Economy booms

COLOMBO: Sri Lanka is expected to record its highest annual economic growth in 28 years despite escalating violence in the decades-old separatist conflict, analysts said.

Security has deteriorated since December with bombings, artillery attacks, suicide bombings and fierce face-to-face confrontations that have officially claimed at least 1,500 lives.

However, the 24-billion-dollar economy is booming, analysts said, with a staggering 8.1 percent growth in the first three months of this year and forecasts of 8.0 percent for the full year, the best since 1978.

Treasury Secretary Dr. P.B. Jayasundara said growth was expected to be more than 7.0 percent in the second quarter of this year.

The growth has been fuelled by the successful garment industry which has cornered a niche market for exotic lingerie, as well as farm exports.

Hotels and roads built after the December 2004 tsunami have also helped, the Central Bank of Sri Lanka has said.

Media Minister Anura Priyadharshana Yapa said tourism was also assisting, with hotels reporting solid bookings as holidaymakers shrug off concerns of violence and terrorism and continue to travel.

"Hotels in Colombo are full," the Minister said. The South Asian Games began on Friday, he said of the Games running for 10 days in the capital.

"I don't think the violence has caused any big impact on the economy. The hotels are having a blast."

Paul Rawkins, Senior Director in Fitch's sovereign team, said Sri Lanka was continuing to perform well despite the seemingly unending bloodshed in the northeast and bomb attacks in Colombo.

"We looked at Sri Lanka again... and concluded that business confidence appears to be holding up well, tourism remains surprisingly strong and there has been no downturn in foreign aid flows, and the balance of payments is proving to be resilient to higher oil prices," Rawkins said.

His concerns are focused on the government's lavish spending habits that encourage runaway inflation, which was running at 10.4 percent in July.

"Our concerns lie with the macro-economic policy framework. Public finances remain weak, inflation is very high, credit growth is strong - arguably there is a need to tighten monetary policy further," Rawkins said.

Both agencies said there was no change in the country's credit rating, which currently stands at "junk" or "below investment grade".

Fitch assigned a BB- and S and P a B+. The markets have hardly responded to the fighting with the Colombo Stock Exchange more sensitive to political upheavals, brokers said. AFP