RESTRICTED

Report No. FE-46

This report was prepared for use within the Bank and its affiliated organizations.They do not accept responsibility for its accuracy or completeness. The report maynot be published nor may it be quoted as representing their views.

INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT

INTERNATIONAL DEVELOPMENT ASSOCIATION

THE ECONOMIC SITUATION

CEYLON

A Background Paper

to

"The Foreign Exchange Problem of Ceylon"

July 13, 1965

Far East Departnent

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CURRENC EQUIVALENTS

Currency Unit - Ceylon Rupee

US$ 1 4 14.76 Rupees

1 Rupee US$ 0.21

1 Million Rupees - US$ 210,000

TABLE OF CONTENTS

Page No.

BASIC DATA

STMARY AND CONCLUSIONS i

I. Recent Trends in Output, Income and Expenditure 1

A. Introduction 1B. Recent Growth in Output and Income 3

Export Agriculture 3Domestic Ariculture hFisheries 5Manufacturing 6

C. Income and Expenditure 8

II. Financial Developments 10

A. Introduction 10P- PilAir Vinann- I10

C. Balance of Payments 13

III. Growth Prospects 17

A. The Export Sector 18

Agriculture 19

Conclusion 21

BASIC DATA

Area: 25.332 square miles

Poulation (mid-196): 10.965.000

Rate of Lrowth: 2-6 - 2.7% n.a.Population density (per sq. mile): 433Ponulation density (per so. mile of

arable land): 1,100

Gross National Product: (1964): Rs. 7,540 million

Rate of growth (1964): 4.5%

Real Income growth (1959-1964): 2.1% p.a.GT yow Pan4+n. TM^Ill A .nn4rml a +

official exchange rate.

IJ.L IVI"UllLj LL4 I UtI 116LU." LUIt L44

Manufacturing: 8Cons ruc tion: oPublicAdXnUstration 7

MiscellaneousServices 35

Percent of GDP at Market Prices: 1964 19y-1yo3

GrosS inves-tmente****e o o*ooo*** 13 1>GrosS Savings ........................ 11 13Balance of Payments Current

Account Deficit ............... ... 2 2Investment Income Payments............... less than 1 less than 1Government Revenue .................... 23 22

Resource Gap as % of Investment: 15 13

1964 Average Annual Change(Rs.million) 1959-1964

(in % T)

Total Money Supply..................... ......... 1,624 6Time and Savings Deposits .... 0*......*..... 551 10Bank Credit to Public Sector ..,............. 1,815 20Bank Credit to Private Sectore................ 770 9

Rate of Change in Prices: 2,0 1.5(Official Cost-of-Living Index)

(Continued)

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Public Sector Operations 1963/64 1958/59-1963/64(Rs.miUion)

Government Current Receiptsueo.... 1,611 5% p.a.Government Current Expenditureoe.... 1.611 6% p.a.Surplus or Deficit............. . - 3 Decline of SurplusGovernment Capital Exenditure...... 503Total Ekternal Assistance to

Public Sector (net) ......... .. 97 18 pa.

Balance of Payments (in I.St millinn): 1oA, 19o-1oA)

Total------ -- 1 7A

Total Imports .................... 1,9#8T- TnvicAhlao - 'I-

Net Current Account Balance...,,*.. -221 -2% p.a.

1964 1959

Commodity Concentration of Exports., 93% 940

1964 1959ILII UOJ 4) Mi L±.01J

Grs Foreign us (4Net Foreign Exchange Reserves,*.... 10 131

(or 10 days' (or 4 months'imports) imports)

External Financial Assistance (in US$ million): Average1964 1960-1963

Total isbursements.eoq@*****9* *** 30 18

Grants.o...............o.** *ooo 16 9

Loneooeeoooooo*oo1ooo 14 9

Major Donors

United States.................. 5 83 2uana ....o .o *e*.o *************** e 4

United Kingdomaqoq9****oe*o9***e 1Fed. Z .p0 oaf Ge.. y... ....a*&.**1 0

Ciii coL* o**o eoo**********ooe *oA

7 1* - 1

SUMARY AND CONCLUSIONS

1 romnnts P.rnnriin nrformann mst he annrnised anainst the

background of an economy in which a productive export agriculture providestih he n fnw nnA mf hJko h4ahow nirn -ntame levels 4n Aca tlhO

but where, because the endowment with natural resources is poor, achieve-.ne.-t 0"' ad-0-a grX-WAW-h de-IMMd a 1L4g1, degre of..n AllgeC 4 6n t4he 11Se Of

resources and limited administrative, managerial and technical capabilities,

of total output has been slow despite substantial investment and impressive1%VC0V LLu 17$ 1UUUo.LU eULI UXjJV-po UrI1U.u1U* moriovej Uuv'ereU

movements in terms of trade have aggravated Ceylon's problems of slowgrowtun income has not kept pace with the rapid growth of population,and Ceylon found it difficult to live within its means.

2. Total expenditures, spurred by large fiscal deficits resultingprimarily from mounting outlays on social services and subsidies, have runwell ahead of income and population growth. For several years, heavy useof foreign exchange reserves supplemented current income, but in lyb Ceylonreached a reserve position where it could no longer afford a liberal importpolicy and further loss of reserves, Import and exchange restrictions weretightened severely but reserves continued to fall, although at a slowerrate, and short-term liabilities increased so that by the end of 1964the foreign exchange holdings of the Central Bank were equivalent to threeweeks' imports and more than offset by short-term liabilities, Withcontinuing internal financial instability the tighteaing of import andexchange restrictions led to domestic inflation, It .s unfort unate thatnow, at, a time when it is impossible to reduce reserves furth3r, Ceylon'simport requirements have been increased by a failure in the domestic ricecrop.

3. Solutions to Ceylon's financial problems woild.be easier if therewere prospects for early improvements in exchange earnings and domesticoutput. Substantial improvements in exchange earnings, however, are notlikely., Export output will probably continue to rise as tea yields maintaintheir upward trend and production of rubber increases with immature treescoming into bearing. But adverse price movements for rubber and coconutproducts are likely to cancel much of the gains in output. This emphasizesthe need for a substantially higher rate of increase in output for domesticuse. esDecially in import saving food crops and manufacturing production,Particvlarly in view of the rapid rate of growth of population. It shouldbe nossible to aintain the record of increasina ricn nrndtion which isalready good. Hanufacturing may grow somewhat faster than in the past.Thepre Are nlnnnnruite for sm-pani4gc +1im Pii1+.4-tr+Ar%nr% fsubsidiary foodstuffs. The fact that Ceylon has a population that is highly1i+Prnt.P Rhnl fM414+_n fh1nin% 4n fuikmnnvr yn4cA +4mn4a

4V'

agriculture and entry into new fields of activity. However, the extent torrhih +hese opnwft,4+4oe w-.411 I- -'a14oA 4e -o4 1r .- e 4-6. .l.411 AnA

decisively on the G6vernment's ability to improve policies with regard toa" LPCLVJ._L.Yj9 VIL V 0 J.L 1~ULL~ LIU WIWi I"L.UL Q.L LIIV01Z ~1OJ-j ,U

THE ECONOMY OF CEYLON

I RECENT TRENDS IN OUTPUT, INCOME AND EXPENDITURE

A. Introduction

1. Ceylon's economic performance must be appraised against thebackground of a dual economy in which a large export agriculture supportsone of the higher average-income levels in Asia - roughly equivalent to$140 a year - but where conditions in both the exDort and domestic sectorsare difficult for achieving adequate growth. Shortages of administrative,manaeerial and technical canacities are narticularly serious because Ceylon isnot rich in resources that can readily be exploited. Practically no suitableland In left for the Panian nf Pnnrt Aarnulture. There is new landfor domestic agriculture in the island's dry zone but bringing it intoriilftivnfii nniT---: *I+J i1 QnInfinn-m ho fniinti fnrn nirnhr nf~ ;4oi niflt.,iral

and intitutional problems and substantial funds be made available fornecessar3, r ~-iia xeA+i~.As egrd +.'hufactur±ng.. th r%an open; economy long precluded the growth of industrial entrepreneurship.WMreovUr C7ieln lak vlbroad bkaQe of -1-dig-nous rwmter-lals and itsdomestic market - now 11 million peaple - is relatively small.

2. These obstacles hampered economic progress all through the 19501s.A14-U--1- _u _u. -if,c5 _x mn w.-- u-.vu4-u L- -uve--w v -uvl- -4w u -n_LLUU&L .LUUUt L , /O V.L U111- WcLO UWVLAWU LoV L1V JV 41I~Loy U.JLsLLLP &.L VW VJL"4y CLL

an average annual rate around 31. Pressure on resources intensified aspopulation increased by 2.8% a year. New employment was insUfLciet:.In these circumstances, Ceylon, under a Government pledged to improvinglving standards, found it dificult to live wihna its income, Foreignreserves were used increasingly to escape the limitations of slow actualgrowth.

3. The problems and developments of the early 190's are not basicallydifferent from those of the 1950's, except that ample exchange reservesno longer exist to supplement current income. With the depletion orreserves and the consequent need to curtail imports, Ceylon's problem ofinadequate growth of output became increasingly serious, However, 11ttlewas done to bring this problem closer to a solution. In fact, gross fixedcapital formation declined by 4.3% between 1959 and 1964, and its sharein total resources fell from 12.5% to 10.6%. Although, as will be discussedbelow, insufficient investment does not seem to have been the cause of slowgrowth in the past, it was certainly unfortunate that investment declinedat a tine when the growth of output urgently needed to be accelerated.

4. Fundamentally, growth has been slow because investment has yieldedpoor returns. Over the last five years, gross fixed investment has beenalmost five times the growth of output, indicating unusually high capitalrequirements in relation to output. For the domestic sectors alone, i.e.excluding export agriculture, the relationship between investment andadditional output is even more unfavorable. Moreover, it would appearthat the increases in domestic output that were attained, were not altogetherattributable to investments.

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5. Analysis of the use of investment resources provides someexplanation of the poor returns. First, investment in fields outsideexport agriculture - roughly Rs.850 million a year - contained a fairlylarge element of spending on social services and general administration.In the Government sector alone, this amounted to more than Rs. 100 milliona year, Private housing may account for another Rs.150 million a year tobring total annual investment in social and administrative fields to an-amount exceeding Rs.250 million, or nearly a third of non-export invest-ment. Secondly, investments in infrastructure, including transportation,probably accounted for another Rs.150 million a year. Some of theseinvestments (probably much of the railroad outlay) were not of high priority,while other public works, such as maintenance and improvement of roads,were neglected. The usefulness of large investments in the Port of Colomboin relieving congestion was reduced by chronic labor and organizationaldifficulties.

6. The balance of annual investment amounts to Rs.400-450 million.Of this, ronghlvy. Rs.8 m411ion wen+.into nrivate transport, includingtrucks and tractors. Thus, Rs,320-370 million was available for investmentin output of final products, Over L.% of this was public investment. nland development and irrigation which produced few additional acres andittl+ e44+ ddiiona oui+tut. With beter organzation and fewer' amenities tothe settlers it might have been possible to develop considerably more acresat the same total cost, and. returns~ might have been much improved wirth adifferent crop pattern that did not reserve exclusive water rights for paddy.

imported machinery and equipment, buildings and other construction. Included

only limited contribution to growth, because of managerial and technicaldiffictities and cuse unrelistiLclly low seln price L.understated

the real contribution to output.

7. There can be little doubt that a relatively high capital outlookratio i.s inherent in Ceylonis poor resource endowment. Two conclusions canbe drawn from this situation: first, that even with most efficient managementof investment resources, Ceylon has to mobilize a relatively large share oftotal resources for investment in order to be able to raise average incomessignificantly; secondly, that efficient management in the allocation ofinvestment resources and the use of investment made, is even more importantin Ceylon's circumstances than in other cases where the resource potentialis better. As regards the first requirement, Ceylon's performance has beendeteriorating in recent years and this trend will have to be reversed.However, it is in the management of investment resources that Ceylon's recordhas been poor indeed. Rather large amounts of investment went into fieldssuch as railroads, land development and irrigation, and some Governmentindustries where they made little contribution relative to the resourcesinvested. At the same time, some promising possibilities in tea processing,import-saving agriculture:, fishing and private manufacturing were notexploited nearly as much as might have been possible.

