Apr.06 (LBO) — Sri Lanka’s economy is expected to expand by 5.3 percent in 2006, but much of it hinges on peace, and cut backs on public debt, inflation and fiscal deficits, the Asian Development Bank said Thursday. The tsunami-hit island is still plagued with sharp escalation in rebuilding costs, while president Mahinda Rajapakse’s welfare laden policies of offering farmer subsidies are unlikely to yield any productive gains in the agricultural sector.
Increasing exposure to commercial foreign borrowings, a high public debt (105 percent of GDP), a large fiscal deficit, substantial quasi-fiscal liabilities and fairly high inflation, leaves little room for the government to maneuver, the bank said in its Asian Development Outlook released today.
“Moreover its new borrowing plans might possibly be diverted from its investment requirements with adverse long-term consequences.”
If the four year truce between the government and the Tamil Tiger rebels takes a further beating, the island may slip back to war, the bank warns, adding that the restive north and east would be hit by the double jeopardy of slower or halted tsunami rebuilding and face difficulties to offer help to over 320,000 displaced people.