Sri Lanka downgrades official growth forecast

Sept 21, 2007 (LBO) – Sri Lanka has downgraded its economic growth forecast to between six and seven percent for 2007 as a fast growing public sector and a budget deficit that pushed interest rates up, dragged the island down. “Last year it was 7.4 percent this year it will be certainly higher than 6 percent, but may be slightly lower than seven,” Central Bank Governor Nivard Cabraal told a gathering of Sri Lankan and German businessmen in Colombo.

The Central Bank has been forecasting 7.5 percent growth though most independent analysts disregarded the projection as foreign tsunami aid ran out and a temporary lift from money printing was expected to peter off this year.

In 2006 Sri Lanka printed 38 billion rupees to as the budget deficit rose to 8.4 percent. An expanding budget deficit has pushed benchmark 3-month risk free rates above 18 percent.

Most analysts have expected economic expected to come off last year’s high of 7.4 percent to around 6.5 percent.

In the first half of 2007 Sri Lanka’s economic growth slowed to 6.2 percent with the second quarter clocking up 6.4 percent.

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Cabraal says three consecutive years has seen growth for the first time in Sri Lanka’s history an