B. Rennnt Gr(owth in Outnut and Income

8. fntnut in rennt vanrn has nntinned to rien at the sIow averaenannual rate of a little over 35. The growth rate in 1964 was somewhathighr_ Hnwver, for the novid 1 -A, + wnvno "n+= ua g r e s proay Tno

more than the pace of the 1950's. This is a growth pattern which can neitheradd s4ci-i-nf4 y+r to pe+-Un an 7-+11+ 5s 0 vc 4 nea nnia r -

Moreover, declining export prices have taken nearly one-third of this limited

grew by only 2.1% a year after allowance for adverse changes in the terms%AVL 4IQ~ .1"sL 11~ nL L "A.L IVV1 L4ALJ.LW UtJ.VWO

La 1VUts.LUL_ AlUU11V

(Rs. million)

1959 1960 1961 1962 1963 1964U. ross National roduct at Constant1959 Factor Cost Prices........... 5,854 6,078 6,260 6,493 6,620 6,919

2. Terms of Trade Effect due to Export of:(i) Tea ***** *************** -26 -39 + 2 -13 _L57(ii) Rubber.,,.....,,.............. +39 -25 -14 - 56 -94(iii)Coconut Products............** -33 -ll -96 - 79 -105(iv) Other Products................ + 6 +1 + 5 + 6 + 9(v) All Products.........0........ -14 -173 -102 -262 -346

3, Gross National Income at Constant 1959Factor Cost Prices................ 5,854 6,064 6,087 6,391 6,358 6,572

(Source: Central Bank of Ceylon)

Export Agriculture

9. Export agriculture, except perhaps coconuts, is the economic sectorthat is least handicapped by shortages of managerial talent or skilled super-visors and field workers. Considerable gains in output are to be had fromreplanting and improvements in cultivating techniques with respect to allthese crops - tea, rubber and coconuts. Therefore, opportunities for expansionexist in this sector despite the fact that little new land suitable for thesecrops is available. However, conditions on the world market limit the extentto which gains in output can be translated into increases in income. Between

1959 and 1964 net output rose by nearly 20%, yet income rose by only about 3%because of declining prices.

10. Output of tea in 1964 was roughly one-third higher than in the mid-1950's. This increase was almost entirely due to better technioues ofcultivation, including the use of more fertilizer, which produced yields thatin the past were believed nossible onvl after replantine. It is. thereforenot surprising that investment in replanting was small , particularly asnlnnt+.Pr.s YTPT-.- ?n^,fu f 7a%e-c4hloc n3+4^vn14.c4n^n ^-P na+n+ c TmTrr,c+"n"+

in tea plant and machinery has also been small, perhaps less than half theamount ran1Med + expand -tes i+nlinn fwto414+4to ut 4. o4+'s at++o++previously unused capacity and more economical use of facilities helped over-Conn 1. ; a ~ 'L 4..Ar +'k VJ n. 4- But ther -"I con Ide.LW co c r nowJ 1AiLL.LA.A 4LL.L 1i.LA. 4I -IA, LI I

-4 -

the industry and the Government, that the quality of tea will decline,if it has not already beann to do so. unless substantial investmentsare madle. The industry contends that high taxation does not leavesiiffinipnt invAstmpnt funds. In 1964. production was lower than in the

previous year for the first time over a long period. Unfavorable weatherwas an import+Pntfacoi- in the dnlin_ Ruit. thern wprn also other Droblems.particularly a developing shortage of fertilizers and other chemicals,reflecti ng t he +4Ihtn"4ng ofP 4ynynv-t trto ns, l andp.r-.i.qt.nt vpaknessin the market for low grown teas, aggravated by virtual cessation of exportsto Iraq, rveylon's pr"ncipal customer 4I n e nT- V.c+ in .hp Inrt quartpr.

following nationalization of the Iraqui tea trade.

11. Rubber output, which remained for several years between 95,000U.K XVI VLI.', V II aQ11 JtLIt±A V9:2 W.LU.CWII LUL-.5 I_UJJaAIU.LL16 WJ.IL

varieties, has now begun to climb as replanted acreages matures. ProductionJ11 7V44 Wa LD "cUUV1 Li&Vf.Lv LU .U VIAn LZaLW L7,VO*o Le nLUJ.U LuJuuu

to increase as a result of the impressive replanting record. The subsidizedreplan,Ung program nas raiseU ue area now planteu wih high yieldgmgrubber to more than 40% of total rubber land. The program has been extendedfor another five years with an increase in the subsidy per acre.

12. Average coconut production in 1961-6 was substantialLy abovethat of preceding years, 1964 in particular being an excellent year due tofavorable weather conditions. There have also been some improvements underthe Coconut Rehabilitation Scheme which provides for the subsidized distri-bution of fertilizer and high-grade seedlings. Fertilizer use now coversabout 27% of total acreage. About 10% of the acreage appears to have been re-planted in the last five years.

Domestic Agriculture

13. The island's dry zone offers the only opportunity for enlargingthe cultivated area on a large scale. The traditional approach to theutilization of this potential has been irrigation works and colonization,based on paddy, but achievements have been commensurate neither with thesubstantial investments nor with Ceylon's needs for expanding output andemployment. Even in paddy, towards which most of the effort was directed,only about one-third of the increase in crop acreage can be attributed tothe Government's irrigation and colonization schemes, in which roughly one-fourth of total public capital outlays has been invested annually.The increase in output of paddy from this investment has been calculatedat abouit one-fifth of the additional food requirements which resultannually from the increase in population. These poor results suggest theneed for alternative means of developing the dry zone.

14. Nevertheless, impressive increases were achieved in paddy product-ion between 1954-56 and 1960-62 when output rose at an accelerating ratewhich averaged 6% a year and reached almost 9% towards the end of theperiod. Floods and drought kept the gains in output to 2-3% a year in1963-1964. The 1965 crop was affected by even more severely adverseweather conditions and output is likely to be consIdArqhly less than inpreceding years. However, these are temporary setbacks which do not detract

from the impressive gains that were achieved. Increased acreage, mostlyoutside the Government schemes, accounted for roughly half these increases,The-bulk of additional paddy acreage was from gains in double croppingand additions of marginal land that were partly attributable to sufficientrainfall in those years and partly the result of more economical use ofwater from existing facilities. An important factor in this iMprovirguse of water has been the rapid spread of tractor plowing, mostly onprivate contract, Increases in yields were directly responsible for theother half of the increase in output and were brought about by spreadingadoption of the high-yielding H4 rice variety in the dry zone and welldrained parts of the wet zone and a sharp rise in the use of fertilizer andweed killers and other improvements in cultivation. However, it is wellto remember that despite the increases in home production of rice, more thanhalf of Ceylon's requirements still have to be met by imports.

15. Subsidiary foodstuffs, mostly curry stuffs, onions, pulses andsweet potatoes - are grown in upland areas. princiDally in the dry zone.Shifting cultivation is dominant. Crops are dependent on rainfall andlittle fertilizer and hardly any imnroved varieties are used. These subsidiaryfoodstuffs are produced under conditions that are not conducive to achievingmarked increases in outout. In fact. oroduction of these commodities annearto have been stagnant over the last several years, involving Ceylon in largeand increasing exchange navmAnts for imnort-s nf subsidiary fordtffs._

16- The prodhuction mf suar isq tecial yr p.roNmiimrlna starqyt,was made several years ago in planting sugar cane on Government-ownedn1nAnin. \eflllina nnrunityi e%f' 9r) 000 +nnQ ra-Q+onh hitcerd WnT.Tvr -

the project has run into serious organizational difficulties, includingnrnViloyn.q ^f nni-r ie7 ni nroin+ A hn v C^'t In n +I. - ^n- n 4-,~ll

If- - _------ - _ 'J t - f- e -- J.A. - -1 C... 1~- - - 1AJharvested was sufficient only to employ 10% of installed milling capacity,Irn contrast,cz prgr- to ----~- -'-"- -' 4- -' tywith considerable success and the country is now self-sufficient in thesePprn o d,- nt -

10 1:.LIAJ.L~ IiOV A=v cL "6VJJUVL1.L a_LdL ±JVL LUL L11ML r,.LVWt111 L1"_U,LLU L-LDIL"Ir

by small, mechanized craft within the continental shelf, by trawlers mainlyin Uh fishing baUns to the northeas and northwest of the isUand, ana bydeep-sea tuna boats in more distant waters, Fish production has increasedconsiueraly l recent years, This creditabe acievement is attributacleto the mechanization of small craft with Government financial assistance,the entry of organized private enterprise into the industry, and the acquisit-ion of new equipment by the Government Fisheries Corporation. Further develop-ment of the fishing potential will require a substantial investment in shorefacilities as well as fishing vessels and equipment. Development of the shoreand port facilities has been slow and poorly organized but is now beingimproved, and the government-owned fisheries corporation has an ambitious10-year plan to develop all aspects of the industry,

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1anufacturing

18. Manufacturing has so far been a relatively small factor in totaloutPut - now about 7-8% of gross domestic product - and employment. Thisreflects the obstacles to rapid development of the industrial sector:thA dnnstic market is small! entrenreneurshin and manaeerial exDerience

are limited; few industrial raw materials are available domestically; the

difficult labor relations, 1oreover, the Government that was in power

development through private enterprise that greater participation by thepublic4 sector wa ,-cn -1oAl + resmyezri fry -r +cz, f ++o

manufacture of such basic materials as steel, cement, petroleum products,-pe-*U 4J Qer an pa er .It ca'lco ngge J.~ &A V IA L.J. .&l

ceramics, oils and fats, shoes and other leather products, sugar, plywood,U..L Q : LL V.&A -Q (2AAU %a4A1J .L_O* £ kL-.L .aV4W %;14VV .LL.V Vj" cw V"UVV US.J % --±

in all fields except the production of basic materials, but private initiativewas i,&ry o.L c1langesV -J.nGv.LI OLLU Ju.LJA'y wiuU "J. 1.L Ld4-.LL1gA LO.L.v JUUJ.LJ-. kL%,

in manufacturing.

19, As regards private manufacturing, the most important singledeterreO untU 1961 was prouably tUE lacA of reasonalUe protecU fromimports. This factor was renoved when, beginning in 1961, restrictionson manufactured imports were tightened in order to conserve 1o1eigU exchange.At the same time, the Government began actively to promote private manufact-uring development by granting, upon application, tax concessions andallocation of foreign exchange for raw materials and machinery to approvedventures. These changes in policy produced a rush of applications mostlyin light manufacturing on a fairly small scale. Many applicants wereformer import traders whom the import restrictions left without access totheir traditional sources of supply. However, approvals for new ventureswere granted in a rather indiscriminate manner and many ventures wereapproved - and thereby automatically given import licenses - without dueregard to Ceylon's tight balance of payments position. As the shortage offoreign exchange intensified, it became apparent that the requirements ofthe private sector for the import of raw materials and investment goods couldnot be met. In 1964, private sector imports of such goods fell. Althoughthe imediate effect of these restrictions on imports on production appearto have been nitigated somewhat by drawing on stocks, it was evident inearly 1965 that industry was running well below capacity. In some sectors,such as the engineering trade, output was probably only 30% of capacity,as compared with 60-70% for the industrial sector as a whole. The slumpthat has overcome the industrial sector 3s also apparent in the fact thatdemand for power has ceased to increase.

20. These problems related to Ceylon's foreign exchange situationapart, it would appear that the manufacturing sector expanded significantlyover the last five years. Investment is estimated at Rs.350 million duringthis period and value added by manufacturing doubled. Not all of the invest-ment and the additional production was in lines to which one would accordthe highest economic priority, but it is encouraging to note that for thefirst time in Ceylon's history a rapid expansion of manufacturing took place.

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Moreover, the advance cccurred on a broad front of light manufactured goodsfor consumption and included such diverse products as biscuits, garments,miscellaneous chemicals, paper and metal and rubber goods. Production ofinvestment goods also increased considerably, but it started from a verysmall base and in 1964 accounted for only 10% of total industrial output.These developments suggest that. if the problem of insufficient foreignexchange can be solved and the Government establishes suitable policies,particularly with reeard to the proper direction of industrial development.industry will continue to grow,

21. Around 70% of present industrial production is in the privatesector- Tn the nublic sector some industries date back to World War IT.but most of them have been established since the mid-1950's By 1964Rs_24 million had hnn invested in the 12 mainr niblin nornornations_They have at best a mixed record, Some of them, e.g. the Cement Corporation,haven hoon Ri nO wcall * n+.her.5 anirh as t-he enwadam nd nlyni ea,rrrcirnovvatioAnshave recently been improving. Yet the majority have been troubled since

terinception by, jndn,t econom ic a _1~ -il-~~ oxx ~facilities, and weak management, as a result of which they have been operatingfar b e.r ^nnia+,r AAAI4" + + an.4110 +ha* n h ra k n e+-"n Iv 1-^" c+4c

pressures for excessively low selling prices by government-owned industrialwhihalag n o. "LIVLfthn inVcu.LLALA ojWLr made insigfc.an p O. f.4.

which a large number of them incurred losses or made insignificant profits.

C. Income and Expenditure

22. Over the last six years the economy appears to have passedthrough a period of rising consumption, and falling capital formation andsavings, which reflects the government's own tendencies in the samedirection. The essential magnitudes are shown below:-

Resources and their Utilization,99-6h(Rs. -ilionT

A. Resources 1959 1960 1961 1962 1963 1964 1959-64- change

GDP 6,457 6,625 6,757 6,920 7,064 7,561 +17.1Imnorts 2.176 2.209 1.972 2.070 2.031 2.036 -4.1

TOTAL 83 , T3T 8;729 8,90 9,647 +11.7

B. Utilization

Frivate Consumption 4,678 4,991 4,849 5,010 5,184 5,641 +20.6Fubli CRonmptin 881 911 9 7Q 1 011 100 +937

TOTAL 2,559 5,902 5,773 5,990 1 731 +21.1

Frivate Capital

Fublic Capital

TOTAL 1,059 921 1,047 1,030 999 982 .7.3

Exports 2,016 2,011 1,907 1,971 12903 1,933 -4.1

TOTAL 8,633 8283 8,729 8,990 9,095 L +11.7

23. Between 1959 and 1964, resources available to the economy fordomestic use - consisting of gross domestic product and net imports -increased by Rs.1,100 million. This increase was derived solely fromhigher domestic production; net imports remained unchanged as reductionsin imports and exports offset each other. The rise in total consumptionexpenditures exceeded the increase in resources by Rs.75 million and therewas, therefore, a corresponding decline in outlays on capital formation.Disregarding 1960 when special factors, such as a record inflationarydeficit of the Government, caused consumption expenditures to rise steeply.the trend towards a larger share of resources going into consumption and asmaller one to investnent was fairly uniform throughout the period. Itreflected the policies of the Government which were directed towards raisingthe standard of livinLy - an objective which in the absnce of adqnteeconomic growth throughout the economy it sought to accomplish by redis-tribution of incomp* throniah tapnt.inn on +.he one hand on +he other bysubsidies and transfers.

