Sri Lanka’s Economic Growth Accelerates as War Ends -
09-14-2009, 03:57 PM
Sri Lanka’s economic growth accelerated for the first time in four quarters as the end of the island’s 26-year civil war spurred reconstruction projects and increased consumer demand.
Gross domestic product expanded 2.1 percent in the second quarter from a year earlier after gaining 1.5 percent in the three months to March 31, the statistics department said in Colombo today.
Central Bank Governor Nivard Cabraal, who’s cut benchmark interest rates to a three-year low to support growth, said last month the $41 billion economy is on the “right track.” A $2.6 billion International Monetary Fund loan approved in July and improved confidence after government troops defeated the separatist Tamil Tiger rebels in May have revived investment.
“Sentiment changed drastically with the end of the war, boosting consumption and economic activity,” said Danushka Samarasinghe, research manager at Asia Securities Ltd. in Colombo. “Lower borrowing costs and slower export declines will add to the momentum in the second half.”
Sri Lanka’s benchmark stock index, the Colombo All-Share Index, rose 0.97 percent to 2,867.79 at 11:33 a.m. local time. The yield on the 13.5 percent bond due in February 2013 fell 5 basis points to 12.15 percent, according to Commercial Bank of Ceylon Plc.
The country’s central bank on Sept. 11 lowered the reverse repurchase rate to 10.5 percent from 11 percent, the lowest since 2006. The repurchase rate was lowered to 8 percent from 8.5 percent.
Space for Growth
“The central bank’s initiatives to ease monetary policy will continue to provide space for growth, especially in the post-war scenario,” said Bimanee Meepagala, an analyst at Eagle NDB Fund Management Co. in Colombo.
The government declared victory over the Liberation Tigers of Tamil Eelam on May 16 after driving the rebels from their northern stronghold and killing their chief, Velupillai Prabhakaran. It plans to focus spending in the 2010 budget on rebuilding roads, schools and hospitals in areas formerly controlled by the LTTE.
The central bank in July raised its 2009 growth forecast to as much as 4.5 percent from an earlier estimate of 2.5 percent, citing increased investment and reconstruction projects. The IMF expects Sri Lanka’s economy to expand more than 3 percent this year and accelerate in 2010.
Export Slump Eases
Sri Lanka, which makes garments for Marks & Spencer Group Plc, Gap Inc. and Victoria’s Secret, is also seeing a recovery in orders from the U.S. and Europe, K.D. Ranasinghe, head of the central bank’s economic research department, said Aug. 26.
“The growth in the second quarter came as the reversal in developed economies also slowed down,” Nalani Kumarasinghe, deputy director at the statistics department, said today.
The nation’s exports dropped 13.7 percent in June from a year earlier, the smallest decline in three months.
The island’s services industry expanded 1.1 percent in the second quarter from a year earlier, according to today’s report. Agriculture increased 4.4 percent and industry grew 3 percent.