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Sri Lanka GDP Grows at Slowest Pace Since 2003 on Weak Exports

[Bloomberg, Wednesday, 17 June 2009 07:21 No Comment]

Sri Lanka’s economy grew at the slowest pace in at least six years as the worst global recession since World War II curbed demand for the island’s exports.

Gross domestic product expanded 1.5 percent in the first quarter from a year earlier after gaining 4.3 percent in the three months to Dec. 31, the statistics department said in Colombo today. That was the weakest pace since quarterly data was first compiled in 2003 and less than the 3.4 percent expected by economists.

Governor Nivard Cabraal has driven down interest rates this year, taking advantage of inflation at a five-year low, in a bid to spur spending and investment and make up for slowing exports. The central bank this month plans to revise the nation’s growth forecast for 2009, and may double it to 5 percent after the government crushed the Liberation Tigers of Tamil Eelam.

“With the war ending, an improvement in confidence will draw investments and tourism,” said Shivantha Meepage, senior analyst at Acuity Stockbrokers Pvt. in Colombo. “The northern regions will come into play in some time.”

The government declared victory over the separatist Tamil rebels on May 16 after driving them from their northern stronghold and killing their chief Velupillai Prabhakaran.

Sri Lanka aims to increase tourist arrivals by at least 20 percent each year, using a $20 million worldwide advertising campaign to promote the island’s attractions. The war discouraged travelers from the U.S. and Europe for years from visiting the teardrop-shaped tropical island.

Foreign Investment

Foreign direct investments could quadruple to as much as $4 billion in three years, Dhammika Perera, chairman of the Board of Investment of Sri Lanka, said on June 1.

Sri Lanka’s LMD-Nielson business confidence index rose in June for the first time in three months with the end of the 26- year civil war. The index, prepared by the Nielson Company and Lanka Monthly Digest, increased 2 points to 89.

The central bank in April predicted the economy would grow 2.5 percent this year, the least since 2001.

The central bank yesterday cut its benchmark interest rates for a third time this year. The Colombo-based bank reduced the reverse repurchase rate to 11 percent from 11.5 percent and lowered the repurchase rate to 8.5 percent from 9 percent.

Sri Lanka’s exports dropped 7.8 percent in March from a year earlier, falling for the fourth straight month, the longest period of declines since 2002.

President Mahinda Rajapaksa is seeking aid and investments to help turn the war-ravaged east and north of the island into productive parts of the economy.

The International Monetary Fund said on May 21 it is near an agreement to lend Sri Lanka almost $2 billion to repay debt and rebuild the economy.

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