2. Sri Lanka was a sad victim of terrorism, which sapped its energies for over 3 decades… Acute burden of terrorism felt nationwide since 1983 Massive human cost of war with thousands of lives lost and mutilated Key economic centres scathed and destroyed Investor confidence severely affected and economy was engulfed in a vicious cycle As a result, the economy is estimated to have suffered a 2% loss in growth, annually… 2

3. In May 2009, the humanitarian operation successfully defeated terrorism under the guidance of President Mahinda Rajapaksa… Swift measures were taken to restore normalcy in the war-torn areas – Rapid demining – Quick resettlement – Counselling – Rapid restoration of livelihood – Continued investment in the form of infrastructure restoration and upgrade The stage was set for Sri Lanka to embark on a journey that was delayed for 30 years… 3

4. War-torn nations of the past have had mixed economic growth since the end of similar long wars/internal conflicts… Per Capita GDP (at current prices) - (1980-2013) Source: WEO Database, April 2014 Other nations, apart from Korea, have struggled to pace up… 4

5. South Korea is an interesting and special case study… South Korea… THEN… in 1953 War damages in South Korea were approximately US$ 3.0 bn. This amount was almost equal to estimated GNP for 1952 and 1953 combined. In addition, about 1 million civilians were killed during the war. Major economic reforms, foreign assistance, export orientation and long-term development plans were instrumental in achieving high growth momentum of more than 10% growth by 1967. It was one of the world's fastest growing economies from the early 1960s to the late 1990s. The most significant factor in rapid industrialisation was the adoption of an outward-looking strategy 5

6. …and NOW!!! Today, South Korea is one of the world's wealthiest nations, and is a G-20 major economy. It is a leading manufacturer and home to some famous brands in the world – Automobile – Shipbuilding – High-tech industries 6

7. Unit20002005200820092013 2014 (Proj) Remarks Real GDP Growth (Avg. for 5 years ending) % 5.04.06.46.06.77.8 Substantially higher growth trajectory GDP US$ bn 16.624.440.742.167.277.0 176% increase in 8 years! Unemployment % 7.67.25.45.84.44.0 Steady progress Inflation (Annual Avg.) % 6.211.022.63.46.95.0 More than 5 years at single digit levels Current Account Deficit % of GDP 6.42.79.50.53.92.1 Satisfactory progress being made Remittances US$ bn 1.22.02.93.36.47.0 Steady y-o-y growth, & 237% increase in 8 years FDI Inflows US$ bn 0.20.30.90.61.41.9 Steady growth Gross Official Reserves US$ bn 1.02.72.65.47.58.3 Consistent improvement and steady progress Months of Imports 1.73.72.26.35.05.2 Exchange Rate (Average) Rs./US$ 75.8100.5108.3114.9129.1130.2* Stable levels maintained Budget Deficit % of GDP 9.57.0 9.95.95.2 Important progress towards fiscal consolidation Public Debt % of GDP 96.990.681.486.278.374.3 Moving steadily towards greater sustainability Broad Money Growth (M 2b ) % 12.919.18.518.616.714.0 Close to projected levels All Share Price Index (ASPI) No. 4481,9221,5033,3865,9136,973* Reflects strong corporate sector performance Stock Market Capitalisation Rs. bn 88.8584.0488.81,092.12,459.92,926.6* Reflects peace dividend and corporate sector vibrancy Tourist Arrivals ‘000 4005494384481,2751,593 Remarkable increase after the conflict Since the end of the conflict, the Sri Lankan economy has achieved substantial progress in almost all macro- fundamentals… * As at 14 August 2014 7

8. In Sri Lanka, the past 4 years (i.e. the post-war period) were the only HIGH GROWTH + LOW INFLATION years in the post-1977 period… Source: Road Map, 2014 indicates year South Korea’s success story is one to be admired and emulated… It took South Korea nearly 40 years after their war to increase their per capita income to around US$ 7,000 Sri Lanka targets to reach that milestone by 2020… 11 years after its 30 year war… 8

9. At the time of the end of the humanitarian operation in 2009, the Sri Lankan GDP was dominated by the Western Province… Note: The size of the bubble represents the GDP of the Province Contribution to growth: 50.2% 9

10. By 2013, the remarkable progress of the Northern and Eastern Provinces has changed the GDP composition, materially… Note: The size of the bubble represents the GDP of the Province Contribution to growth: 38.3% 10

