Over 5% growth predicted:

Lanka's economy booming - IMF

SRI LANKAN economy is progressing to achieve over 5 per cent growth in the second quarter of 2005 and the growth is expected to be over 5 per cent despite the tsunami.

The International Monetary Fund (IMF) has also forecast over 5 per cent growth for 2005 and around 6 per cent growth for 2006 a Central Bank Information Department release said in response to an earlier IMF report published last week.

The economic conditions have continued to improve since the IMF staff visits to Sri Lanka in April 2005.

The economic growth has improved, inflation has moderated, international trade has improved, foreign flows have increased, balance of payments has recorded a surplus, official reserves have risen to over three months of imports, fiscal consolidation has continued and monetary policy has been tightened to contain monetary expansion and adverse developments in inflation.

The forecast on inflation made by the IMF earlier in the year indicated somewhat higher inflation rate of 14 per cent for 2005, but the later developments, especially improvements in supply side factors and monetary policy measures, could lead to a significant moderation in inflation of about 10 per cent by end 2005.

The output of the industrial sector grew by 5.9 per cent during the first half of 2005 compared with a growth of 4.3 per cent in the previous year. Services sector growth continues with major sub sectors such as port services, telecommunications, and transport recording improved performance.

Export earnings grew by 11.4 per cent during the first seven months of 2005, reflecting a continuous improvement in all major export categories. The apparel exports have grown over 6 per cent during the first seven months.

Expenditure on imports increased by 10.1 per cent in the first seven months largely due to higher oil prices. The trade deficit widened marginally during this period, but the deficit has been financed through increases in private transfers as well as official inflows.

Private remittances have increased by 23 per cent to US dollars 1,098 million during the first seven months of 2005. Reflecting these developments, the BOP has recorded a surplus of around US dollars 160 million by September 2005.

Gross official reserves have increased to US dollars 2,213 million, which amounts to 3.2 months of imports by end July 2005 from US dollars 2,195 million at end December 2004. This was achieved in spite of higher cost of oil imports experienced in 2005.

Total revenue of the Government during the first eight months in 2005 amounted to Rs. 237 billion, which is an increase of about 24 per cent over the first eight months in 2004.

As a percentage of the Gross Domestic Product (GDP), total revenue increased to 10.1 per cent as against 9.4 per cent recorded in the first eight months of 2004.

Tax revenue continued its increasing trend reaching 8.9 per cent of GDP compared with 8.5 per cent achieved in the first eight months in 2004.

Total expenditure and net lending of the Government during the first eight months of 2005 are estimated to be around Rs. 356 billion. This stands at 15.2 per cent of GDP compared with 14.8 per cent in the same period in 2004.

Reflecting these developments the budget deficit during the first eight months of 2005 amounted to around Rs. 119.7 billion, which amounts to 5.1 per cent of GDP compared with 5.4 per cent in the same period in 2004.

The debt moratorium granted by the foreign donors in 2005 enabled the government to save foreign debt service payments amounting to around Rs. 15.7 billion up to 14 September 2005.