 II Government Corporations 2/ Commereial bank credit to Govt. Corps. n.a. n,a. n.a. n.a. n.a. n.a. 56 50 34 54 Deductions Time and Savings Deposits n,.a n. n.a n.a. na. n.a, 71 52 65 64 IIl. Net Credi.t to Govt&. & Govt . Corps. L58 438 837 1,055 1,232 1,363 1,h54 1,574 1,535 1,632 Deductions Net msellaneous accounts of C.B. 48 99 118 126 140 154 213 213 212 ?17 Net credit to Public Sector 110 339 719 929 1,092 1,209 1,2'41 1,361 1,323 1,15 (c en].nued1- - 2 Analysis of Factors Affecting Money Supply (Rs. million) September 30 December 31 1955 1959 1960 1961 1962 1963 1964 1965 196. 19,9 B. Private Sector- 3/.4 Commercial bankcredit h/ 296 48 526 516 578 634 746 703 741 732 Deductions Tirne and Savings Deposits 170 299 348 347 397 473 467 536 486 > Commercial bank miscellaneous accts. (net) 28 29 47 61 85 43 39 66 56 6b Total 198 328 395 h08 482 516 506 602 5h2 60i Net Credit to Private Sector 98 156 131 108 96 118 240 101 199 125 C. Net Domestic Credit 208 595 850 1,137 1,188 1,327 1,481 1,h62 1,522 1,50 Change between periods - 25 187 151 139 196 -19 12 D. Net External Banking Assets r/ 804 533 331 224 106 172 68 213 101 175 E. Total Money Supply 1,012 1,128 1,181 1,261 1,294 1,h99 1,549 1,675 1,623 1,716 Change between periods 5- 53 80 33 205 50 126 93 17TIese figures differ from those given in the Government accounts because of difference in coverage, and because of sizeable leads and lags in recording transactions. e Up to September 1962 included in the private sector. I/ Up to Sept-mbor 1963 includes credit to, and time and savings deposits of the Government corporations. E/ Includes :L"_ in transit, / Excludes counterpart funds on the liability side. (L) Includes Government import bills. Soiuice: Central Bank of Ceylon. Table XX Gocmpsitoh- of Tmorney OUPP.Ly (Rs. million) December 30 1957 1959 1961 1962 1963 1964 1965 Total Money Supply 1,046 1,128 1,261 1,294 1,499 1,549 1,716 Currency 438 551 661 698 813 822 901 as % of money supply 4l.9 48.8 52.3 53.9 54.2 53.1 52.5 Demand Deposits 607 578 601 596 686 727 814 as % of money supply 58.1 51.2 07.7 L6.1 h5.8 46.9 47.5 Source: Central Bank of Ceylon. Table XII Source: Central Bank of Cey1c.. Consolidated ABsets and Liabi:Lities of Com-eial Banks (Rs. million) Average 1954-1956 1L95 1959 190ou L-9i 1t2 1O. 14 iz):16 Assets Loans and Advances 353 502 509 544 56,3 564 684 783 850 Govt. Securities 1/ 255 285 284 288 293 317 318 329 329 Treasury Bills 59 14 46 48 64 111 104 94 127 Foreign dxchange .2 109 49 51 56 46 41 33 54 45 Liquid Reserves }f 190 191 195 209 195 280 285 327 348 Liabilities Private Demand Deposits 587 546 609 607 595 628 674 765 803 Govt. Demand Deposits 57 113 62 72 59 126 126 129 132 Private Time and Savings Deposits 158 261 300 364 354 405 468 521 567 Govt. Time and Savings Deposits 22 24 20 9 9 22 31 31 39 Ratios Liquid Assets to Demand Deposits 4/ 58 49 51 57 58 58 56 55 63 Loans and Advances to Total Deposits 38 53 51 52 56 48 53 54 55 1/ Includes securities guaranteed by the Government and issues of the Central Bank. 2f Consists of foreign currency on hand and balances due from banks albroad. f COmnprises cash on hand, balances due from Central Bank and other domestic banks and items in process of collection., // Liquid assets consist Xof s on hard, balances due fremTn tre] Bank, foreign cur:'ency on hai:d, 1alances dre from ranks atbrod, Trevery bi3l aidil b.' i c Table XXII Ownership of Deposits 1/ 2/ 2/ 2/3/ 3 3/ 1958-ý 1959-- 1ý6v- 1e)61- 1e?62- 1963-- 1964-21 1,965-~ Financial Institutions 93.6 88.9 105.3 105.2 122.0 117,0 120.9 122.1 Plntations 15 . '7 1'72. 