11. The Government’s mega-scale infrastructure development plan has enhanced the country’s internal connectivity and productive capacity substantially… Road development projects The Southern Expressway Project - 126 km Phase 1 – Completed in 2011 Phase 2 – Completed in March 2014 Northern Railway Project - 146 km Railway line from Omanthai to Pallai was completed in March 2014 Railway line up to Kankasanthurai and Thalaimannar to be completed by 2014 The Colombo-Katunayake Expressway - 26 km Completed in October 2013 The Colombo Outer Circular Highway Project - 29 km Phase 1 – Completed in March 2014 Phase 2 – Completion by 2015 Phase 3 – Completion by 2018 Northern Expressway Feasibility study in progress Kandy-Badulla Alternate Highway Project - 34 km Feasibility study done Power projects 900 MW Norochcholai Coal Power Plant Phase 1: (300 MW) – Commissioned Phase 2: Unit 1 (300 MW) – Commissioned Unit 2 (300 MW) – Completion by November 2014 120 MW Uma Oya Hydro Power Project Completion by 2015 500 MW Sampur Coal Power Project Completion by end 2017 20 MW Moragahakanda and Kaluganga Reservoir Project In Progress Port development projects The South Colombo Harbour Project South Container Terminal - Commissioned in August 2013 East Container Terminal – Completion by end 2014 The Hambantota Port Development Project Phase 1 – Completed Phase 2 – Completion by 2015 The Oluvil Port Development Project Opened in September 2013 The Kankasanthurai Port Development Project In Progress Airport development projects Second International Airport at Mattala Opened in March 2013 BIA Expansion Project To be completed by 2016 Domestic Airport Development – Ampara, Koggala, Batticaloa, Kandy, Nuwara Eliya, Sigiriya and Jaffna In Progress Ratmalana Airport was converted into a city airport accommodating international corporate flights Ongoing rural infrastructure development projects Gama Neguma, Maga Neguma, Small Irrigation projects and Kirigammana projects Several mega hotel projects, condominiums, shopping malls, development of Northern and Eastern Provinces, and water supply projects 11

12. By 2015, Sri Lanka’s per capita income is expected to surpass US$ 4,000 while by 2016, the country’s GDP would reach US$ 100 bn… $981 2003 2011 2013 2015 $2,836 $3,280 $4,240 (Projected) $4,825 (Projected) 2016 GDP US$ 67.2 bn GDP US$ 59.2 bn GDP US$ 18.9 bn GDP $ 88.7 bn GDP $ 101.8 bn 12

13. With the goals for 2016 set to be achieved, the focus now shifts to Sri Lanka: 2020 13

14. Sri Lanka: 2020 would have a GDP of around US$ 150 bn, a US$ 7,000+ per capita income, and sound macroeconomic fundamentals… Economic growth averaging around 8% from 2015 onwards Inflation at the lower end of mid-single digits Poverty at very low levels, with abject poverty having been eradicated Unemployment limited to the natural unemployment levels A debt to GDP level around 50% Current account at surplus with foreign reserves growing faster A Sri Lankan rupee that has appreciated gently over the years, from 2015 to 2020 14

15. Sri Lanka: 2020 business outlook would have improved significantly… Doing Business ranking among the first 20 countries Sovereign being rated at investment grade with positive outlook Disparities among lagging districts reduced significantly with considerable contribution from all provinces to economic growth Economic growth spurred by modern infrastructure Sri Lankan ports and airports among the more popular and busy international ports and airports in the region Productivity levels improved to higher levels with better skilled labour force Advanced technology used in industry, supported by an intelligent workforce Strong work ethic being practiced by a large segment of the workforce 15

16. Sri Lanka: 2020 real economy too, would have undergone a paradigm shift… Economy would be more balanced, with foreign exchange earnings greater than expenditure The “5 Hubs ++” would have progressed quite well, and each hub as well as existing drivers of the economy would be operating at enhanced levels Tourism sector would be catering to about 4.5 million tourists Worker remittances would be mainly from a skilled and semi- skilled labour force, treated with greater care, dignity and respect Financial sector would be stable and would be having a presence in the region, providing services in Asia Sri Lankan business conglomerates would be enjoying serious business relationships with key Asian, European and US counterparts The Colombo and major city skylines would have undergone significant changes 16

