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Sri Lanka records best-ever economic growth

[AFP, Thursday, 5 April 2012 22:11 No Comment]

Sri Lanka’s economy grew by 8.3 percent last year, the fastest expansion since independence from Britain in 1948, the census and statistics department said Thursday.

The rate compared with an expansion of 8.0 percent in 2010, the first full year after government forces defeated Tamil Tiger rebels in May 2009 and declared an end to nearly 40 years of fighting.

"The 8.3 percent growth (in 2011) is the highest GDP growth ever achieved since independence," the department said, adding that it was also the first time that 8.0 percent growth was recorded in two consecutive years.

But the Central Bank of Sri Lanka on late Thursday announced a 75 basis point increase in its benchmark lending rate to 9.75 percent — its second hike in two months — in a bid "to anchor inflationary expectations".

The bank said in a statement that the move comes amid "signs that credit growth is continuing at an undesired pace".

It said year-on-year inflation rose to 5.5 percent last month compared to 2.7 percent in February.

The impressive overall growth figures for 2011 come at a time when worries are mounting about the economy because of a widening trade deficit, rapidly expanding credit and high inflation.

Fears of a balance-of-payments crisis have prompted the government to revive an International Monetary Fund rescue package, suspended since last year.

The IMF announced it would release a $427-million instalment this week as part of a package negotiated in 2009.

The $2.6-billion package is intended to build Sri Lanka’s foreign reserves.

Sri Lanka has sought to overcome its balance-of-payments troubles by hiking interest rates in February, allowing its currency to fall and imposing new taxes to curb imports.

The central bank has revised its growth projection for 2012 to 7.2 percent, down from an earlier estimate of 8.0 percent after the new monetary and fiscal measures were announced.

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