Sri Lanka's Economy to Grow at 8pct in 2012 with a New Deal with IMF

03rd January 2012, www.lankabusinessonline.com

Sri Lanka's economy is projected to grow at 8.0 percent in 2012 with a new deal in the offing with the International Monetary Fund, Central Bank governor Nivard Cabraal said.

The island economy had grown at about 8.3 percent in 2011, he said.

In 2012 Sri Lanka is targeting an inflation rate of between 5-6 percent, Cabraal said.

Annual average inflation for 2011 was 6.7 percent compared with 6.2 percent the year before, according to a 12-month moving average.

Cabraal said the economy had earlier been forecast to grow at nine percent in 2012.

But the forecast was lowered as the global economic situation had changed with the debt crisis in Europe and recession or low growth looming in key Western markets.

Sri Lanka will also negotiate a follow up or surveillance programme with IMF for 2012, Cabraal said at the launch of the central bank's monetary policy road map for 2012.

The International Monetary Fund has so far given Sri Lanka 1.7 billion US dollars under its stand-by arrangement programme, Cabraal said.

The IMF came in with a 2.5 billion US dollar bailout after Sri Lanka ran down its foreign reserves in a period of peg defence from around September 2008 to April 2009 triggering currency and banking crisis after a period of earlier loose monetary policy.

Two tranches of about 400 million dollars remain to be given under a review in September 2011 that was put off and another in March 2012, and the program will formally end in May.

In 2011 Sri Lanka's gross domestic product was estimated at 59 billion US dollars and per capita income at 2,830 US dollars, Cabraal said.

Unemployment fell 4.3 percent in the first quarter of 2011 and labour productivity had improved, Cabraal said.

Poverty is estimated to have fallen below the level of 8.9 percent in 2009.

In 2011, the industry sector had grown the fastest, expanding by an estimated 10.1 percent and contributing 18 billion dollars or 30 percent of GDP.

The services sector followed with 8.6 percent growth and contributing 34 billion dollars or a 58 percent share of GDP while agriculture grew two percent in 2011 and contributing seven billion dollars or 12 percent of GDP.

The island's external sector was strong with imports at 51.6 percent of GDP in 2011, up from 44.4 percent in 2010.

The share of exports in GDP was 17.7 percent in 2011 while the contribution of remittances to GDP rose to 8.8 percent from 8.3 percent the previous year.

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