1 1 1. .9 . 5U 1L00.1 113.0 Trading Firms 59.5 69.8 86.0 105.6 123.2 188.2 207.5 216.2 Other Businesses 85.1h 92.5 90.6 88.2 135.5 121.5 132.7 153.4 Local Authorities 28.1 22.5 23.2 hO.2 31.1 47.7 Sh.2 42.7 Non-Business Institutions 31.1 33.5 37.5 h3.4 55.o 86.9 100.7 76.4 Indiv-iduals 336.9 361.6 399,2 398.7 411.6 hh8.3 529.7 590.3 Total 785.5 841.o 92.9 927.2 1,012.9 1,125.4 1,2h5.8 1,314.1 Demand Deposits 551.9 560.1 587.4 592.8 617.0 662.9 7:27.0 765.3 Individuals 211.8 218.9 24.7 230.0 233.4 2140.7 273.3 308.7 Others 340.1 341.2 3h5.7 362.8 383.6 422.2 453.7 456.6 Time and Savings Deposits 233.6 280.9 337.5 33.4 395.9 462.5 518.7 548.8 Individuals 125.1 142.7 157.5 168.7 178.2 207.5 256.h 281.5 Others 108.5 138.2 180.0 165.7 2127.7 255.0 262.3 267.3 T7 Includes demand, time and savings deposits. Coverage is not identical with that of Table XXI. 4/ September 30. December 31. Sources Central Bank of Ceylon. Table XXIII Cost of Living Index 1/ 2/ . millio Q = inn Average Weights 195h-1956 1958 1959 1960 1961 1962 1963 1964 1965 All Items 100 100.6 105.0 105.2 103.5 104.8 106.3 108,8 112.2 112.5 Food 61.9 1014,8 105.8 10K.7 100.8 99.8 100.9 103.0 106. 107,.1 Clothing 9.4 80.6 87.5 92.1 95.1 103.9 108.2 118,2 127.2 126,8 Rent 5.7 1015 101.5 101.5 101,5 101.5 101.5 101.5 101.5 101.,5 Fuel and Light 4.3 102.3 101.0 102.4 102,7 104.4 105.6 103.0 103.2 100,7 Miscellaneous 18.7 95.9 1L3.1 115.3 117.5 122.8 124,49 126,6 129.3 1283 Domestic Group 51 98.7 109.2 108.0 108,9 112.3 113.9 113.4 116.7 116..4 Import Group 44 101.9 97.0 97.1 93.7 94.6 96.7 102.5 106.6 106. 5 Export Group o 109.8 135.0 153.1 138.4 119,1 113.8E 117.7 115.3 127,.3 1, Index refers to Colombo Town. Figures represent annual averages unless noted otherwise. / The index: is based on surveys of household expenditures of low-income families in 1949-1950. It gives heavy weights to goods whose prices are kept almost constant by the Government through subsidies, price controls or a combination of both and is, therefore, not an accurate indicator of movements in market prices, Source: Central Bank of Ceylon Table XXIV Balance of Payments (RS. million) 196h 1965 1960 1961 1962 1963 Credit Debit Net Credit Debit Net 1. Merchandise Trade a. Exports 1,796 1,707 1,763 1,708 1,767 1,897 b. Imports 2,006 1,794 1,906 1,868 ,959 1,U7i Trade Balance -210 -86 -143 -.160 -192 2. Services & Current Invisibles .61 -.47 -h -50 189 215 -27 186 194 -8 a. Port expenditure; Trans- port &. Insurance 75 73 71 65 105 31 71 103 26 77 b. Foreign Travel -2h -18 -1h .16 6 l4 -8 6 13 -7 c. Investment Income -h -40 -46 -52 11 46 -35 11 33 -22 d. Government Expenditures -l4 -9 --2 .- 25 20 5 27 23 3 e. Qther Services -.23 -23 -23 -17 36 61 -26 31 67 -37 f. Private Rernittances -31 -30 -30 -30 6 42 -36 8 31 -23 3, Current Account Balance -271 -133 -187 -210 - - -218 · - -8 4. Capital Account a. Official Grart s 1/ 53 Il 37 44 76 - 76 60 - 60 b. Long-ter- Liabillties (i) Private 2 -8 -2 5 h 6 -2 2 5 -3 (ii) Official 20 19 4o 75 78 13 64 78 27 51 c. Short-term Liabilities (i) Private -7 14 -1 -h 3 20 -17 10 16 .6 (ii) Official 2/ -.16 h -7 45 91 42 49 +75 d. External Assets¯ 220 . 41 42 56 . - 56 - 89 -89 e. IMF Transactions - 5h 54 1 2 - 2 76 - 76 5, Errcrs and Cnmisson- -1 .31 2 -11. - .. 