Economy to grow above 10%

The Sri Lankan economy looks set to perform strongly with an economic growth rate of 8.4 percent and 10.4 percent in 2010 and 2011 said Heraymila Securities Ltd., review report on Sri Lankan economy "twelve" released last week.

The growth will be driven by the lagged influence of reduced interest rates, resilient consumption, recovering tourism, exports and post war rehabilitation of North and Eastern regions. Significant infrastructure investment will also be a positive influence both for near and long-term economic growth, said the consultant economist of Heraymila Shamubeel Eaqub presenting the report.

The report refers to three near term risks to the economic outlook; vulnerable global recovery, strained Sri Lankan fiscal position and low velocity of money. A sustained global recovery will be a key factor in supporting the Sri Lankan economy, particularly tourism and exports. The budget deficit has been on a widening track. However, recent announcements by the Government suggest a better focus on costs and revenues. This, combined with robust economic growth should see the fiscal deficit start to narrow. The velocity of money is low, meaning credit creation is weak and the growing money supply is not yet supporting economic activity. This is beginning to turn and will eventually super-charge recovery.

The investment climate in Sri Lank is improving in line with the economy. However, the equity market is richly priced. Valuations are at all time highs and the market is pricing in very little risk. There is risk of a correction, the report said.

"Our bottom-up analysis of the war affected regions of Sri Lanka suggests the economy may be 13 percent larger without accounting for additional multiplier benefits, Eaqub said.

Heraymila Securities is a subsidiary of Heraymila Investments a large family business in Saudi Arabia and registered with the Dubai International Financial Centre (DIFC).

With the Colombo Stock Exchange growing in excess of 130 percent since the war ended Heraymila sees a niche for innovative wealth management products and a relationship oriented client broker approach for portfolio management. (GW)