Nov 08, 2007 (LBO) â€“ Sri Lanka’s Central Bank has once again promised to bring inflation now raging near 20 percent to single-digits in 2008, while maintaining high growth. “With the persistently tight monetary policy stance and complementary fiscal performance, inflation is expected to be at a single digit level in 2008,” the bank said in a report on recent economic developments.
Last year too, the Central Bank promised to reduce inflation to single digit levels but failed.
The report also said economic growth would be around 7 to 7.5 percent. Last year also a similar forecast was made. It was later downgraded to 6.7 percent.
But the report, which accompanied the government’s 2008 budget presented in parliament Wednesday, warned that achieving the envisaged higher growth targets for 2008 and beyond will largely depend on several economic and political factors.
These include finding a lasting solution to the ongoing conflict in the North-East and prudent macro-economic management.
The bank also spoke of the need to implement required structural reforms in the fields of education, law and order, land ownership and the public service and pushing forward infrastructure projects.
” . . . the realization of major infrastructure projects within the targeted time frame in order to improve the transportation system and energy supply will be necessary conditions to achieve the stipulated growth,” the bank said.
The speedy implementation of several large planned infrastructure projects would boost aggregate demand and output.
“Both private and public investment expenditure is expected to increase,” the bank said.
“The increased profitability in the corporate sector will also partly provide the necessary resources for new investment.”
External and domestic consumption demand especially for services was expected to help.
The bank said the agriculture sector is expected to grow by 4.4 percent while industry should grow at a higher rate of 8.2 percent and services is projected to grow at 7.7 percent.
It also said inflation is expected to moderate in 2008 with the continuous monetary policy tightening supported by what it called “anticipated favourable supply side developments.”
The bank also said Sri Lanka is expecting an overall balance of payments surplus for the fourth consecutive year in 2008, increasing the country’s external reserves and reducing pressure on the exchange rate.
Export growth is expected to continue next year at around 10 percent, benefiting from the continuing global economic recovery, and the duty free access to European Union markets under the EU-GSP+ scheme, it said
The Free Trade Agreements with India and Pakistan are also expected to help expand exports, said the report which was published to coincide with the 2008 budget presented in parliament Wednesday.
Imports are projected to grow at a rate of about 11 per cent, reflecting increased demand mainly for intermediate and investment goods, the bank said.
The current account deficit is projected to reduce to four percent of GDP in 2008 from 4.3 percent in 2007 owing to anticipated increases in surpluses in the services and transfers accounts in 2008, despite the widening of the trade deficit. .