2 .. Balnre e of Paymnt&s -1/ Includes PLh8o, CARE, etc. 2/ Excludes IMF, which is included in e.; includes net balances on bilateral accounts. Source: Based on data supplied by Central Bank of Ceylon. Table XXV Composition of Exports Averag,e 1954-1956 1957 1959 1960 1961 1962 .1963 1964 1965 Rubber 1,121 1,021 1.,o45 1,096 1,115 1,19 1,141 1,142 1,210 Major Coconut Products 309 300 298 378 260 290 257 290 304 Other Domestic Exports 218 156 24 184 202 227 198 273 275 100 111 1 n[: 117 -10 n)00n 11n 1317 127 Dorestic Exports 1,748 1,588 1,692 1,775 1,681 1,766 1,705 1,842 1,916 Re-exports 80 9h 62 57 52 42 26 3h h0 Total Exports 1,828 1,682 1,754 1,832 1,733 1,808 1,732 1,876 1,956 Percentage of Domestic Exports Tea 64.1 64.3 61.8 61.7 66.3 65.1 66.9 62.0 63,2 Rubber 17.7 18.9 17,6 21.3 15.5 16.4 15.1 15.7 15.9 Majer Coconut Products 12.5 9.8 14.4 10.4 12.0 12.8 11.6 14.9 1h.4 Sub-total 94.3 93.0 93.8 93.4 93.8 94.3 93.6 92.6 93.4 Other Domestic Exports 5.7 7.0 6.2 6.6 6.2 5.7 6.4 7.4 6.6 Domiestic Exports 100.0 100.0 100.0 100.0 100.(0 100.0 100.0 100.0 100,0 Source: Ceylon Customs Returns. TIPtbl-E: -XXVI- Composition of Imports Average (:R illion) 1954-1956 1959 1960 1961 1962 1963 1964 1965 Consumer Goods n.a. 1,203 1,195 972 979 9191/ 1,2'/ 102/ of which Rice 283 242 217 218 250-/ 2831/ 362 Flour 1C6 65 69 89 85/ 1 124/ Sugar 75 79 78 60 125:1/ 1741 842/ Milk, milk products 78 72 66 76 77 94 77 ieat, fish, eggs 99 11.5 77 62 125 74 61 Grains,, pulses, curry stuffs 94 113 113 117 112 139 103 Beverages, Manuf. tobacco 15 1.4 16 5 5 3 2 Textiles 179 196 172 149 83 165 107 Tires, tubes 9 9 7 8 5 4 7 Drugs 32 32 27 25 20 26 21 Other 233 258 130 140 92 110 87 Intermediate Goods n.a. 396 397 383 409 372 41o 4542/ of which Fertilizer 61 58 57 60 68 78 88 Petroleum products 135 124 127 126 119 106 109 CheMicals 39 40 38 48 42 49 39 Paper, cardboard 31 35 32 32 27 35 28 Other 130 140 129 143 116 142 150 Investnent Goods n.a. 389 355 339 337 324 305 296/ cf which Building materials 88 100 89 100 77 93 54 Transport equipment 146 118 100 92 100 58 96 Machinery, other equipnent 155 137 150 145 147 154 111 Unclassified 17 13 9 8 13 10 20 TOTAL 1,495 2,005 1,960 1,703 1,733 1,628 1,897 l,835ý/ Source: Ceylon Customs Returns, Central Bank of Ceylon. l/ Figuies revised in respect to Food Comnissioner's imports of rice, flour and sugar. 2/ Figures revised to include adjustments on Food Commissioner, CWE and Government imports. Table XXVII Index of Terns of Foreign Trade (1958 = 100) Average 1954-1956 1957 1958 1959 2960 1961 1962 1963 19614 1965 Export Prices 110 102 100 104 104 95 93 93 93 05 Tea 114 101 100 99 97 95 92 91 91 89 Rubber 119 115 100 116 130 105 104 98 91 91 Coconut Produets 88 89 100 117 103 80 82 90 93 119 Import Prices 103 108 100 102 102 101 95 1 17 10 Terms of Trade 106 94 100 102 102 9 98 89 87 87 Source: Central Bank of Ceylon. Table XXIIII14 Actual and Projected Exports 1959 1964 1965 1966 1970 Tea Production million lbs. 413 482 503 500 575 ^L,U.o mulion 10s. ou 4jpo W.L> 1U >jo Unit price Rs. per lb. 2.72 2.51 2.65 2.48 2.-0 Ex:,Portk Va.lue its. per lb. 10U15 114;e 1210U J166 1236 Production million lbs. 205 246 261 270 320 Exports million lbs. 206 253 267 262 312 Unit price Rs. per lb. 1.45 1.15 1.14 1.12 .90 Export value Rs. million 298 290 304 293 231 Coconut Products Production million nuts equiv. 2306 3000 2681 2600 3200 Exports million nuts equiv. 