Sri Lanka to grow 7.0-pct in 2012, drought may hit growth: Treasury Secy

Chandi Dharmaratne

May 25, 2012 (LBO) – Sri Lanka’s economy will expand around 7.0 percent in 2012, but a drought can hit agricultural output which may undermine growth, Treasury Secretary P B Jayasundera said. “We think the economy will grow around 7.0 percent,” Treasury secretary P B Jayasundera said.

“Nobody should under-estimate the prevailing drought conditions. That we have not calculated.”

Sri Lanka’s tea exports have already fallen with production falling in the first quarter amid price weaknesses. But an economic growth of 7.0 percent or even lower, would be much higher than what most countries are expecting this year.

Sri Lanka was originally expected to grow 8.3 percent in 2012 but large amounts of unproductive credit taken by state enterprises to manipulate energy prices put pressure on Sri Lanka’s peg with the US dollar, pushing up interest rates and depreciating the currency.

The rupee has since fallen to around 130 to the US dollar from around 110 in the first quarter and energy prices have been raised.

Key Threat

Last year the central government budget deficit contracted to 6.9 percent of GDP in 2011 from 8.0 percent in 2010, but two energy utilities ran lo