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Sri Lanka needs more fiscal, monetary tightening; growth 6.1% in 2007 – ADB

March 27, 2007 (LBO) – Sri Lanka needs more monetary tightening and a smaller budget deficit to improve its economic fundamentals and bring inflation down, the Asian Development Bank (ADB) said Tuesday. We do think monetary policy would have to be tightened further, ADB Country Economist Johanna Boestel said.

The Central Bank can succeed in its efforts to control inflation but [it] needs fiscal policy support, Boestel told a news conference held to release the ADB’s Asian Development Outlook 2007 report.

The regional lender expects Sri Lanka's economy to grow by 6.1 percent in 2007 down from a blistering 7.2 percent in 2006, the fastest rate since 1978. ADB said the growth was fuelled by private sector growth and expansionary fiscal and monetary policies.

The Central Bank has since tightened monetary policy. So it is not just a question of monetary policy but of fiscal policy as well," Boestel said.

"The government must bring down the budget deficit and reduce borrowings