1131 1625 1274 1140 1619 Epr thousand cut. 852 1162 819 775 1100 Unit price Rs. per cwt. 60.5 47.4 59.1 57.7 43.8 Export value Rs. million 51 5 L8 45 )48 Coconut Oil thousand cwt. 1389 2351 1738 1600 2250 Unit price Rs. per cwt. 84.4 65.4 83.1 79.5 62.1 Export value Rs. million 117 154 165 127 140 Dessicated Coconut thousand cwt. 1050 1080 1041 850 1240 Unit price Rs. per cwt. 71.5 59.5 79.1 72.2 57.2 Export value Rs. million 75 64 82 61 71 Total export value Rs. million 243 273 275 233 260 Other domestic exports Rs. million 105 137 127 135 150 Total domestic exoorts RA. million 1692 182 1916 1897 1980 1/ 1/ Rounded figure. Source: Ceylon Customs Returns; Ministry of Planning and Economic Affairs. Table XXIX Grnss and[ Nt, Eytprnal Asqspc (Rs. million)JI End of Year 1957 1958 1959 1960 1961 1962 1963 1964 1961 Government Institutions and Agencies 281 280 25 232 22 23 2913 18 56 1 Central Bank 591 539 387 165 169 136 99 1:18 282 Corfmercial Banks 2/ 109 114 102 112 105 102 105 107 92 Balances due to Cylon under various 'Bilateral Accounts 81 n.a. i 27 16 23 15 18 21 Gross Assets 1,062 933 735 536 532 504 1162 351 441 Less: Balances due from Ceylon under various Bilateral Accounts 3/ n.a. 28 n.a. n.a. 22 11 50 116 50 IFT Liability - - - - 54 110 111 113 189 Other Central Bank Liabilities 14/ 3 4 6 1 6 4 3 4 . 3 Commercial Baisk Liabilities 19 26 27 29 29 22 25 25 35 Sterling Loan Sinking Fund 87 95 79 14 91 97 104 146 32 Total Deductions 109 153 112 114 202 244 293 304 309 Npt Assets 953 780 623 422 330 260 169 47 131 (Changes between periods) (.-222) (-173) (-157) (-201) (-92) (-70) (-.91) (-122) (+814) (Sne Footnotes on next page) - 2 .-- Gross and Net External Assets (Rs. milion) 1/ Includes Rs. 1.0 million on account of the balance due to Ceylon from China (Mainland), The rest consists almost entirely of sinking fund investment for sterling loans and domestic public debt. 2/ Working balance only, comprising foreign cur-rency -n hand, balances due from banks abroad, and export bills purchased and discounted, 3/ 1957-60 data are net and include only China prior to 1960. 1961-64 data comprise balances due to and from Ceylon under accounts with Czechoslovakia, USSR, China, Rumiania, Bulgaria, UAR, Hungary, Poland, Iran, GDR, Yugoslavia, Burma and France. 41 Excludes counterpart funds. Source: Central Eank of Ceylon Table XXX Official Grants and Loans (Rs. million) 1960 1961 1962 1963 1964 1965 1966 (estimate) Grants Canada 6 7 8 6 14 15 1 Europe - - 5 1 - - - Sterling Area 1 4 - 6 3 5 - U.S.A. 46 29 24 22 25 25 - China (Mainland) and others - 1 - 9 34 15 1 53 4l 37 h 76 60 15 Loans IBRD 9 17 27 23 15 16 10 Canada - - - 2 1 12 19 China (Mainland) - - - - 5 10 7 Fed.Republic of Germany - - 1 11 4 10 hl France - - - - - 6 1 United Kingdom - - 9 8 6 - 5 U.S.A. 17 6 4 3 1 - U..SR 1 1 5 17 33 23 12 Yugoslavia - - - - - - 20 Cthers _- _ 1 - _& 27 2h h6 68 66 78 129 Total Grants and Loans 80 65 83 112 1h2 138 lh Re-p,--nents 6 5 6 6 25 _) Net Total 7U 7 77 106 131 113 110 Net Total in % of Resource Gap 31 58 .9 59 71 1/ Denotu in.LUU grants and Luans unuer CjmuitvMjy ~A .Lrogr (see \D Table XXXI). Source: Central Bank of Ceylon. Table XXXI Commodity Aid Program for 19651 Country Amount Commodities -(Rs. million) Australia 7.0 Flour. Canada 14.3 Mainly flour and purchase of asbestos fiber. France 2/ 23.8 Not determined. Germany (F.R.) 38.1 Mainly for commercial vehicles and spares, stores. India 20.0 Textiles and curry stuffs. Japan 23.8 Mainly for textiles, fertilizers and comrUciLal veicles an ars u. K. 1( t.o m~ainy raw materials anu macu"ry, fertilizers and commercial vehicles and spares. U. b., 55.2 Flour and animal food (PL L80), drugs, fertilizers and equipment. Total 229.8 1/ These are commitments. Most contracts have been signed from October 1965 to March 1966 and disbursements have started in February 1966. 2/ Uncertain. Source: Ministry of Planning and Economic Affairs.