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Sri Lanka's economy should grow by more than 6 percent in 2010 as the end of the island's long civil war boosts investor confidence, the central bank governor said on Friday. "This year will a year of consolidation and of growth. The take off points would be tourism, transportation, fisheries, agriculture, and services. They will see clear growth potential."
Governor Ajith Nivard Cabraal told Reuters in an interview. "We think 6-percent-plus growth is very manageable." The central bank and the International Monetary Fund have predicted the economy would grow 3.5 percent in 2009, its slowest pace in eight years. The central bank cut policy rates six times to multi-year lows in 2009, hoping to encourage more private sector borrowing and spur the economy.
But now Cabraal said the central bank would take a cautious approach in relaxing key policy rates further. The consumer price index rose to a nine-month high of 4.8 percent in December, up from 2.8 percent a month earlier. Cabraal said Sri Lanka would continue to cautiously rebuild reserves in 2010 even as the economy enjoys a growing "peace dividend" following the end of the country's 25-year civil war last May.
The government had to seek assistance last year from the International Monetary Fund (IMF) for a $2.6 billion loan after its foreign currency reserves plummeted to an eight-year low of $1.27 billion by March due to global financial crisis. The central bank has been buying US dollars to build up the reserves while keeping the exchange rate steady since May. Reservers have now reached a record $5.2 billion as of Tuesday.

Copyright Reuters, 2010

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