24. The consequence of the increase in consumption was a decline inthe savings rate from 14% in 1959 to 11% in 1964. Most of the declineappears to have occurred in the private sector, suggesting that the largeincreases in taxation, particularly of the higher-income groups and corpora-tions, were achieved to a considerable extent at the expense of privatesavings, while simultaneous increases in current expenditure prevented acorresponding rise in Government savings. As investment outlays declinedby roughly the same amount as domestic savings, the resource gap - corre-sponding to net imports - remained unchanged, comparing 1964 with 1959.In absolute amount, it was not large - around Rs.150-160 million or 30-35million - but as the net inflow of foreign capital was considerably lessthan this amount. Cevlon had to draw on its exchanae reserves. In thecourse of the five-year period, these were depleted.

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II. FINANCIAL DEVELOPMENTS

A. Introduction

25. Financial developments in Ceylon between 1957 and 1962 providealmost a textbook case of the consequences that follow from successive

lara ilections of purchasing power in circumstances of sluggish growthin real income. Beginning in 1956/57, Government deficits moved up rapidlyto a nIntmn whpre thev corresoonded roughly to 7-8% of GNP. They required

financing through bank credit equivalent to 4% of GNP and net domestic creditjimped at an aveane rate of rA n v.qr- As Cpvlon maintained an open econ-

omy until 1960, this expansion in purchasing power became translated largelyinto akitinn-ni Amnnei fry imnrt. In fnnt- the arnount of Rs.1qO million.by which annual imports in 1957-62 were higher than they would have been ifimnnit. rmnl hnAd arnAuin linn iit.h innenmp. myih1v narrR.nond to the

amount by which the rate of increase in net domestic credit exceeded therat of4 - ".-n - i~!~ otpu~it e-pv_rv -ticpejnd AZ fn-rian APPPf. wpp

used largely to finance these additional imports, money supply increased

end of 1962 it became necessary to impose increasingly severe import restric-4-4o.'J , V1, -f P4 - 4- q1;f - +^.J +I-O. .LdtA~.L. ~ 4L. ~ ~ A 'U 4~ rL.

as money supply rose substantially. The actual extent to which price increasesLiav take placeL in±d the U l as~t~ UjW U IU LI11te yt d±: JU21L- J UL.L;aJU.LVA UU Ut: IUU±ILAL4UO

It would appear that for the great majority of the population the cost of_Lving nidZi execuony mouerately, mainly because most stapLe foous are UlUthrough the Government at subsidized and controlled prices and because importsOf basic consumer goods were affected much less, if at all, by restrIctions

than semi-essential or luxury goods. The exceptions among basic commoditiesare the free market prices or certain rationed goods, such as textiles, whoseprices have risen considerably. As regards goods outside this basic category,their supply has dwindled to such small amounts that prices are no longermeaningful,

B. Public Finance

26. The basic trend in public finance in recent years has been one ofrapidly increasing current expenditures, stagnating capital outlays, andincreases in revenue roughly parallel to total expenditures. Thus despitestrenuous and successful efforts of raising additional revenue, which broughtits share in GNP to 23%, the overall cash deficit of the Government remainedalmost unchanged at a level around Rs.400-450 million - equivalent to nearlyone-fourth of total Government outlays or over 5% of GNP. The current surplusalso changed little, except in 1963/64 when it became negative, but declinedin relation to total revenue. Some progress has been made in reducingdependence on expansionary financing, mainly because of increased absorptionof Government securities by state-owned savings banks, the insurance corpo-ration and provident funds. However, in effect this meant that less privatesavings were available for financing private sector activities which cnnRe.-quently became more dependent on net bank credit expansion. Thus overall,little oroaress towards re-establishing financinl sthj1ity wn achieredRecent performance has been as follows:,

- 11 -

Government Finances(Rs. million)

1958/59 1960/61 1962/63 1963/64 1964/65 Est.

Current Revenue 1,248 1,457 1,588 1,611 1,700-1,725Current Expenditure 1,157 1.382 1,480 1,585 1,550

Surplus 91 75 108 26 (155-175)Losses by govt. enterprises -42 -33 -36 -29 -25

Current Surplus 39 72 -3 130-150Canital Exnenditures h93 519 496 503 550

Cash Deficit 1/ -420 -392 7- 2 (-350-400)

Financed by:

1) Non-expansionary 179 221 213 302 '35EAYinia+."aive horrmaing 97 29 -3h -1 20

M1arket borrowing 109 165 154 206 210Foreign loans 36 A4 66 ),('1 / 105Foreign grants 7 13 31 32 )

2) Epansionary 241 242 178 160 (40-60)D1U'IUWLUr LI-I LJOIL M -L~ 7 L4 1'

Use of cash balances 62 -- -- 45 --

1/ Adjusted. (For details see Appendix Table XIII . )

27. Among current expenditures, outlays on social services as wellas payments for subsidies, relief, pensions, interest on debt and similarpurposes (transfer payments), which reflect -the Governmentis socialpolicies, were the most expansionary itcis. Current and capital outlayson social services now amount to yn of GNP. Transfer payments andsubsidies total around Rs. 525 rdllion, or a third of current expenditurcsand account for moro than half the cxpenditure growth since 19o-59.

28. The largest subsidies are the cost to the Government of the riceration scheme, a legacy from World War H1 but since then vastly expandedas a result of increases in popla-ti-otand domestic production as well assuccessive reductions in the ration price which is now at about half thelanded cost of imported rice. This means that the Government takes aloss of about 50% on imported rice, which covers two-thirds of requirementsunder the ration scheme, but loses about 70% on sales of domestic ricewhose support price is about 80% higher than the landed cost of imports,Any increase in the proportion of requirements met from domestic production,as was made possible in recent years by growth of output and expansion ofstorage facilities, increases the cost to the Government disproportionately.

- 12 -

Gross Food Subsidy Payments(Rs. million)

195b/59 lyo/l 1905/OW A PIou

Imported Rice 91 133 125 129

Domestic Rice 140 226 283 296

Other Costs 20 25 29 38

Total 251 384 437 463

29, Ceylonts Government budget with revenue standing at 23% of GNPand expenditure somewhat higher is large in relation to national output.The Government has been able to achieve such a high level and fairly rapidincreases of revenue mainly because foreign trade is large relative toGNP and highly organized so that tax administration is greatly facilitated.These advantages have been steadily Dressed and it would appear that theyhave been fairly nearly exhausted. In fact, present rates of taxation onexnorts seem to have ;ffented adverse1v investments in certain fields ofexport agriculture and some relief may be necessary to remedy this situation.Mnrover- foreign trade as a whole is likely to rise only slowly over thenext several years. In view of these limitations, the Government willnrobbhly find it nonamry +.n 1)rnnHen +.hp tAv ban in order to 57nure

further substantial increases in revenue. Efforts in this direction haveso far n~ot been SucceSSful, largeplyfr poliic" p%-nnnf -P~ 'n" +'HM

introduction in 1963 of a general turnover tax whose revenue however is'.'J..L ... U- 0114CA."oL JL~ Q LJj 1 0 j VLV CAL IA4Q~V.1. K, V w A 4.".L VL1U.L Q " VvILi'.'..L.

increases in revenue would be stricter control over the expansion ofUCYO liUu JLU.LLr, L.L'IIL CLI VV11LL VuvLumUa vew, UL amoUrnaVivV

would be preferable.

30. The broad aggregates of the budget for 1964/5 are shown in thetUl aUve, reviseU to take account Of a proable Shortfall In vaptalexpenditures, which in the original estimates were estimated at Rs.648mlli"on. rart of this shortfall is due to a revision downwards of Uelikely foreign aid receipts. Current expenditures are likely to be lessthan originally estimated, and have been revised in the table. Thisshortfall is caused largely by the likelihood that the fall in foodsubsidy payments due to the failure of the domestic rice crop will morethan offset the additional expenditure arising from drought and cyclonerelief.

31. It is therefore likely that the Government's cash deficit in1964/65 as well as the need for bank financing will b6 considerably lessthan in previous years. After two years of stagnation, revenue is expectedto rise considerably. Partial failure of the rice crop will ease the subsidyburden and other current expenditurus will not rise much. As a result, arecord current surplus of Rs.130-150 million may omerge (budget estimatc:Rs.200mill.). Assuming that capital expenditure may actually amount to Rs,550 million

- 13 -

and that foreign aid will be slightly above the 1963/64 level, it willprobably be necessary for the Government to seek expansionary finance ofabout Rs.40-60 million during the financial year. This amount exceedsthe budget estimate, but it would constitute a significant improvement overrecent years.

C. Balance of Paymeft

32. In the years 1957-1962, prior to the imposition of strict importcontrols, annual import payments were, on the average, Rs.370 million or25% higher than in 195h-1956. while export earnings were Rs.75 million or

o4% less., As a result of these sharply divergent trends, the balance oncurrpnt account shifted from nn annual surplus of Rs-210 million in 19514-56to a deficit of the same magnitude in 1957-1962. While in the earliernpriod Cvlon had added ahout R.q-200 million a year to its exchance reserves,it drew on them by Rs.150 million a year in the later period. Since 1962,imnort and nnyments rctrictions nrevented increan in imnort nnympnts. but

as export earnings continued to stagnate, the current account deficit remainedaround Rs.200 million. Reutosin Ce ylorn Is net+ exchnae rrves -were

somewhat less than in previous years, because foreign capital became avail-

Ceylon could afford and by the end of 1966 net reserves had fallen to an

(Rs. million)

195h-56 1960 1961 1962 1963 1964

Exports 1,769-. 1,796 1,707 1,763 1,708 1,765Imports 1,481 2,006 1,794 1,906 1,868 1,948

Trade Deficit/Surplus 315 -210 -86 -143 -160 -183Current invisibles -101 -61 -47 -44 -50 -38

Current Deficit/Surplus 214 -271 -133 -187 -210 -221

Financing (net)

Official grants 53 41 37 44 76Official long-term loans 20 19 40 75 75Official short-term liabilities -66 44 -7 45 53External assets 220 0 41 42 56INF Transactions - 54 54 1 1Private Capital Movements -5 6 -3 1 12Errors and Omissions -1 -31 25 2 -8

33. The disappointing performance of Ceylon's exports since 1954.1956reflects the successive effects of staanating volume and declining prices.During the period 1957-1959, total volume was slightly less than in195LL-1956. as exports were affentAd by noor nononut nrons. lower nrndnntinnof rubber and only small increases in the output of tea. Since 1959, however,

" 14 -

export volume has climbed annually by nearly 4%, and in 1964 was 20%above the level of 1954-1956. Declining prices offset these gains, andexport earnings in 1964 mere still at about the level of 1954-1956.

34, Recent import performance can be seen from the following table:-

Classification of Imports(Rs. million)

195L-56Average 1959 1960 1961 1962 1963 1964

Consumer Goods n,a,. 1,203 1,195 972 979 919 1,172of which: food & drink n.a. 800 752 672 657 767 917

Intermediate Goods n.a. 396 397 383 409 372 410

Investment Goods n.a- 389 3q 339 137 32 10

Unclassifid n.a- 17 13 9 8 13 10

Tn~tnl ii19 Oc 1-960 1-70-4 1-7-4- 1 -09 I -97

S o ur ce C u St o s Retu r n S/

/ Adjusted for erroneous recording of food imports.

The table shows that the import controls operating since late 1960 broughtimports down from the high level reached in l959-1960. Altogether, duringthe four-year period 1961-1964 imports were roughly Rs.970 million lesshan thiney could have been if imports had continued at the annual level of

1959-1960. Of this reduction, about two-thirds was due to lower importsof consumer goods other than foodstuffs, comprising a wide range of goodsconsumed by the middle and higher income groups and including in particularmotor cars, watches and clocks, radios, and higher-priced textiles. Another100 of the total reduction in imports was due to lower imports of foodstuffs,Reduced imports of investment goods accounted for the remaining 20%.

