Sri Lanka economy grew at its fastest last year, ADB says

Mar 28, Colombo: Sri Lanka’s economy grew at its fastest in 2006 amid rising oil prices despite the escalated ethnic conflict and the devastating 2004 tsunami, a report released by the Asian Development Bank (ADB) said.

In its report on 'Asian Development Outlook 2007' ADB said the Sri Lankan economy grew at 7.2% in 2006 due to the unexpectedly high outturn in agriculture sector spurred by post-tsunami recovery of the fisheries sub-sector and strong performance of the services sector.

Tourism, in contrast, failed to do well in 2006 with profit margins falling by up to 50% as hoteliers dropped prices to attract tourists.

Budget deficit rose to 8.7% of GDP as the government spending increased partly due to post-tsunami reconstruction. Demand pressures and rising food and fuel prices pushed the Colombo consumer price inflation rate up to 13.7% in 2006.

ADB predicts a growth of 6.1% and 6.0%, for for 2007 and 2008 respectively, given the conflict, slow pace of structural reform, and need to cool the economy. ADB outlook assumes that tighter fiscal and monetary policies gradually curtail aggregate demand by 2008, and that the conflict will continue to curtail tourism growth.

In the long term ADB says significantly higher public investment planned by the government will increase economic growth. The current policy focus of the government on infrastructure development to improve electricity supply and roads will achieve higher economic growth in the long run.

ADB stressed that to achieve the desired growth, Sri Lanka needs to achieve income equality by employing a well-educated labor force and providing better access for the underprivileged to high-quality education.