SL economic life blooming after war

Sri Lanka’s $50 billion economy rebounded sharply in 2010, growing an estimated 8.0 percent with economic life blooming after the end of a three-decade war in May 2009, stated Reuters.

Rising oil prices present the only threat to Sri Lanka’s targeted economic growth of 8.5 percent this year, but inflation should remain steady between four percent and six percent, the Central Bank told Reuters on Wednesday (2).

The 2011 growth forecast assumes an average oil price of $90 a barrel. On Monday, Brent crude LCOc1 hit $100 a barrel for the first time since 2008 on fears Egypt’s instability could spread into the Middle East, which along with North Africa pumps over a third of the world’s oil.

“That is the only risk area we see for our economy,” said the Central Bank’s Chief Economist K. D. Ranasinghe.

However, Ranasinghe said inflation would remain stable this year barring a sharp oil price increase. The Central Bank has said it will remain between four and six percent, although many economists predict that it will move higher.

“Oil prices are beyond our control. But we are yet to see the demand side pressure due to excess capacity.

So inflation could still remain at mid-single digit in line with our original estimate,” he said.

“The whole year, we have projected inflation to remain at a mid-single digit. Given that, we think the existing policy rates are appropriate,” Ranasinghe said.

Sri Lanka’s addition of coal-fired power generation and increased hydropower generation this year should help cut the oil import bill by roughly 10 percent of an estimated $2.5 billion to $2.8 billion, mitigating oil-related inflation, Ranasinghe said.

“Due to coal power, oil imports will be reduced by nearly $300 million,” he said.

Later this month, the first stage of the Norochcholai power plant, on the northwestern coast, will open and bring an additional 300 megawatts (MW) online. It will eventually produce 900 MW.

Sri Lanka right now has a capacity of 2,689 MW, 60 percent of which runs on heavy fuel oil, making the import-reliant nation even more sensitive to oil price swings.