35a. So far, despite a level of demand for imports inflated bydomestic monetary expansion. imnort controls (n nnt. anar to have w towidespread price increases or administrative abuses. In part this hasbeen due to the fact that goods of maT n nnam+tnn hav 4 n U --- -ouby import controls to any appreciable extent,-whereas in the case of importedgoods consumed by thp mirlIA - anb Moncmegr - .-- ' h vdwindled,to such small quantities that prices have ceased to function asmeaningful indicator of the maretsiat+on uL--- t oh e-aa n t r. ofAsUVsU on uVrnmGshas taken over an increasing share in the trade of mass consumption goods

- 15 -

in a deliberate attempt to prevent price increases. Other adverse economic

effects abound, however, and both the unsatisfactory techniques for allocatingimport licenses, and the restrictions on the overall level of imports, havebeen having an increasingly adverse effect on output and investnent. Ingeneral government import requirements are fully met, so food needs, andthe needs of public sector corporations and enterprises, are satisfied.Allocations to the private sector are from the residual, and usually arebased arbitrarily on a percentage of pre-1961 import levels, rather thanany assessment of oriorities. New private industrial investment. whichboomed when consumer goods imports were initially restricted, has beenprngressively discourna because private sector izoorts of raw materialsand investment goods wbe both reduced, Private transport has been

2,000-3,000 trucks used to be imported annually, only about 200 wereallowed to coA"e in uogth last -rv. rn" ~A it Inn ' 'rn "ch Cri nrl K

difficult to prevent a breakdown of the transportation system. An even morede pe at s.o v' 4,,,s4-n pir e - JI Wn .;r+I, -eCn_-A +_ n 0J-t e *n anl+tor c,- of -11-ich nl

0 ' tJ.liA V WJ1 VO..L VN. I 4C. ' , .4%A -J p4.J..VO V WWW'*4 44t ... l4A

virtually none has been imported since 1961. The consequences of these

and are affecting agricultural production.

36. There has, however, been no improvement in the balance of payments' L'QJVJ.LVL. 1J1ShIILi0UL)U± W LJ J L I V IV%AU%o "14L JAI -L1Ul U(0 ao .LUAJ± LLLL _L11 ULLU(

customs returns. In fact, payments for imports have shown very littlered2LuctionL LOUJ.AW ULIU( .L72 7-±7U'J _L. L0 . .JULA0 4LUU11L'.L,Y, 0 ULU LIL~ UJ-dL .U-

crepancies have developed between payments for imports and recorded

Import Payments and Recorded Imports(Rs. mllion)

1959 1960 1961 1962 1963 196L

Payments 1,958 2,006 1,794 1,906 1,868 1,948

Recorded Imports 2,005 1,960l 10 1,733 1,628 1,897

Excess Payments -47 46 91 173 240 51

To some extent, the discrepancy that developed after 1960 can be explainedby a growing backlog of entries in the customs returns on account of importsby Government departments, enterprises and corporations. For this reason,customs returns would understate actual imports. However, this error isnot likely to be very large. It could also be that imports are underdeclaredfor customs purposes or that shipments, for which payments are made, aresubsequently diverted to other countries and therefore never enter Ce.lon.But there is no evidence to suggest that such irregularities occur on asubstantial scale. In fact, what appears to have been haoening since1959-1960 is a serious deterioration in Ceylon t s terms of payments. Importsthrough bilateral clearing accounts, where debits are entered at the time ofshipments, rose by nearly Rs.250 million, at the expense of imports financed

- 16 -

through normal trade channels. Imports by laree tradine comnanies in Cevlonwhose principals overseas used to extend credit for 3-5 months after thearrival of Ppnnds in Cevln declined by Rs. 1q million. Furthernore, asCeylon's payments difficulties mounted, an increasing number of overseas

xnortrs insiteAH on ltters of t-erit nA-vah1l nt tiyn of shinnent ndr

refused to extend credit as they had done previously. As each month bywhit-h v mran +o.pm e%f nvmnt howpo%n=d TmAnd -Invnrne nAAi.+Annn1 nnimnts

of nearly Rs, 150 million, it does not seem unreasonable, taking all thesefactor t+o.her +o a++"Jhut+AWn e noAP +A arI. of av, -- so -e 10s4w +e

deteriorating tenns of payment. The fact that excess payments in 1964 wereV J. AAU..J ntz VIC1ia .Lj.j jj.LV%,.~LLAG Y VO.Lj 4 L1mdy vW VC."i~a 0. 0 A. 6.L1 SJ.&WAA

that this deterioration has slowed down significantly as payments caughtupJ -Witj. curren .LUJU.LU

.. ) .UVer 1h I L 1U L IUUrL iU .L.VUd YWdlOp C L L -U .J41 ULO.~LU."Cu

in Ceylon's pattern of trade as the Government established and expandedtraUe rQLoUn w1U counWiU OUMne an Dabll bLoo, L"nc.LUu.U1g m1u±Ld1U

China. These countries took only 8% of Jeylon's exports in 1959-60, butby 1964 their share had risen to 1>%o In imports, their role expandedeven more rapidly, from 8% to 19,.

38. Ceylon has traditionally had a negative net position on accountof services and invisibles, because it had to make fairly large paymentsfor the transfer of profits and dividends of foreign-owned companies,including especially tea plantations, and for remittances abroad by privateindividuals. Before exchange restrictions were imposed, net paymentswere around Rs. 125 million, They were reduced to Rs. 50-60 million inthe early 1960's as foreign travel and private remittances were curtailedand declining export prices lowered the profits of foreign companies.In July 1964, further restrictions were introduced, in particular amoratorium on the transfer of profits and dividends. These measures hadthe effact of reducing net payments to Rs, 30 million in 1964 and, if theyremained in force in 1965, would probably result in a balanced net positionon account of services and invisibles.

39. So far, Ceylon has not been a recipient of large amounts of foreignaid. By the end of 1963 public external debt. amounting to Rs. 424 millionhad been incurred, requiring maximum annual debt service over the next fewyears of about Rs. 45 million which is equivalent to about 2.5% of exportearnings. In the period 1960-1964. official grants and loans provided a netcapital inflow of Rs. 90 milLion (about US$ 19 million) a year on the average.Such assistance amounted to less than half the current account deficit and wasequivalent to less than one-tenth of gross domestic investment. These arenot larve amounts. thoueh the trend has been rising since 1963 as the resultof increased aid from Canada and in particular Eastern bloc countries whoseassistance. havinL been insignificant oreviouslv. iumned to an annual levelof Rs. 50 million. Moreover, it is not likely that the 1963-1964 level ofaid - armnind Rs. 120 millinn - rqn he sntaenn hpvon 19f4 unlpss new aidagreements are concluded. The fact that foreign aid covered only part ofthep current. accont defit. ment+ thatn+ ClorIn Hadr toe rawry n" its exchlinanereserves to cover the remainder. Between the end of 1959 and the end of 1964,net wxchae assen afeW reduced by payme7t 414ove eA thentaill t-alevel where even a few days? excess payments over receipts entail the threat

-~ ~ . %4..44 ,.L _O.0.

Gross and Net External Assets(Rs. million)

End of Year 1957 1959 1961 1962 1963 196k

Gross Assets 1,062 735 532 504 462 351

Short-term Liabilities 109 112 202 244 293 304

Net Assets 953 623 330 260 169 47

III. GROWTH PROSPECTS

40. Ceylon is not among the group of developing countries where richnatural resources await exploitation and the principal obstacles to economicgrowth are to be found in the lack of investment and in shortages ofmanaRerial. technical and administrative caabilities. Ceylon certainlyshares these obstacles, but in addition it is poor in opportunities readyto be exploited. Few minerals are found in Ceylon. New arable land isentirely in the so-called dry zone where yields from investment are smalland slow to materialize. The scone for industrial develonment is limitedby the small size of the domestic market and handicapped by the lack ofdonesti- indnstrial raw materiqls - wAll a the absennp - so far - of a

well-established group of industrial entrepreneurs. Against these handicaps,rnv1nn hn- +.hP nrunt.nae- .f n TT11_PAwn.tPA nnnii1nAonn_ Ht it is nlsodensely populated in relation to its arable land, and its population and1Ahnr fnVNeA are Arowine rapnil The nromoton nf family nlnnnina i. st.illlargely a private venture, and although the government has given some

basic aim of government policy. Considering all these factors, Ceylon willcotiueto have a diffcul __wn, prole -_ +-_ J-^_o

L+ O V'U ~1 LAV PWU .- J LA VJ. &.LUVVVA1 " U.L .L% L&A UJ -, .J C

years was not solely the reflection of Ceylon's inherent development11 -P-Pn e%i +4 Th-onn 4 no A ,'k+ *L,n+ flt,..wr4 I ~,. - 4 ^-r -.. a ,_+ 4;-

respects, conducive to economic growth. The main emphasis was on redistri-vUV.LVu,y Uneua runv awnV uvueve soult o x th- ues uredistribution was the dissipation in increasing consumption of the

UUQU%11o.Lau.L o UAVQLuLJ.LW DUJy LUQ WiLULIn .AY.LuL'O .oJULL, aGL.LUU.LtLtU iso cpceof generating, so that export agriculture and the economy as a whole wereuupriveL 01 tue means o 11inancing an auequate Leve of investmentU Further-more, investment in and through the public sector was guided largely by theobjective of spreading the benefits over as many people as possible, whetheras producers or consumers, rather than by the objective of obtaining maximumproductive returns, Examples of this policy are the Governmentis land settle-ment schemes, several industrial corporations and such rural developmentschemes as the program for developing the textile industry by distributingover the countryside a large number of looms to be operated by the ruralpopulation as a secondary source of income. Improvements with respectto both the division of resources between consumption and investment andthe use of investment resources are prerequisites for a better performancein the future.

- 18 -

A. The Export Sector

42. The potential for growth in export volume appears to be reasonablyfavorable. Replanting in particular offers the prospect of greatly increasedyields in each of the major export crops - tea, rubber and coconuts. Replant-ing programs, providing for a government subsidy toward the cost, have beenunderway for some time, with mixed success. The program for tea has hadvery limited response. improved varieties promise to double yields butwhether this would be sufficient to compensate for several years' loss ofincome after replanting is not clear so long as existing bushes continue torespond well to improved techniques of cultivation. The replanting programfor rubber has been quite successful, largely because of the clear advantageof replacing old trees with new high yielding varieties in the circumstancesof sagging world prices for natural rubber. Nevertheless, less than half therubber 'Land is now under high-vielding varieties and considerable scone existsfor continuing with replanting. Coconuts are grown mostly by small farmersin thp low Innds and it hns hPn diffinii1t qn fqr to et an effPrtive nrogram

underway that reaches a large number of farmers. However, in the last fewvpnrp th ny-nai-Am hnqhr c!nrnp L ihinh- if' ovyrknntipti nnl nntA1art.Ar1_

could lead to substantial increases in production in the longer-term future.

h3. Replanting of course has a relatively long gestation period andin ~ ~ ~ -th-hr.~m ~wll deress, rathe than. mise U. _ f' outpub rwh

as acreage is withdrawn from production. There are, however, also possibilitics.LW4J.. L &.L0.L&AF XJU%jPXAV J LL i XAI IU 1U11VA_2%J .1AU 1t, -4UV1r VAV ULIV 0k"LLL___u W J.L

larger amounts of fertilizer would appear to be of particular importance,'oMield pehap with.J WI L11±1JL1JVt::11=E1Ub 11 U,LIU VkJ",L-M1t-L1 jUUjLUY

schemes., Improvements in processing facilities, particularly for tea,should also be undertaken, and to this end it may be necessary to giveexport agriculture some tax relief.

44. With proper incentives and policies, it may be possible to raisethe output of tea by 3-47 and of ruDDer Dy 57 a year, while the productionof coconuts may increase somewhat faster than the growth of domestic con-sumption. However, with the exception of Tea whose average price is nowexpected. to hold steady over the next several years, increases in the volumeof exports are not likely to be fully translated into higher earnings becauseof expected declines in prices. It is now believed that by 1970 prices ofrubber and coconut products may fall roughly 20% below their present level.If these declines materialize, they will severely circumscribe the contribu-tion which export agriculture will be able to make to growth of income andthe main burden of economic growth will have to be borne by increased pro-duction for domestic use.

B. The Domestic Sector

45. There are opportunities for substantial growth in output fordomestic use. Most of the technological problems in increasing foodproduction appear to have been solved now - there remain the organizational,social and administrative problems which are often more intractable. Simi-larly there are opportunities for industrial expansion, albeit from a smallbase and limited by the size of the domestic market.

- .L9

Agriculbure

6 There are several large river basins in Ceylon, which, if properlydeveloped, would increase substantially the output of a large variety offood crops. Judging by preliminary studies, it would appear that developmentof these basins could offer higher returns on investment than the numeroussmall and medium-sized colonization schemes in the dry zone to which theGovernment directed most of its attention and resources in the past. However,at the moment it is far too early to say when and at what pace these basinscan be developed. Extensive studies are still required and substantial amoun'sof investment resources will have to be found. In the meantime, agriculturalgrowth will have to come nainly from increased productivity for which thereappear to be considerable possibilities.

