Lanka's economy to grow 7% this year amidst challenges - CB Governor

by Lalin Fernandopulle

Sri Lanka's economy will grow around 7 per cent this year amidst global challenges and increased counter terrorism measures, said Central Bank (CB) Governor, Ajith Nivard Cabraal.

The Governor was addressing a gathering to outline the Road Map: Monetary and Financial Sector Policies for 2008 and beyond'.

He said the growth is broad-based with all three sectors such as agriculture, industries and services growing at a steady rate.

The growth will be supported by ongoing infrastructure projects such as road development, ports and airports and power generation.

"Development projects to be launched in the Eastern province will contribute to the economic growth. Major infrastructure development projects are in the pipeline for the Eastern province," he said.

The Governor said that the country's inflation this year will be contained at around 10-11 per cent. Prudent monetary policies will be introduced to curb inflation.

Sri Lanka's inflation grew 24.1 per cent in October last year and speculation is high that this year it will continue to grow due to the staggering defence expenditure, escalation of global market prices and shortsighted monetary policies.

The impact of high and volatile international oil and other commodity prices, and escalation of counter terrorism measures are some of the major challenges the country will have to face this year.

The CB Road Map outlines that if world crude oil prices hit US$ 90 per barrel this year the country's GDP growth will be adversely affected.

The global economy is expected to moderate at around 4.8 per cent this year. Though USA, a main export destination of Sri Lanka is expected to grow as last year's European economies are projected to slow down.

The growth in exports is projected to be around 10 per cent this year benefiting from the bilateral free trade agreements with India and Pakistan and from increased market access to the European region under the GSP plus scheme.

Cabraal said the budget deficit will be contained at around 7 per cent of the GDP compared to 7.2 per cent last year. To achieve this target tax and non tax revenue and improvement of government debt management is vital.

The CB which manages the Employees' Provident Fund (EPF) will enhance this role through a re-engineering program which will fully automate the operation using electronic means to update the members' accounts.

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