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DateLine Sunday, 6 April 2008





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Government Gazette

Economic growth - Central Bank optimistic despite ADB predictions

The Asian Development Bank (ADB) in its Outlook 2008 said that Sri Lanka’s economic growth will slow down to 6 per cent this year and in 2009 while the Central Bank has forecast a growth of 7 per cent.

The ADB in its Outlook said the slow down from 6.7 per cent in 2007 is due to the high interest rates and global economic weakness. The Central Bank said the country is still on target to achieve 7 per cent growth and that it does not see any reason to revise the target, a Reuter report said.

The ADB released its annual flagship publication with predictions that Asia will post a solid growth during the year even as growth in major industrial economies will slow down.

The Outlook attributed the decline in growth to the slow down in private sector investment as investors are hesitant; a weaker performance of the important garment industry due to the projected global deceleration in growth, high oil prices and the conflict.

While predictions are that Sri Lanka’s economy will slump, China’s economy is expected to grow by a solid 10 per cent and the Indian economy is forecast to expand by 8 per cent this year.

The report said that inflation will remain high this year and taper off slightly next year due to high inflation expectations, robust aggregate demand and continued upward adjustments of fuel and electricity tariffs.

“Managing inflation and the rising cost-of-living entails a difficult trade-off between short term options to bring down the cost-of-living and medium term policies to rein in inflation.

An increase of US$ 10 per barrel on diesel will increase the price of fuel by Rs. 8 per litre”, the report said. Sri Lanka’s inflation recorded 20.2 per cent last year, the highest so far though predictions are that it may drop to 16.2 per cent this year.

The Asian Development Outlook (ADO) warns that the risk of an inflation spiral in Asia is obvious and urges policymakers to keep a close watch on it.

Despite a slew of administrative measures and subsidies that are reining in price increases, inflation is expected to spike in 2008 and could hit a decade long regional high, the report said.

Analysts said that with the deceleration in growth for the next two years achieving the 10-year development plan goals will be an uphill task. Achieving the goals will depend on the implementation of policies to improve productivity.

Continued tightening of monetary policy will restrict the growth of private sector credit but it is unlikely to reduce inflation pressure unless it fits with fiscal policies that reduce bank borrowings to the level outlined in the Road Map.

The bank said if the government continues to introduce taxes and duties on foodstuffs and fuel to reduce the cost-of-living it will add to inflation pressure by increasing the budget deficit.

It is unlikely that the country will have a protracted period of very slow growth despite the conflict but it is entering a difficult phase in its economic development to improve the low-middle income country status.

According to a survey, the report said, that the trend of qualified, skilled people emigrating is increasing with the pace of immigration generally accelerating in 2007.

The ADO forecasts developing Asian economies to expand at 7.6 per cent this year and 7.8 per cent next year.

The region posted the highest growth in two decades last year averaging 8.7 per cent.


Gamin Gamata - Presidential Community & Welfare Service
Ceylinco Banyan Villas

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