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  • Sri Lanka economy grows rapidly after 26 years

    Sri Lanka's economy may expand at a faster pace this year than previously estimated as the nation rebuilds after ending a 26-year civil war, central bank Governor Nivard Cabraal said. "We could be looking at something like 4 percent to 5 percent growth on the basis of war coming to an early end," Cabraal further said to an International Television.

    The Central Bank of Sri Lanka in April predicted the $32 billion economy would grow 2.5 percent, the least since 2001.

    Shares rose in Colombo after the central bank cut the reverse repurchase rate, one of two benchmark rates, to 11.5 percent from 11.75 percent today to revive an economy ravaged by the global recession and war. President Mahinda Rajapaksa is seeking international assistance to rebuild the nation after the army crushed the Liberation Tigers of Tamil Eelam this month.

    "We do see a new momentum for our economy and at the same time we have created sufficient space to take a little more liberal view with the monetary policy," Cabraal said. Inflation is under control and "we are on the threshold of a new era" with war being "a thing of the past."

    Sri Lanka’s benchmark stock index, the Colombo All-Share Index, rose 6 percent to 2,156.64 at May 21st 2009 evening. The central bank’s repurchase rate was left unchanged at 9 percent, and the so-called penal rate on reverse repurchase transactions was removed, according to a statement on the Colombo-based bank’s Web site today.

  • IMF Loan

    Sri Lanka’s $32 billion economy grew 4.3 percent in the three months to Dec. 31 from a year earlier, the weakest pace of expansion since at least 2003. Exports fell 7.8 percent in March, the fourth straight monthly decline, as the worst global recession since World War II crimps spending by customers in Europe and the U.S.

    Lower borrowing costs are "important to speed up the reconstruction work and to boost local economic growth," said Bimanee Meepagala, an analyst at Eagle NDB Fund Management Co. in Colombo. "Reconstruction, a larger area to cultivate and fish, and brighter prospects for tourism will enable the economy to post strong growth despite slowing external demand."

    Sri Lanka said in March it’s in talks with the International Monetary Fund for a $1.9 billion loan to repay debts and rebuild the country.

    "We already had indications from the managing director of the IMF that they would be resolving this issue very soon," Cabraal said. "That will give us the added anchor for the development work that we are going to do."

  • Brighter Prospects

    The end of the war will lead to an improvement in investor sentiment as well as attract more overseas investment and aid from multilateral agencies, said Prakriti Sofat, a Singapore- based economist at HSBC Holdings Plc.

    "Growth prospects in 2009, which were dampened by the global downturn in economic activity, have now brightened," the central bank said in a statement today. "Rising domestic demand along with the reconstruction and development of areas liberated will help expand domestic production and thereby add to the country’s output."

    Cabraal reduced the repurchase rate by 1.5 percentage points in previous meetings this year and cut the so-called penal-rate by 6 percentage points to enable banks to extend loans at cheaper rates and stimulate consumer spending.

    The central bank also removed restrictions on the number of times that a participating institution can access the reverse repurchase standing facility and the maximum amount lenders can place with the Central Bank of Sri Lanka under the repurchase standing facility, it said in today’s statement.

  • Inflation, Currency

    Inflation in Sri Lanka slowed to 2.9 percent in April from 28.2 percent in June as commodity costs eased.

    "The outlook for domestic inflation continues to be favorable," the central bank said. "Inflation is expected to bottom out during the next two months and is projected to remain at single-digit levels throughout 2009 and 2010."

    The Central Bank of Sri Lanka will intervene in foreign- exchange markets only to reduce excessive volatility as it seeks to maintain stability in the currency, Cabraal said.