17. 2020 GDP 2013 GDP Agriculture Fishing Forestry Livestock Industry Mining and Quarrying Apparel Other Manufacturing Electricity, Gas and Water Oil and Gas Exploration Marine and Aquatic Resources Technology and Innovation Construction Services Wholesale and Retail Trade Hotels and Restaurants Transport Banking Communication and IT Insurance Real Estate Healthcare Entertainment Education Services Ownership of Dwellings Government Services Private Services Sri Lanka: 2020 macroeconomic framework would reflect several new drivers in the GDP computation tables… A more modern and high yielding Agriculture sector of US$ 10 bn (6.7% of GDP) (2013: US$ 7.2 bn) A more innovative and advanced Industry sector of US$ 50 bn (33.3% of GDP) (2013: US$ 21.8 bn) A more broad-based and dynamic Services sector of US$ 90 bn (60.0% of GDP) (2013: US$ 38.1 bn) 17

18. Sri Lanka: 2020 would have greater emphasis on export of services… – Tourism services – IT/BPO services – Aviation services – Maritime services – Knowledge economy services 18 External Account Targets & Projections for 2016 and 2020 (Per Annum Value, US$ bn) Item2013 2016 2020 Merchandise Exports 10.4 15.9 21.4 of which Tea 1.5 2.2 2.5 Rubber 0.1 0.2 0.3 Textiles & Garments 4.5 5.6 8.0 Rubber products 0.8 1.2 1.5 Gems, Diamonds & Jewellery 0.4 1.0 1.5 Services Exports 4.7 9.3 12.3 of which Earnings from tourism 1.7 4.1 6.0 Port and Airport related services 1.0 1.5 2.0 IT/BPO services 0.6 1.0 2.0 Oil and Gas - 0.5 3.0 Workers’ remittances 6.4 8.3 10.5 Foreign Direct Investment 1.4 2.8 4.3 Long term loan inflows Government 1.6 2.2 2.7 Private sector 0.7 1.0 1.2 18

19. Sri Lanka: 2020 would have delivered several new National Mileposts and Targets… National Mileposts Poverty: Less than 1% Unemployment: Less than 3% Acute Malnutrition amongst children under 5 years: Less than 3% Electricity coverage: 100% Literacy: 100% Computer Literacy: 90% Life Expectancy: Above 80 yrs. for both male and female New Highways: Additional 311 km Mono rails: To be initiated in 2015 Entire road network: All weather roads with 100% rural accessibility Public investment: 8% of GDP National Savings/investment gap: 0.5% of GDP Market based Targets Value Stock Market Capitalisation: US$ 150 billion Corporate bond market: US$ 30 billion Bank assets: Rs. 18 trillion 19

20. Sri Lanka: 2020 would have convinced all doubting nations that the Humanitarian Operation of 2006-2009 was a legitimate and vital operation that led to… The total elimination of terrorism and the eradication of its ruthless top leadership The release of nearly 300,000 civilians held hostage by the terrorists, who were made to support the terror and combat machinery of the LTTE The rehabilitation of nearly 12,000 captured LTTE cadres, to re-integrate with society and to resume normal lives The reunion of nearly 600 child soldiers who were recruited for combat, with their parents The de-mining and reconstruction of the devastated Northern Province, and the resettlement of those who were driven across the entire Province by the LTTE 20

21. Sri Lanka: 2020 targets would obviously be challenging, and many stiff hurdles would need to be surmounted... What needs to be done? 21

22. Sound macro-economic fundamentals and trends would need to be maintained, even if the global environment is tough… IndicatorUnit Actual 2009 Projections 201420162020 Real Sector GDP Growth %3.57.88.38.0 Per Capita GDP at Market Prices US$2,0573,7194,8257,500 Inflation (GDP Deflator) %5.96.05.04.5 Unemployment %5.84.0 3.0 Gross Investment % of GDP24.431.033.136.5 External Sector Trade Gap % of GDP-7.4-9.5-7.2-4.5 Exports of Goods and Services US$ bn9.017.625.233.6 Imports of Goods and Services US$ bn11.723.229.537.3 Current Account Balance % of GDP-0.5-2.10.10.5 Overall Balance US$ bn2.71.72.93.0 Fiscal Sector Budget Deficit % of GDP9.95.23.83.0 Government Debt % of GDP86.274.365.050.0 22