47. Technical improvements in rice cultivation are likely to resumemaking substantial contributions to output, after a series of relativelypoor harvests due to floods and drought. It may even be possible to attaina rate of erowth which is faster than the very favorable proaress of theearly 1960's. Adoption of the high-yielding H4 variety has now spread over_ fairly Inrap nnrt of th qr. whor suitable conditions exist. Work isgoing on to develop varieties suitable for the remaining areas. Otherimprovemnnt in cultivationincluding increasing use of fertilizer. andwater control are expected to sustain Ceylon's upward trend of paddy pro-riunt.i nn -

crops to develop at a fast rate and to contribute significantly to growth

technical obstacles to the local production of chillies, onions, pulsesCALA. JJLL~. ~ .ALID iJLI.L LL U.LV V.LVV,4VL U JV.JLVeU a tu an an ua ex-Inange

outlay of Rs.250 million now seem to be either solved or nearing solution.1j__.L.U.± IU P -LjU.L#Z=1b - U1-rdE1.LZZ1L,LL[1d_. d11Ui dU1LLL"tiU1-JLd1L.VU OLIU.9 Fd1-LkU Jd1_L.

insofar as they apply to changes in agricultural practices in the dry zone,Human - remain. lNevertneless, it would appear that if the Uoverauent wexeto give priority in the allocation of funds, manpower and equipment toUt,Vk-.Ju .L116 tim t;U.UVdt~j.LU1 i ~U U..LY uuutsullti il 1-i.i±-leuu dilu liftv-

irrigated areas, output could be increased significantly over the next fewyears and very suostantially expanded over the longer run. Promisingpossibilities, also seem to exist in the cultivation of citrus fruit on acommercial scale in parts of the dry zone, provided the Government is willIng,as it has so far been reluctant to do, to lease to private plantations oldirrigation tanks that fell into disuse several hundred years ago when paddycultivation shifted to the wet zone, but could be restored fairly inex-pensively. It should also be possible to turn the cultivation of sugar caneinto a success as there are no forbidding technical obstacles to be overcome.

49. In other fields there are favorable prospects for an early increasein raising pigs, goats, and poultry on a small scale, but further developmentof beef and dairy cattle involves a long-term program of selection and breedingof suitable herds which may take about 15 years. There are also good prospectsfor fish production to continue to grow at a fairly rapid oace.

nn

Manufacturg

50. Despite the possibilities of growth in domestic agriculture,.thereis, in principle, little doubt that part of the solution to Ceylon t s problemof attaining a satisfactory rate of growth of income should be sought in asubstantial effort to develop Ceylon's industrial sectora

51. In the private sector, there can be little doubt that tight importrestrictLons, with which Ceylon will probably have to live for a long time,will continue to act as an incentive. In the domestic market, there isundoubtedly room for further expansion of the manufacturing industry. Thus,conditions are basically favorable, provided the period of readjustment whichis likely to occur because of over-expansion in some fields is weathered withoutadverse efffpct on incentives. The Ministry of Industries is now working onnew guidelines imr order to ensure that applications for private industrialinvesampn. qrp hnnrllprl in n morp rntionnl f;;shion than in the past and excesscapacities are avoided. Nevertheless, it is difficult to predict how rapidlymnu~ifacturing output wilI rowy VJ 7rc+. - wnrni t-v of' VnrP. an P-,.hq nop hq nnf.only compelled the Government to limit more strictly than in the past the

alloatio oeTf exhag for ne industia deve Trlop ment, 'hi !%z Inr ton ashortage of imported raw materials and spare parts which has resulted in

raw materials and spare parts for private sector industry the more severely~ UL~~JL4~J~ C& U.~J I t: C2_LJVJ-, LIAiU.Li. 4.UJ-L.L -. J Us~ L %J

continued growth will depend decisively on the ability of the new entrepre-

consumptIonwould appear to limit the possibilities for growth along established.Lines. In this respect, the growth hat, has occurred is encouraging, Out itis still too early to say how well Ceylonts entrepreneurs will meet thischallenge.

52. In the public sector, substantial investments have been made andmore are planned, both to expand existing enterprises and to establish newones. Some of them can be expected to contribute to growth, such as addi-tional capacity for cement production, ceramics and the establishment ofanother textile mill. The Government is also considering the constructionof an oil refinery, probably in cooperation with a foreign company, andestablishing a fertilizer plant and a hardware factory. These projects maybe justified economically and if so could be valuable additions to Ceylon1seconomy. The critical problem here is good management which in the past hasoften proved difficult to find. There are, however, other large and costlyprojects, such as a steel mill and a tire factory whose economic justificationis questionable,

53. For the industrial sector as a whole, it is likely that output willcontinue to grow in the immediate future provided the present shortage of rawmaterials and spare parts is alleviated. For the longer term, there are -opportunities for further growth over a wide range of fields. The extent towhich thevrwill be exloited will denend a good deal on Government oolicy withregard to private industrial development and expansion of public corporations,howover- sufficient investmont resources- narttcularlv in foreign exchanve. willhave to be made available if growth is not to be stunted. Apart from thesefnnforn thrp is the mian.ion how rvnidlv nreqpnt -nt.rP.nYenPnrs will be ableto expand and diversify their activities and at what rate new entrepreneurs

21 -

Conclusion

54. It is evident from the foregoing discussion that there areoppoCU t" 16 101-i :KCUJr-J.LCE.L116 U iLL%, 61UW.LL .LL1 %JZ.Y.LVL.LO LJUflUkU WA.I VAAl-

are of the kind which will begin to bear fruit only over the longer run,bUt neverhuenss a faIrLy wLe range of postiutie1 exist ;Lev.LU ul tnmore immediate future, It is impossible now to predict with a high degreeof confLdUence how fast real national income will grow, Ina Ls so becauUdeoisions on future Government policies with regard to financial stability,the use of resources and the direction of investment sti nee- to bemade and because a planing framework against which one might judgeopportunities and investment requirements does not exist now. Cey.on hasnever had an operative development program, Several plans, for both theshort and long runs, were prepared in the past but they were either nottranslated into useful programs for action or did not become acceptedguidelines for development outlays.

55. It will no doubt be necessary to prepare an operative investmentprogram for the future which can give guidance to decisions about the levelof investment and the choice of projects. A new planning office to undertakethis task has recently been established but staffing and organization havebeen proceeding very slowly and so far little has been done to identify andwork out the details of urgently required development programs.

STATISTICAL APPENDIX

M 1-1±' .0 f

External ruulc DebtII Estimated Service on External Public DebtIII Gross Domestic Product by Industrial OriginIV Expenditure on Gross National ProductV Gross Domestic Capital FormationVI Gross SavingsViI Real National Income and ExpenditureVIII Production of Principal Crops-LX Production Acreage and Yield of Export UropsX Production, Acreage and Yield of PaddyXI Production and import of FishXII Value of Industrial ProductionXIII Summary of Government Accounts and FinancingXIV Government RevenueXV Government Current and Capital ExpenditureXVI Analysis of Factors Affecting Money SupplyXVII Composition of Money SupplyXIX Consolidated Assets and Liabilities of Commercial BanksXX Cost of Living IndexXXI Balance of PaymentsXXII Composition of ExportsXIII Composition of Imports

XXIV Index of Terms of TradeXXV Export Quantities and PricesXKVI Official Grants and LoansXXVII Gross and Net External Assets

Table I: CEYLON - EXTERNAL MEDIUM AND ONG-TER /1 PUBLIC DEBT OUTSTANDING INCLUDING1ZMflISBM.SED AS OF DECEMl~BER -4- 10. 1-7TT m .fl? Cr4WT:

JANUARY 1, 1964 - FEBRUAR: 28, 1965

Debt Repayable in Foreign Currency

(In thousands of U.S. dollar equivalents)

1AVO)U oUUrU -LL1r, rluj Ur E-Upur UeU

December 31, 1963 changesNet of' IncLuaing january I -

undisbursed undisbursed February 28, 1965

TOTAL EXTERNAL PUBLIC DEBT 59,649 89,110 - 601

Publicly-issued bonds 2 13,765 13,76-

Privately-placed debt 486 9,990

I3RD loans 26,420 35,564 - 601

Loans from Western governments /3 7,990 18,803 -Canada 1,045 1,05 -Germany 2,407 10,000 -Yugoslavia /4 996 996 -United Kingdom 3,542 6,762 -

Loans from Sino-Soviet Bloc /5 10,988 10,988 -U.S.S.R. /4 5,901 5,901 -China /b 4,746 4,746 -Czechoslovakia 341 341 -

/1 Debt with an original or extended maturity of one year or more.77 Net of accumulated sinking funds of $21,498,000.7- Does not include estimated disbursements in 1965 and 1966 of Cey Rs 6.300.000 on

a loan from France to Kaudy Water Supply Scheme./ Excludes uncommitted portions of frame agreements in the following amounts:

Yugoslavia $14,403,000U.S.S.R. 824.096.000China 3 5,539,000

/6 Loes not include:Cey Rs 2,610,000 from CzechoslovakiaCey Rs 38.000.000 from Poland

142,000,000 from East Germany andCev Rs 50.000.000 from U.S.S.R.

for which total amounts committed to projects are not known.

IBRD-Economics Departmentjl y- 1,4 1 it

Table II: CEYLOM -- ESTIMATED CONTRACTTUAL SERVICE PAYENTS ON EXTERNAL PUBLIC DEBTOUTSTANDING IYCLUDING UNMSBURSED AS OF DECEBRM 31 J13 T4 n 4,jOR

REFORTED CHANGES JANUARY 1, 1964 - FEBRUURY 28, 1965 /1

Debt Repayable in Foreign Currency

(In thousands of U.S. dollar equivalents)

PAGE 1

TOTAL DEBT

DEBT OUTST(BEGIN OF PERIOD) PAYiMENTS DTRING ERIOD

INCLUDING AMORTI-YEAR UNDISBURSED/Z ZA TION INTEREST TOT.L_-1964 78,993 2,758 3,614 6,3721965 75 R33 4,661 3,875 8,5361966 70,236 4,515 3,734 8,2491967 65 433 4,971 3,545 ,25161968 60,150 4,391 3,312 7,7031969 55,423 4,264 3,102 7,361970 50,898 4,212 2,813 7,0251971 46,8 R 4,222 9 7 6,7491972 41,934 4,191 2,321 6,5121973 37,493 4,166 2 ,119 6,2851974 33,058 4,271 1,916 6,1871975 28,499 10,483 1,1427 11,9101976 17,905 3,915 930 4,8451977 13,990 3,715 715 4,4301978 10,275 2,675 522 3,197

PUBLICLY-ISJUED BGNDS

DEBT OUTST1( Mrr- T-M CV 73T-'3 TC n '1 - 1 7- ,t,"'C 7T T 1, r~C I~'L T Tnn\ -A .J LI'4 SJJ 1- L Ä L 4 . L xI Ii ý. £ 1 -i&.AA L .1 LJ UL-L ILNIJ.4 17 -L k.YLJ

GROSS NET /2 AMORTI-vYAR - 7ETIO WNITEPET T'TTL

1964 35,263 13,765 310 1,346 1,6561965 22,663 13,053 1,640 968 2,6081966 17,500 11,078 246 736 9821967 17,500 10,544 246 736 9821968 17,500 9,986 246 736 9821969 17,500 9,404 246 736 9821970 17,500 8,897 293 648 9411971 14,000 8,306 210 560 7701972 14,000 7,864 210 560 7701973 14,000 7,404 210 560 77019714 14,000 6,925 210 560 7701975 14,000 6,427 6,316 280 6,596

Table II: CEYION - EST IATED CONTRACTUAL SERVICE PAMEETS ON EXTER: AL PUBLIC LEBTOUT1STANINf ICLIUDTNG UNITSAURSFD AS OF DECEIBPR 31, 1963 17I1 AOR

REFORTED CHAONGES JANMUARY 1, 196h FEBRUARY 28, 1965 /1 (CNT.)

Debt Repayable in Foreign Currency

(In thousands of U.S. dollar equivalents)

PAGE 2

PR. IVAý.TELY-PLACED i'EBT

DEBT CUTST(-i C O ) 1F 0 TnRIO) P 'AV ;XIMO nT!ETNTS D)TURIN >Tn

JL.L.4 ukJ .L LN.~UL - LZ-IX I-.LJ.U ý - -.LX~

INCLUD ING AL 2ORT l-YVi A UNISBU TCZ M * T I.T TOT1ALT r r"l T

1964 9, 990 172 1721965 9,990 - 362 3621966 9,990 416 552 9681967 9,574 832 562 1,394

1969 7,910 832 462 1,29419070 7,0Y7fl 832 4 1,2441

1971 6,246 832 362 1,194I972 4 132 312 .,144

1973 4,532 832 262 1,0941 9v7 4 3 7 5 0 8 3 2)1 3 1 45n)

1975 2,918 832 163 99519X 76 2,-8 831 r _ 2 1 13 945

1977 1,254 832 63 0959722 422, n121 13 4351rV7 1- /'1- *

IBRD LOANS

DEBT -UTST(BEGIN OF PERIOD) PAYULENTS DURING PERIOD

INCLUDING AIMORTI-YEAR UNDISBURSED ZATION INTEREST TOTAL

i 9 6 4 3 5 5 1 , 3 r, 4 n . 2, 5 5 5eL:7Ult Ji,JU' u,+J.L j- .3-3

1965 34,433 1,331 1,774 3,1551966 32,45 1,429 1,704 3,1331967 31,022 1, 4 70 1,630 3,1001968 29,552 1,546 1,552 3 , 091969 28,006 1,629 1,469 3,0981970 26,377 1,712 1,3814 3,0961971 24,665 1,005 1,295 3,1001972 22,860 1,899 1,198 3,097

1973 20,961 1,999 1,098 3,09719714 18,962 2,194 992 3,0961975 16,858 27214 81 3,0951976 11,644 2,333 7614 <191977 12,311 2,458 640 3,0981978 9,853 2,253 509 2,762

Table II: CEYLON - ESTTMATED CONTRACTUAL SERVICE PATENTS ON EXTETNAL PUBLIC DEBTfUTTANTD1 Tr INlTTUTTD-rll TN TOM-ND I C-UR n k c Fln DClTh BEtRlD"r 31 , 1963 TTMU -MAJ T

REPORTI C.UANG-ES JANUARY 1, 1964 - FE3RUARY 28, l9615 / (CONT.)

