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Sri Lanka Economy Seen Growing 6.5-Pct In 2010: Central Bank
Source: lankabusinessonline.com
Source Date: Monday, April 05, 2010
Focus: Knowledge Management in Government
Country: Sri Lanka
Created: Apr 12, 2010

Sri Lanka's economy will bounce back from the effects of war and global recession with 6.5 percent growth this year, and maintain 7-8 percent growth in the medium term, the Central Bank said.

Gross domestic product growth of 7.5 percent is anticipated next year and eight percent in 2012, it said in its annual report.
The economy grew 3.5 percent in 2009, down from six percent in 2008, as the ethnic war and global recession took their toll.

But the 30-year war ended last May opening up prospects for higher growth, the bank said.

"The end to the prolonged internal conflict and the restoration of peace provide a greater optimism on economic prosperity providing a strong basis for long-term sustainable development, supported by appropriate policies."

The opportunities created by the restoration of peace will be complemented by the ongoing global economic recovery.

"The current low inflation and interest rate regime also provides a conducive environment to fuel economic activities," the Central Bank report released Monday said.

"In the short to medium-term, moving to a high growth trajectory while maintaining price stability remains a key policy challenge."

The bank said there is a need for a "gradual and cautious" unwinding of accommodative fiscal and monetary policies as the recovery gathers momentum in order to prevent inflationary pressures forming in the economy.
To support the higher growth of 7-8 percent expected in the medium term, an investment of around 30 percent of GDP is needed and is expected mainly from domestic savings though there will be considerable inflows of foreign resources as well.

"The increase in domestic savings to enhance investments in the medium term is expected from both the government and the private sector," the bank said.

"This would require a generation of a surplus in the current account of the budget and maintaining a conducive macroeconomic environment with low inflation to encourage private savings."

The Central Bank said fiscal policy in 2010 and beyond will focus on strengthening the "fiscal consolidation process" by enhancing government revenue and cutting recurrent expenditure.

But the bank warned that its medium term growth forecasts might not be met if there is a slower than expected recovery of the global economy and delays in implementing much needed structural changes, unexpected commodity price hikes, particularly oil, and weather related shocks.

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