The GDP Per Capita in the Central Bank Annual Report for 2011

Monday, 23 April 2012 00:00 - - {{hitsCtrl.values.hits}}

A Response by R.M.B Senanayake

I refer to the criticism by Dr. Harsha De Silva M.P that the Central Bank has falsified the GDP per Capita figures in US Dollar terms. He has referred to W.A Wijewardene’s article in your newspaper. Wijewardene has attempted to find a contradiction by considering other factors like inflation figures and the terms of trade effect although I must confess I couldn’t quite understand his argument.

But he recognises that the GDP Deflator is realistic.

Here is what the Annual Report says “This increase was reflected by the 8.3 per cent real economic growth and 7.8 per cent increase in the overall price level of the economy, as measured by the GDP deflator.

Many people question the Consumer Price Index including a former Director of Statistics. Changing the base year too frequently and changing the basket of goods taking out goods like liquor and cigarettes where rice changes are high are not the best ways to measure price changes in the general price level of the economy. The GDP Deflator is also a measure of inflation or rather price changes in the economy (inflation is a sustained increase in the price level and not any increase in the price level) and I think the 7.8 value for inflation is a better measurement of inflation than the Consumers Price Index.

The Central Bank has pointed out that it has not falsified the GDP per capita which has been prepared as in the previous years. So it refutes Dr. Harsha De Silva’s contention and reminds Wijewardene that the same basis of calculation was used when he was Deputy Governor. But it also goes on to say that it is based on world standards.

The GDP per capita in PPP terms for Sri Lanka as $2836 in 2011 is not a fictitious figure in my opinion. The World Bank has placed Sri Lanka in the Lower Middle Income group of Countries. But the World Bank recognises that where there is a divergence between the official rate of exchange and the free market rate there should be a correction.

The World Bank uses what is called the Atlas Method of Conversion: “to smooth fluctuations in prices and exchange rates, a special Atlas method of conversion is used by the World Bank. This applies a conversion factor that averages the exchange rate for a given year and the two preceding years, adjusted for differences in rates of inflation between the countries.”