23. Colombo – Container mega hub Hambantota – Free port, Service and Industrial port declared as a “Free Port” Galle – Leisure Port Trincomalee – Port-related industries and Port City Oluvil – Commercial and fisheries Kankasanthurei and Point Pedro – Regional ports Second international airport at Mattala Modernisation and the 2 nd Runway at BIA Upgrading of domestic airports Colombo as a regional logistics and services hub IT literacy and internet access for all Creation of knowledge-based jobs Promotion of research and innovation Sri Lanka as an “education” destination Accredited foreign universities in Sri Lanka Develop renewable energy sources Oil exploration and production – (Mannar, Cauvery, Southern waters) Develop oil trade related ancilliary services including gas Sri Lanka as a top centre in the region for commercial services Growth of ports and tourism will catalyse the development of Sri Lanka’s commercial sector Arrivals target of 4.5 mn by 2020 Earnings from Tourism – to increase to US$ 6.0 bn by 2020 The Economic Diversification Programme would need to continue, based on the ‘5 Hubs ++’ concept… 23

24. Country-wide infrastructure development would need to provide the necessary impetus for investments… Significant improvements to the macro economy are expected through infrastructure development Rapid advancement in physical infrastructure is expected to support the growth momentum in the medium term New growth sectors would need to be based around newly developed transport, port, aviation and commercial hubs 24

25. World Bank Group’s Doing Business Survey Doing Business Indicators improvements and investment grade sovereign rating upgrades would need to be focused upon… The Index of Economic Freedom For 2020, Sri Lanka would strive to be among the first 20 countries in the Doing Business Ranking and would strive to have an investment grade sovereign rating with a positive outlook BB- BB BBB- BBB 201420162018 2020 Fitch B+ BB BBB- BBB 201420162018 2020 S&P B1 Ba2 Baa3 Baa2 201420162018 2020 Moody’s Targets for Improvements in Sovereign Ratings 25

26. The financial sector would need to be developed and sustained in order to become deeper and more liquid… The ongoing consolidation process would result in Sri Lankan financial institutions transforming towards being stable, large scale, globally competitive financial institutions Capital would need to be more competitive, and Sri Lanka would need to offer a safe environment with reasonable returns Public debt issuance would need to be streamlined with new issuances, also focused on developing the capital markets and supporting investment requirements of superannuation funds of the country 2016 Targets2020 Targets At least 5 banks to have an asset base in excess of Rs. 1 tn At least 3 banks to have an asset base in excess of Rs. 2 tn Large state banks to have a regional and /or global presence At least five banks to have a regional or global presence Few specialised banks to finance regional development activities Well established off-shore banking operation centre under the commercial hub Smallest bank to have an asset base of over Rs. 100 bn Well established arbitration centre in Colombo for financial sector dispute resolutions Finance companies limited at 20 and the smallest company to have an asset base of Rs. 20 bn Strong NBFI sector backed by the banking system Local banks playing a key role in social security products 26

27. The labour force would need to be developed with a special focus on productivity, and the inculcating of a strong work ethic… The issue of changing demographics would need to be addressed – Ageing population and high retirement costs – Increased expenditure on healthcare – Ensuring adequate female labour force participation – Loss of healthy and experienced persons to the workforce due to current retirement practices Focus on increasing labour productivity Ensure engagement of female labour force participation in the workforce Minimise underemployment and labour market misalignment Introduce flexi-hours at the work place Consider restructuring the payment cycle, including the payroll system, in line with those followed by advanced economies, to increase and smoothen consumption levels of the workforce 27

28. The private sector would need to be continuously facilitated to become even more vibrant and enthusiastic… A dynamic private sector that does not hesitate to engage in new ventures and investments is the way forward to 2020 Transparent mechanisms with proper administration and due process Strong legal frameworks that provide swift recourse at times of remedial action Fundamentally sound public and private sector institutions, and strong regulatory authorities Vibrant payments and settlement systems with suitable infusion of new technologies 28

29. A continued flow of capital investment along with a substantial improvement in productivity would be required over the next several years... A steady improvement in investment to GDP ratio reaching 36.5% by 2020 is required Investments need to be attracted from both local and foreign sources during the next few years Areas in which foreign funds could be introduced: – FDI – Capital inflows: portfolio and government securities – Commercial borrowings – Bilateral funding opportunities – Investment treaties and investments with counterpart governments 29

30. The notorious “middle-income trap” would need to be avoided… Increased wage pressures may present a challenge to maintaining price stability Possibility of wider disparity among income classes, as may be reflected by a widening of the Gini coefficient would need to be addressed Declining labour productivity levels as faced by certain middle income countries would need to be responded to 30