Debt Repayable in Foreign Currency

(In thousands of U.S. dollar equivalents)

PAGE 3LOANS FRO UIESTERN GOV ,iNTS - TOTAL

DEBT OUTST(BEGIN OF ?PRIOD) AYNSDUINýG -PERIOD

INCLUDING A:4ORT I-YEAR UNDISBURSED '¯ATION INTEREST TOTAL

1964 14.587 992 543 1.5351965 13 595 1,624 651 2'2751966 11..971 1.949 623 2,5721967 10,022 1,948 510 2,4581968 8.074 1,292 417 1.7091969 6v782 1,082 352 1,4341970 5,700 900 298 1,1981971 14,800 900 251 1,1511972 3,900 775 204 9791973 3,125 650 163 8131974 2,475 650 127 7771975 1,325 650 91 7411976 1.175 750 53 8031977 425 L425 12 437

L.OANS FRO M SIHO--SOVTIET BLOClf

DEBT OUTST(BEGIN OF PERlOD) PAY-Li-Ts )URING I1-1) PR

INCLUDING AM,1ORTI-YEAR UNDISBURSED ZATi ON iNTEREST TOTAL

19 5,1ZJifn087 325 129 4541965 4,762 16 120 136

Ii 71t4- 1, 7r 1 n].-1V 1 -M r i -

1967 4,271 475 107 582i Inr-O Q 'M _ , C C-7f

4.7 I v-t f. i. JJ1(tv1969 3,321 475 83 558

1971 2,371 475 59 5341972n 1 89 67C . 7 n2

1973 1,1421 475 36 511.,1 '«7 1 ei."c! n fl.'91975 947 4751 2 48

1 975 471 471 12 483

Table II: CEYLON - ESTIIED CONTTACTUAL SERVTCE PAYENTS 0NT EXTERNAL PUBLIC DEBTOUTSTNDTING INCLUDaNG UNDISBURSED AS OF DEiEMB1R 31, 1963 WITH MAJOR

REPORTD CHANGES JAT TARY 1, 1964 - FEBRUARY 28, 1965 /1 (CoNT.)

PAGE 471 Includes service on all debt listed in Table 1 prepared July 13, 1965

excE!t:0 996,570 from Yugoslaviap ,9o1,ol from U.S.S.R.

$3.220.000 from United Kingdomfor which the amortization terms are not available.

/2 Net of accumulated sinking funds.,

Statistics DivisionTPPT-Economir. Department

July 13, 1965

Table III

Gross Domestic Product by Industrial Origin(Rs. million at current factor cost prices)

Percent of1959 1960 1961 1962 1969 1964 GDP in 1964

1. Agriculture, forestry,livestock, fisheries 3 2. _ 2A05 2-29890l 44

(a) for export 1,465 1,509 1,449 1,460 1,430 1,507 -(b) for domestic use 1,298 1,363 1,408 1,447 1,553 1,614

2. ining and quarrying 11 11 11 12 11 103. MCanufacturing (excluding construction

materials) 271 317 353 417 499 553 84. Construction (including construction

materials) 384 349 385 429 424 419 65. Transport, storage and commu-

nication 471 512 498 523 545 617 96.= -holesale and retail trade 647 647 624 662 719 768 1l7. Banking, insurance, finance 48 52 56 59 68 718. Ownership of dwellings 169 178 196 205 223 2:38 39. Public administration and defense 397 402 403 444 469 493 710. Services n.i.e. 731 784 _799 806 826 865 12

Gip at current factor cost

prices .9i1 62 6x 6 6 769 7 155 100GDP at constant 1959 prices 1.891 6.207 6.,.L 6.'493 6j.91 19

Source: Central Bank of Ceylon

Table IV

Ependiture on Gross National Product(Rs. million in current prices)

].59 1960 1961 1962 1963 164

A. Private Consumption Expenditure 4l 4.991 _4Q .010 4Imported goods and services 1,995 2,065 1,854 1,879 1,690 1,86?Locally produced roods 2,093 2,208 2,282 2,416 2,650 2,806Locally prodY ed services 467 475 488 506 524 5 44Other (net) .- 123 243 225 209 320 424

B. Government Consu881tion Expenditure _9 _11 926 __9_72 L .1,090

C. Private fixed capital formation 2_733 649 637 668 60r 682Planting and replanting 62 63 63 64 70 70Transport 153 109 85 92 63 50Plant and rachinery 119 77 113 113 154 17Building and construction 336 341 320 342 262 331Other 64 59 55 57 59 '55

D. Public fixed capital forMation _)6 _32 __341 _364 __4 341

E. Stoek changes __-10 -45 _9 - _ 140

F. Gross DoestLc Expenditure 6,617 6,823 6,822 7,020 7,193 7,714

G. less imports/exports of goods & non-factor services -16o -18 -.65 -99 -128 _15

H. Expenditure on GIDP at market Drices 6,457 6,625 6,757 6,921 7,065 7,561

I. Net Factor Income f rom Albroad -37 -44 -.40 -47 -53 -34

J. Residual error _-172 - -B5 _16 16 ý1.4

K. Expenditure on GNP at market prices 6,243 6,493 6,532 6,890 7,175 7,541

iT-i.e. net of goods and services purchased by non-residents.2/ Includes public corporations.

Source: Central Bank of Ceylon.

Table V

Gross Domestic Capital Formation(Rs. million in current market prices)

1959 1960 1961 1962 1963 1964

I. Private Sector and Fu1blicCorporations

(a) Fixed Capital FormationPlanting and replanting 62 63 63 64 70 70Building, other construc-tion 336 341 320 342 262 331

Plant and machinery 119 77 113 113 154 177Transport 153 109 865 92 63 50Imported capital goodsn.i.e. 64 59 55 57 59 55

Total 733 649 637 668 607 682

(b) Change in Stocks ' 12 -31 16 -41 3 -36

(c) Private Capital Formation 745 618 652 627 610 6 6

II. Government and Public Enterprises 2/

(a) Fixed Capital Formation 336 317 341 364 384 341

(b) Change in Stocks d -22 -14 514 40 5 -5

(c) Public Capital Formation 314 303 395 403 389 336

iI. Total Capital Formation

(a) Gross Fixed CapitalFormation 1,069 966 978 1,031 991 13023

(b) Changes in Stocks -10 -L5 69 -1 8 -10

(c) Total 1,059 921 1300? 1,0 993 982

1/ Includea only changes in stocks of teal rubber and livestock.2/ Public enterprises consist of Railway, Port Commission, Department of Govern--

ment Electrical Undertakings, Post and Telecommunications, National Salt Corp.3/ Includes only changes in stocks of imported rice, flour and sugar; paddyheld under the Guaranteed Price Scheme! and arrack.

Source: Central Bank of Ceylon.

Table VI

Gross National Savings;1

(Rs. million in current orices)

1959 1960 1961 1962 1963 1964

Gross Domestic Investment 1,059 921 1,047 1,030 998 982LA.s: Npt hnrrnwin,abroad2 - -208 -221 -94 -140 -168 -148

Net Factor Payments 37 44 40 47 53 341 - JA,*- -J1t~ 0

transfersY 12 -22 11 7 13 40Grous Domestic Savings YVU I u e-4 uLu UIu

Gross National Savings in% of GNP 13i6 10.8 14.6 12.9 11.6 11.0

Gross Domgs,tic Savings in% of GDP/ 14.3 11.0 15.3 13.6 12.4 12,0

1/_The data presented in this table are derived solely from the relevantnational income agiragates. No independent estimate of savings exists.

2/ Includes loan repayments to the United Kingdom and use of externalreserves.

3 Consists of private remittances and public grants.h/ GDP as -In Tabln TTT nius indirnet tnes net of subsidin aijust for

statistical discrepancies between estimates of gross national product andcross national expnditure.

SoureP reritrnl ;Pnlc nf' rp-xInn

Table VII

Real Mational Incorne and Expenditure(Rs. million)

Change1959 1960 1961 1962 l963 1964 1959-1964

Production for Export 1,465 1,515 1,638 1,686 1,640 1,754 19.7%

ProduciLon for Do.nestic Use 4,426 41,607 4,663 4,857 5,031 5,199 17.56Paddy, Tea, Coconut Products 642 723 731 788 844 866 34.99Governnent n.i.e. 702 755 759 792 821 869 23.8,Other goods and services 3,082 3,129 3,173 3,277 3,367 3,464 12.4

Gross Domestic Product 5,891 6,122 6,300 6,543 6,670 6,953 18.0Net Factor Income from Abroad -37 -4L -40 --50 -51 -34Gross Vational Product 5,854 6,078 6,260 6,493 6,620 6,919 18.2%

Adiustent for Current Export Frice _- -14 -173 -102 _-262 -346Tea - -26 -39 2 -134 -157Rubber - 39 -25 -14 1-56 -94Coconut Products - -33 -111 -96 1-79 -105Others - 6 1 5 6 9

G-ross National Income 5,854 6,064 6,087 6,391 6,358 6,572 12.3

1/' All data are at constant 1959 factor prices.2/ Caliculated as the difference between the value of export at constant 1959 prices and the actual

value at current prices.

Sou,rce: Central Bank of Ceylon.

Table VIII

Production of Principal C:rqs

Average1950 1954-1956 .959 1960 1961 1962 1963 1964

!Txnort Grops

Tea (million lbs.) 306 374 413 435 455 467 48c 482Rubber (1,00 iT) 114 94 92 97 96 102 104 111Coconut (million nuts) 1,925 2,460 2,313 2,183 2,601 2,811 2,557 2,999

Domestic Cros

Paddy (million bushels) 24.5 31.4 36.5 43.1 43.2 48.1 49.2 50.4t,anioc (1,000 ctt) 3,260 4,422 2,865 5,195 5,842 5,553Onions (1,000 cvt) 294 731 758 736 815 734Chillies (1,000 cwt) 234 372 202 283 411 30?Peppers (1,000 cut) 86 100 117 151 225 126Kurakkan (1,000 bushels) 700 658 587 733 726 580iaise (1,000 bushels) 300 303 319 332 363 .301Sweet Potatoes (1,000 cwt) 522 945 529 901 1,148 844

1/ Partly based on rough estimates.

Sourc: Department of Causes and Statistics.

Table IX

Production, Acreage and Yield of Export Crops

1954-56 1959 1960 1961 1962 1963 1964

TeaP'roduction (Mi110 los.) 37(4 4-0 435. 4,)5 4ut 45 3

Acreage (thous. acres) I70 5ov U 82 587 591 587 92ToTich replanted) (0.37 (1.2) (27) TE73 7.~T 97

estates l/ 499 .50 502 5u04 uu Wo W(osmall holdings 1/ 71 78 80 83 86 89 96

Yield per acre (lbs.) 656 713 747 775 790 826 814

RubberProduction (thous. tons) 94 92 97 96 102 104 111

Acreage (thous. acres) 660 668 669 671 674 675 669 2/(of which replanted) (139) (231) (7) 2677) T29) (300) (313)estates 1/ 479 477 476 476 476 n.a. n.a.small holdings 1/ 180 191 193 195 198 n.a. n.a.

Acreage in Production 2/ 586 537 522 504 528 525 531

Yield per acre (lbs.) 361 382 417 h27 434 44o 463

Production(ths. nu+ts) 2,460 2,31 29183 690( 2.811 2. 7 2.999

acres) 21,100 1,100 1,100 1,100 1,100 Lim 110i

planted) h/ (37) (95) (117) (136) (155) (178) (202)

Yield per acre (nuts) 2,236 2,104 1,985 2,365 2,555 2,325 2,726

Estte ua r dei ~..LLne%dJ as 11l-ig COMp).LSin IOW' CaCIre OrL mL0J.re 041aUjj. &;%/.U.L&j6Q

cover less than 10 acres,!j IJtLJU dO UULd-L d1:a pn1c.LdnUeu WLI rUUvt UVOOCAUl -Got LIAV LII Lu VU yt:;:U

reached tappable age and acreage left untapped.3 I This is an estimate as no accurate statittics are kept.

Includes only replanting under Coconut Rehabilitation Scheme. Rough estimatederived from the number of seedlings distributed.

9/ Decline due to resurvey of acreage planted by large estates.

Source: Administration Report of the Tea Controller, Acministration Report ofUBan k &. VV.Lt, 1VjJCIU11MUL U VCl oLn.U- d[IU 0 Ud 1j1Z U.Ls UU (IULtBank of Ceylon.

