June 30, 2009 (LBO) – Sri Lanka’s economic recovery will be driven largely by domestic reconstruction flowing from an end of a three decade long war with some support from an external pick up, a regional economist said. “A lot of domestic factors, the end of war, rehabilitation, re-construction and improvement from agriculture will drive growth,” HSBC Singapore economist Prakriti Sofat said at a business forum in Colombo Tuesday.
“There has been massive policy easing and market interest rates have come down.”
Sri Lanka cut policy rates from a penal 19.0 percent in to 11.50 percent so far in 2009, and government security yields have plummeted, though bank lending rates are falling at a slower pace.
Sri Lanka’s economic growth slowed to 1.5 percent in the first quarter, as a collapse in global demand buffeted exports and domestic interest rates were rocketed in the last quarter of 2008 to counter a balance of payments crisis.
The central bank has since floated the rupee and is now collecting foreign reserves.
Both imports and exports have shrunk, narrowing the trade deficit so far this year.
Sofat said Sri Lanka’s trade deficit is structural and is beneficial for