31. And most importantly, continued political stability and policy consistency would need to be ensured… In the future too, implementation of progressive economic policies would require political support at times of challenges Investors would also need to be assured of policy consistency so that they are able to commit themselves to long-term, large-scale investments The positive political environment since 2006 helped to effectively steer the economy out of global crises and turbulent times in the recent past 31

32. For this purpose, the Diaspora-driven and unhelpful UNHRC Resolutions would need to be countered with International Humanitarian Law provisions and actual events… The following key principles of International Humanitarian Law, seem to have been blatantly ignored when the US led UNHRC resolution was moved against Sri Lanka: – The Principle of Distinction – The Principle of Proportionality – The Principle of Necessity – The Principle of Government’s Responsibility to Protect its civilians and free them from the clutches of the terrorist group that was holding the civilian hostage The number of deaths during the final period of the conflict has been based on speculative and sensationalist “numbers games” by certain UN groups and those need to be countered once-and-for-all Many major weaknesses, bias and gaps are prevalent in the UN Panel of Experts Report (Darusman Report), which makes that report highly unreliable. Hence, it must be countered that such report must not be used to frame any charges or come to conclusions against the Sri Lankan armed forces or the Government 32

33. At the same time, a return to the “Conflict Trap” must be avoided at any cost… Empirical evidence suggests that about 40% of post-war countries revert back to civil war within a decade (Collier et al., 2008) Countries with a violent past are more likely to experience a new conflict (Walter, 2011) It has also been highlighted that economic recovery is an important determinant of lasting peace – Higher growth rates prolong the duration of peace and therefore helps in stabilising the economy (Collier et al., 2008) Hence, economic policies must progress hand in hand with measures by the Government and armed forces, to ensure sustained peace… 33

34. National security would also need to be ensured for Sri Lanka to establish itself as a major Maritime and Aviation Hub in the world… Chaos in the naval and aviation fronts of most nations have led to uncertainty and skepticism around the world – Air space issues in Ukraine and Iraq – Maritime piracy in Somalia Concerted efforts will need to be taken by the armed forces and relevant authorities to ensure safety and promote Sri Lanka as a safe hub for maritime and aviation related activity 34

35. In addition, the military’s role as a “Development Partner” in peace time would need to continue… The military has played a commendable role on the development of Colombo and the greater metro Colombo area in order to improve the vibrancy of the commercial capital in the quest to become a Commercial Hub – The Dutch Hospital Shopping Precinct – The Race Course Shopping Complex – The Arcade Independence Square Shopping Complex The prevailing peaceful and people-friendly environment has helped Sri Lanka to attract tourists in large numbers, placing the nation on track to become a Tourism Hub 35

36. In that regard, the military experience, training and technical know-how would be handy, and must be made use of… Development operations are generally expedited by co-operation among the military, civilians and NGOs Officers trained both locally and internationally can be a good source of information for research and development Vital spokespersons to educate the public on various topics such as the benefits of peace, survival, etc. It can also help foster relationships with other nations, especially through the provision of military personnel as Peace Corps 36

37. Special focus would also need to be given to deter Cyber Terrorism… Despite the suppression of terrorism within borders, LTTE remnants still operate at large through executing cyber attacks Critical installations, which would be increasingly dependent on IT with development, must guard against attacks in the future Attacks on such installations could impede economic activity thereby impacting development and growth Therefore, ensuring cyber security would be of paramount importance for Sri Lanka as a growing economy as well as a nation that has successfully defeated terrorism… 37

38. Sri Lanka: 2020 is surely taking shape as reflected in Colombo’s new and emerging skyline… Source: Report by Ernst & Young, 2013 38

39. Sri Lanka: 2020 While focusing on Sri Lanka: 2020, a longer term vision, whereby Sri Lanka moves to the “High Income” category by 2040, must now enter the planning horizon… Sri Lanka: 2040 Sri Lanka: Now US$ 3,280 World Bank Categorisation: 2012 GNI per capita, calculated based on World Bank Atlas method 1,035 4,08512,615 Middle Income Congo, Dem. Rep. (230) India (1,580) Thailand (5,210) Malaysia (9,820) Bermuda (104,590) Philippines (2,500) Norway (98,860) Switzerland (80,970) South Africa (7,610) Chile (14,310) Rep. of Korea (22,670) 39