Tale X

Production, Acreage and Yield of Paddy -

Average

1954-1956 1959 1961 1962 1963 1964

Production (mill. bushels) 31.4 36.5 43.2 48.1 49.2 50.4

Acreage (thous. acres)Gross acreage sowm 1,280' 1,330 1,472 1,536 1,562 1,585

Under -Irrigation 673 720 d62 934 940

Major schemes (362) (395) (473) (508) (516)Minor-schemes (311) (325) (389) n.a. (126) (424)

Rainfed 607 610 610 628 645

Gross acreage harvested 1,202=' 1,228 1,407 1,492 1,525 1,535Under irrigation 632 o9920 917

Major schemes (345) (378) (459) (501) (04)Minor schemes (287) (291) (376) n.a. (419) (413)

Rainfed 570 559 572 605 618

Net acreage harvested 1,010 1,061 1,195 1,268 1,297 1,305

Yield per acre (bushel) 31.1 35.0 36.2 37.9 37.9 38.6

1/ Annual figures are totals of both Maha and Yala seasons.2/ TnolIdci 90000 nrp PQirnntAi t. hnv hppn unrbar nnittivntinn in thp -i

Oya Colonized Area.

Table XI

Production and Import of Fish('000 owt.)

1956 1958 1959 1960 1961 1962 1963

Production of Fresh Fish 765 779 896 980 1,124 1,50011 1,6501/

IIMports 812 967 858 960 764 666 736Dried Fish 02 797 702 792 31 1 FFresh and Tinned Fish 130 170 156 168 176 241 70

1T Data refer to fiscal years 1961/62ad 1962/63, respectively.

S~ource: Depa,!rtment of Census~ and SttisA tivc; Ceyl~on Cust*'oms Returns*

Table XII

Value of Industrial Production(Rs; .milli on )

1960 1961 1962 1963 1964

Miscellaneous Food Preparations 144.0 146.9 147.8 147.6 160.7Preserved and Canned Fruit,Vegetables 1.3 1.6 2.3 3.4 L;.

Biscuits, Confectionery 11.5 18.2 21.9 28.8 30.9Cerated Water 8.3 7.8 10.0 11.4 13.4Beer and Stout 3.1 2.4 2.2 2.4 2.7Tobacco 30.0 29.0 35.0 39.0 46.2Garments 19.4 19.8 29.3 38.4 54.9Footwear, Leather Products 8.3 8.5 19.6 22.3 23.4Misc. Chemical Products 36.4 40.3 51.5 56.0 73.7Paper and Paper Board 12.5 13.9 1.4 18.2 30.1Metal Products 7.4 9.1 11.2 15.1 38.54anufactured' Products, n.e.s. 1.5 3.7 4.3 5.8 11.0Curamics 1.0 1.1 1.9 2.5 2.4Rubber Products (excl. Footwear) 6.8 8.3 10.9 13.7 17.0Plywood 2.3 2.9 3.4 3.9 3.9Mineral Sands - 0.1 0.1 0.1 0.9Basic Industrial Chemicals - 0.2 1.1 1.2 1.0Cement, Cement Products 19.6 17.9 20.2 22.5 23.0

Total 313.h 331.7 388.0 132.0 538.2

1/ Based on a survey carried out by the Central Bank. In 1964, a considerablyrea.tePr number oif f4rmq w4mnrr +.han -in 1963.A Tl-eoreforen_ t.he inc-rena in

output shown in 1964 over 1963 does not represent the actual increase thatSouc rred rariBn h yCeylo

Source: Central Ba:nk of Ceylon

Table :III

Eummary of Government Accounts and Financing(Rs. rn-,llion)

1958/59 1959/60 1960 1 1961/62 1962/6 196364 1964/65

1. Current revenue 41 1,248 1,337 1,457 1,610 1,588 1,611 1,7902. Current expenditure _,1., 260 1,82 1.451 t4,80 i85 190

Current surplus or deficit 91 77 75 159 108 26 2003. N!et surplus or deficit of govt.

enterprises V 2 _2_-Overall current surplus/

deficit 49 39 42 123 72 -3 1754. Capital expenditure . 493 496 519 586 496 503 5555. Advance payMents (net) 0 . 1_ -_1 -16 n.a.

Overall surplus/deficit -444 -45'7 -491 -478 -410 -490 -3V0

6. Adjustmerits 21 __4 27 _8 __18 _4 207. Net cash operating surplus or

d eficit -420 -430 -463 -456 -392 -462 -360Sources of Financing

8. Non-expansionary L9 183 221 270 21 302 335

Administrative borrowing 27 57 29 105 -34 -1 20Domestic market borrowing

(net) 109 84 165 109 154 206 210Foreign borrowing (net) 36 29 14 38 62 65 )Fcreign grants 7 :13 13 18 31 32 )

9. xansionry 241 247 22 __ 18 160 20Borrowing from banking

systems 179 241 242 227 178 115 n.a.Use of govt. cash balances 62 6 - -40 - 45 n.a.

(see footnotes on next page)

Table ZII (Footnotes)

Provisional.Revised. estimate, except that estimated foreign aid receipts, and thus capital expenditures, are lowerthan the budget estimate.

& Revenue includes gross profits on sale of flour and suar, excludes receipts of government enterpriseswhich are offset against recurrent expenditures and appear in line 3. 1961-62 excluCes Rs. 20.6 m.transferred from "ational Flood 1elief Fund. National development taxes of Rs. 19 m. 18 m. ard 3 m.are included in 1961-2, 1962-3 and 196-3-4 respectively.

- Includes gross food subsidies, excludes recurrent expenditure of govt. enterprises,and expenditures ofa capital nature.Comprising Posts and Telecommunications; Railways; Electrical Department; Broadcasting; and Forts,Harbours and Harehousing.Includes loans to govt. agencies, extra-budgetary expenditures by the rubber and tea replantingsubsidy funds, etc.Consists mainly of expenditures from extra-budgetary sources.

Source: Central Bank of Ceylon; 1inistry of inance.

Table XIV

Goverrment Revenue

(Rs. million)

Prov. Est,19 "'8/ -;99 C)/60 1960 /61 1961/62 162/53 1 Pv.6

Customs Duties 674 733 Z39 56 676 760 812Export duties - 306 326 303 290 278 277 300

of which: tea 220 220 213 224 216 219 225rubber 43 61 54 30 29 12 22"coconut 43 45 30 31 27 42 26

Import duties 367 g6 __5 465 398 482 507Other 1 1 1 1 1 1 10

Indirect Taxes 234 260 2?2 360 410 316 422Excises 130 136 136 168 211 218 230Turnover tax - - - 16 32'Profit on sale of sugar, flour, etc. 104 124 136 192 199 82 160

Taxes on Incomp Profit ?01 195 283 293 289 305 278Income tax 195 189 259 23 259 285 244Profits tax 6 5 4 2 3 1 4Land tax - 8 12 11 6 5Personal t1x - 1 12 1616 6 13 25

Other Taxes 6 j9 62 66 92 96 85 81iiscellaneous Receipts 6/86 87 _159 117 145 12?

Total Revenue 1,255 1,337 1,457 1,610 1,588 1,611 1,725

1 ncludes tea tax.2/ Almost all excises are derived from profits and taxes on liquor sales.3/ Includes surcharge on income tax.4/ Includes rice subsidy tax.5/ Includes development tax.6/ Excludes gross receipts from operations of goverrment commercial enterprises.7/ Excludes transfer from flood relief fund.

Source: Ceylon Government Accounts.

Table XV

Governrment Current and Capital Expenditure

(Rs. million)

958/59 1959/60 1960/61 1961/62 1962/63 1963/64 1964/65(original est)

A. Current ExpenditureAdministration 208 217 246 237 230 n.a. 258Social Services 377 420 419 437 446 n.a. 481Economic Services 80 79 88 80 96 n.a. 106Transfer payments 492 544 _2 697 708 r.a. 803

Food Subs-idies (gross) 251 317 384 427 435 463 487Interest on public debt 44 53 67 83 98 n.a. 100Pensions 91 93 100 109 115 r.a, 136Other 106 81 78 _78 60 ri.a. _ 0

TOTAL CURRENT EXPENDITURE 1,157 1,260 1,382 1,451 1,480 1,585 1,648B. Capital Expenditure

Administration 46 37 31 29 19 n.a. 21Social Services 77 70 79 94 92 r.a. 114

Health 10 11 13 13 14 ~~Ea~ ~~Education 28 26 33 30 36 n.a. 41Housing 26 24 20 37 27 n.a. 39Rural Development 13 9 13 14 16 n.a. 17

Economic Services 321 33 362 __7 368 __.a. _92Public Utilities 121 126 120 148 162 n.a. 209Agriculture, irrigation

and fisheries 179 175 185 166 148 n.a. 186Manufacturing, mining and

trade 20 31 58 63 57 n.a. 97Acquisition of financial assets . 60 __ 86 10 ri.a. 21TOTAL CAPITAL EXPENDITURE 493 496 519 586 489 S03 68

C. Current Subsidy Payments to Govt.enterprises 42 38 33 36 36 29 25

D. Advance Account Payments (net) 14 15 -14 16 --. a.

TOTAL EXPENDITURE l,692 1,794 1948 2_.088 1,991 2«t12 2.121

(Footnotes on next page)

(Table YV continued)

1 U [ L i flaI~.inly ULU IUI I±1U UJI UI iU- 'J, Ul II CV I L t, 0t ;I V -L J suL: J t;- UU uiILL ujJJ ± akL11r, jdyJ i U Ly

government enterprises.2/ Consists of loans to Government Corporations and agencies, some of which may be used for current rather

than capital purposes. Some of these loans are not utilised in the year the appropriation took place,and the consequent Treasury deposits form one of the sources of administrative borrowing. (See Table XIII)

3/ Difference between budget receipts and payments by Electrical Department, Broadcasting, Posts andTelecommunications, Ports Harbours and Warehouses, and Railways.

Source: Central Bank of Ceylon; Government Accounts,

Table XVIAnalvsis of Factors Collectinf Myney Spply

December 21Septemfber 30 19l5 1959 1960 1961 1962 1963 1964 163 1964

A. Public Sector1.7 overnment

C B loans and advances - 1214 16h 186 166 203 183 203 210Gov't securities in C B 19 281 514 687 878 997 1,025 1,025 1,148Gov't securities in Commercial Banks 285 29! 297 3h0 U08 430 395 h23 h23

Gross bank credit 304 700 975 1~223 1~ 1~ 1,7 0 l~, ó 1~781

DeductionsGovlt Cash balance 1/ 16 108 88 110 166 197 203 1,237 2'38Counter part funds - n.a. 54 50 58 54 70 68

Total 1W 9138 ~68 220 ¯7 271 277 -235

Net Credit to Gov't 158 438 837 1,055 3,232 1,363 1,h69 1,hi1 1,5143

II. Gov't Corporations 2/Comm. bank credit to govlt corp,. n.a. n.a. n.a. n.a. n.a. n.a. 56 i 34

DeductionsTime and savings dep. n.a. n.a. n,a. n.a. n.a. n.a. 71 802/ 65

III. Net Credit to Gov't and Gov't Corporations 158 138 837 1,055 1,232 1,363 1,454 1,345 1,512

Deductions h8 99 118 126 140 154 213 157 212Net misc. acc'ts of CB 148 99 118 126 140 154 213 157 212

Net Credit to Public Sector 110 439 719 929 1,092 1,209 1,241 1,188 1,300

B. Private SectorVComm, bank credit 296 48!L 526 516 $78 634 76 681 770

1955 1953 1960 1961 1962 1963 1964 1963 1964

DeductionsTime and7savings deposits 170 299 348 347 397 473 467 421 h86Comm. bank misc. acc'ts (net) 28 29 -7 61 35 13 39 21 56

Total 1 9U -7 395 Th40 T7-,*56 2

Net credit to private Sector 98 156 131 108 96 119 240 239 223

C. Net Domestic Credit 208 595 850 1,037 1,188 1,327 1,481 1,427 1,528Change between periods 255 187 191 139 151 101

6/D. Net External Banking Assets- 804 533 331 224 106 172 68 79 95

E. Total Money Supply 1,012 l,128 1,181 1,261 1,294 1,499 1,549 1,506 1,623Change between periods 53 80 33 205 50 117

17These figures differ from those given in the government accounts because of differences indefinition and coverage, and because of sizeable leads and lags in recording transactions.

2/ Up to September 1962 included in this private sector.

3/ Rough estimate.

4/ Up to September 1963 includes credit to, and time and savings deposited of, government corporation

5/ Includes items in transit.

6/ Excludes counter part funds on the liability side.

Source Central Bank of Ceylon.

Table XVII

Conposition of Money Supply(Rs. million)

Sputember 30 1997 1999 1961 1962 963 196

Tntpil Mnneyv Riipplyv 1,0Iq5.6 1,1. PA,2A 1,2934.6 1,A 99.3, 1,5Q8.9

Currenor h38.h $50.5 66O.6 697.5~ 813.2 822.0in of r..oney supply 41.9 ~h.7 52.3 53.9 7.2 3.1

Demand Deposits 607.2 577.5 600.7 596.1 686.1 726.9in ' ofoe supl 58. 512 6. 61 ~3 T~9/0L~.L Je.nIVt bUEJnkLY V41 4UDJ. o4feU yIUo

Source4 Central Bank of' Ceylon.

Table X\YIII

Ovmership of Deposits

1956 ?/ 1958 ./ 1959 l/ 1960 / 1961 1962 3/ 1963 2/ 1964 3

Financial Institutions 80,7 93.6 88.9 105.3 105.2 122.0 117.0 120,9Plantations 214,.5 150.7 172.1 1813.1 145.9 134.5 115.8 100.1Trading Firms ) 59.5 69.8 86.0 105.6 123.2 188.2 207.5Other Businesses 108,,3) 85.4 92.5 90.6 88.2 135.5 121.5 132.7Local Authorities 51,5 28.1 22.5 2'3,2 40.2 31.1 47.7 54.2Non-Business Inst. 37.1 31.1 33.5 37.5 43.4 55.0 86.9 100.7Individuals 324.3 336.9 361.6 399.2 398.7 411.6 448.3 529.7

Total 816>4 785.5 841.0 924.9 927.2 1,012.9 1,125.4 1,245.8

Demand Deposits 638.1 551.9 560.1 587.4 592.8 617.0 66290 727.0Individuals 233.3 211.8 218.9 241.7 230.0 233.4 240.7 273.3Others 404.8 340.1 341.2 345.7 362.8 383.6 422.2 453.7

Time and Savings Deposits 178.3 233.6 280.9 337.5 334.4 395.9 _625 51.Individuals 91.0 125.1 142.7 157.5 168.7 178.2 207.5 256.4Others 87,3 1.08.5 138.2 180.0 165.7 217.7 255.0 262.3

7Includes demand, time and savings deposits. Coverage is not identical with that of Table XVII.

21 September 30.,J/ December 31.

Source: Central Bank of Ceylon.

Table XIX

Consolidated Assets and Liabilities of Commercial Banks(Rs. mili .on)-

AveraLeEnd of Year 1954-1956 1958 199 1960 1961 1962 1961 1964

AssetsLoans nnd q3vnnr 33 502 Co9 5hh 63 6h 68h 783Gov?t securities / 255 285 284 288 293 317 318 329Treasinur ills 5O lh h ) , A 111 10 91Foreign exchange }2 109 49 51 56 46 41 33 S4

Private demand deposits 587 56 609 607 595 628 674 765Prvate de nd deposits 57 628 O~ 2 2

Private time, savingsdeost 158 26 300 36 1. 1'r)[f 1. A ff

Govtt time, savingsdepos-Li 22 4h 2 2 1 3

Liquid assets W toerniand deposits 58 49 1 7 58 58 56 55

Loans and advances tototal deposits 38 3 1 52 eo ho >3 >b

1/ Includes securities guaranteed by the Government and issues bf theCentral Bank.

2/ Consists of foreign currency on hand and balances due from banks abroad./ Comprises cash on hand, balances due from Central Bank and other domestic

banks and items in process of collection./ Consists of cash on hand, balances due from Central Bank, foreign currency

on hand, balances due from banks abroad, Treasury bills and bills discounted.

Source: Central Bank of Ceylon.

Table XX

Cost of Living Index 1/ 2/

(192 = 100)

AverageWpiphts 19Th-1956 19q8 1959 1960 1961 1962 1963 196L

All Itm. I00-0 1006 1o 0 105 2 103.5 10L.8 106.3 108.8 112.2Food 61.7 T0~F f05 5r,7.7 100.8 9 100.9 103,,0 l06-nthino h 80-( 87_9 92T 9_1 1013.-9 108.2 118.2 127.2

Rent 5.7 101.5 101.5 1015 101,5 101.5 101.5 101.5 10i.5el and ligh+. L. --A 1010 n90-'h 10)27 10),h iot.6 103.0 103.2Miscellaneous 18.7 95.9 113.1 115.3 117.5 122.8 124.9 12666 129.3

Domestic Group 51 98.7 109.2 108,0 108.9 112.3 113.9 113.4 116,7TLM+t Goup 1. 1. -1A 0 07 a 07 1 01 7 O) A QA_7 109- 1C .-Export Group 5 109.8 135.0 153.1 138.h 119.1 113.8 117.7 115.3

inuex reters to CoLOMIDO IwOn. ±'gure3 repreUU aulual ZveragUb un.ee nIUU(

otherwiseaTne Index is based on surveys of household expenditures of low-income familiesin 1949-1950. It gives heavy weights to goods whose prices are kept almostconstant by the Government through subsidies, price control or a cominationof both .and is, therefore, not an indicator of movements in market prices.

Source: Central Bank of Ceylon.

Table KXI

R~1~nøof Pn~cv+

1963 19641960 1961 1962 Credit Debit e redit Debit Net

1. Merehandise Trade

a. Export (f.o.b.) 1,796 1707 1,763 1,708 1,764b. Imports (c.i.f.) 2,006 1,794 1,906 1,868 1,957

Trade Balance -210 -86 -143 -160 -193

2. Services and Current Invisibles -61 -47 -44 216 266 -50 187 218 -31

a. Port expenditure; non-freightTransport and Insurance 75 73 71 112 47 65 107 43 64

b. Foreign Travel -24 -18 -14 6 22 -.16 6 14 -8C, Investment Income -44 -40 -46 16 68 --52 12 46 ·34d. Government Expenditures -14 -9 -2 25 25 0 23 20 3e. Other services -23 -23 -23 51 68 -.17 33 58 --20f. Private remittances -31 -30 -30 6 36 -30 6 42 -36

3. Current Account Balance -271 -133 -187 - - -210 - - -224

4. Caital Account

a. Official grants51 53 41 37 44 · 44 76 - 76b. Long.term liabilities

(i) Private 2 -8 -2 5 -5 4 6 ·2

(ii) Official 20 19 40 82 6 75 78 13 65

(Continued on next page)

1963 1964V1960 1961 1962 Credit Debit Met Credit Debit Net

c. Short-term liabilities(i) Frivate -7 14 -1 4 -4 13 -13(ii) Official2/ .66 44 -? 45 45 51 - 51

d. External assets 220 0 41 42 42 56 - 56e. INF transactions - 54 54 1 - 1 1

5. Errors and Ommissions -1 -31 25 - - 2 - 10 -10

1/ Provisional.2/ Includes P1480, CARE, etc.'3/ Excludes IEF, which is included in e. Includes net balances on bilateral accounts.

Source: Based on data supplied by Central Bank of Ceylon.

Table XXII

Composition of Exports(Rs. millioón)ý

Average195h-1956 1957 i95.9 1960 1961 1962 1963 196h

Tea 1,121 1,021 1,0h5 1,096 1,115 1,19 1,ihl ,12Rubber 309 300 298 378 260 290 257 290Mnior Cnconut Produic~ 218 16 2M, 18), 202 227 198 273Other Doestic Exports 100 111 105 117 10h 100 110 137

Domestic Exports 1,7h8 1,588 1,692 1,775 1,681 1,766 1,,706 1,812Re-exports 80 9h 62 __2 $2 h2 26 3h

TotalExport R ,82 I ,8 ,7 1R,83 1,733 - R 1,q8 i , 76 P7A

Pe-centage ,fDoP si

Exports

Tea 64.1 64.3 61.8 61,7 66.3 65.1 66.9 62.0D-u,bber 17. 1n.9 n 1 7. 2 - nl 13 -15. 16C-ii' . n 1501 -15.,7-i.V. ±.'7 ±r v C- -L-.) L- .) ±-U L;;L L.?± ± (

Major Coconut Products 12.5 9,8 14.4 10.h 12.0 12.8 11.6 14.9

Other Domestic Products 5,7 7,0 6.2 6.6 6,2 5.7 6.h 7.-h

Domestic Exports 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0

Source: Ceylon Customs Returns.

Table XXIIICosition of Imports

Average1956-1956 1959 1960 1961 1962 1963 1964

Consumer Goods n.a. 1,203 1,195 972 979 919 1,172of which Rice 283 242 217 248 250 283

Flour 106 65 69 89 85 100Sugar 75 79 78 60 125 174

Nli lk, milk products 78 72 66 76 77 94Meat, fish, eggs 99 l15 77 62 65 74Grams, pulses, curry stuffs 94 113 113 117 112 139Beverages, Manuf. tobacco 15 14 16 5 5 3Textiles 179 196 172 149 83 165Tires, tubes 9 9 7 8 5 4Drugs 32 32 27 25 20 26Others 233 2-8 130 140 92 110

Intermediate Goods n.a. 396 397 383 409 372 h10of which 61 58 57 60 68 78

Petroleum prod. 135 124 127 126 119 106Chemicals 39 40 38 48 42 49Paper, cardboard 31 35 32 32 27 35Others 130 140 129 143 116 142

Investment Goods n.a. 389 355 339 337 324 305of which Building materials 88 100 89 100 77 93

Transport equipment 146 118 100 92 100 58Machinery, other equipment 155 137 150 145 147 154

Unclassified 17 13 9 8 13 10

Total 1,495 2,005 1,960 1,703 1,733 1,628 1,897

S6urce - Ceylon Customs Returns, Central Bank of Ceylon.

Table XXIV

Index of Terms of Foreign Trade(1958 = 100)

Average1954-1956 1957 1958 1959 1960 1961 1962 1963 196b

Export Prices 110 10 100 1 oh I0) 95 93 93 93Tea 117 101 100 99 97 9 92 91 91Tihhpr 119 11i 100 11; 110 1o 10h 98 91Coconut Products 88 89 100 117 103 80 82 90 93

Import Prices 103 108 100 102 102 101 95 105 107

Terms of Trade 106 94 100 102 102 94 98 89 86

Source: Central Bank of Ceylon.

Table XXV

Ex,-ort ''unntitp.,sandi P-rj,cesDessicated

Tea Rubber Copra Coconut Oil CoconutMlill. lbs. Rs/lb. Mýill. lbs. Rs/lb. Th./cw,,t. Rs/cwt. Thi./!cwt. Rs/c-wt. Th./(-,Dt. Rs/,2wt.

1954-1956 357 3.14 202 1.53 1,148 44.06 1,673 62.30 1,179 52.55(average)

1957 368 2.78 209 1.44 695 47.95 1,081 62.80 978 56.081958 411 2.75 207 1.25 554 52.97 887 69.80 1,135 63.721959 384 2.72 206 1.45 852 60.52 1,389 84.41 1,050 71.451960 410 2.67 23.5 1.61 583 55.23 1,110 71.83 1,099 65.231961 426 2.62 197 1.32 1,100 43.47 1,837 58.16 967 49.231962 452 2.54 224 1.29 1,448 40.74 2,043 54.97 981 57.231963 456 2.50 209 1.23 862 45.55 1,621 61.04 967 61,721964 456 2.51 253 1.15 1,162 47.44 2,351 65.42 1,080 59.47

Source: Ceylon Customs Returns.

Table XXVI

Official Grants and Loans(Rs. million)

1960 1961 1962 1963 1964 1965-_ _(estimato

Grants

Canada 6 7 8 6 14 18Europe - - 5 1 - -Sterling Area 1 4 - 6 3 1U.S.A. 46 29 24 22 25 1China (Mainland) and

others - 1 - 9 34 6

53 41 37 44 76 66

Loans

IBRD 9 17 27 23 15 19Canada - - - 2 1 8China (M1ainland) - - - - 5 -Fed. Republic of Germany - - 1 11 L 16France - - - - - 3United Kinvdom - - 9 8 6 6U.S.A. 17 6 3 1U.S.SR. 1 1 5 17 33 12Others -- 4 1 5

27 24 h6 68 66 69

Total Grants and Loans 80 65 83 112 142 135Renauments 6 5 6 6 11 31

Net Total 170 77 6i0 131 104

Net Total in % of Resourcean '48 9 59 71

Source- Cental~ -3ank r%f'l.ArIn

Table XXVII

Gross and Net External Asset(Rs. million)

End of Year 1953 1959 1960 1961 1962 1963 1964

Government Institutions and agencies 281 280 245 232 242 243 243 108Central Bank 591 539 387 165 169 136 99 118Commercial Banks l/ 109 114 102 112 105 102 105 107Balances due to Ceylon under variousbilateral accounts 3/ 81 n.a. 1 27 16 23 15 18

Gross Assets 1062 933 735 536 532 504 462 351

Less:

Balances due from Ceylon under variousbilateral accounts 3/ n.a. 28 n.a. n.a. 22 11 50 116

IMF Liability - - - - 54 110 111 113Other Central Bank Liabilities 4/ 3 4 6 1 6 4 3 4Commercial Bank Liabilities 1( 26 27 29 29 22 25 25Sterling Loan Sinking Funds 87 95 79 84 91 97 104 46

Total Deductions 109 153 112 114 202 244 293 304

Net Assets 953 780 623 422 330 260 169 47(changes between periods) (-222) (-173) (-157) (-201) (-92) (-70) (-91) (-122)

(Footnotes on next page)

(Tabl XVIT continued)

I/ Consists almost entirely of' sinkLng fund investments for sterling loans and domestic public debt.2/ Working balances only, comprising foreign currency on hand, "balances due from banks abroad, and export

bills purchased and discounted.

/ 195?-.60 data are net, and include only China prior to 1960. 1961-64 data comprise balances due to andfrom Ceylon under accounts with Czechoslovakia, USSR, China, Rumania, Bulgaria, UAR, Hungary, Poland,Iran, GDR, Yugoslavia, Burma and France.

/ Excludes counterpart funds.

Source: Central Bank of Ceylon,,