Having recorded its highest ever post-independence growth of 8.3 per cent, Sri Lanka’s economy is likely to experience a year of ‘moderation and consolidation’ in 2012, the Central Bank forecast on Monday.
The bottlenecks faced in the key economic sectors were addressed through strong policy reactions in early 2012, the bank said in it annual report for 2011, adding these were the new measures to depreciate the rupee and to raise import taxes aimed at tackling the a widening trade deficit.
“These policy measures along with uncertain global developments are likely to have some adverse transient effect on prices this year,” CB said.
The Central Bank has already lowered its 2012 growth projection to 7.2 per cent from a forecast of 8.0 per cent made last year. The island’s per capita income has increased to $2,836 from 2,400 in 2011.
Inflation at 6.7 per cent remained subdued at single digit levels for the third year in succession and unemployment had dropped to a record 4.2 per cent. Foreign direct investment has exceeded $1 billion for the first time.
Sri Lanka could swing to a surplus of $1.2 billion in its balance of payments this year on higher exports and a doubling in foreign investment, the central bank said on Monday.
That would mark a big reversal from last year’s deficit of $1 billion, created in part after the CB spent more than $2.7 billion in the second half trying to stem depreciation pressure on the rupee.
To avert a balance-of-payments crisis, the CB adopted a more flexible exchange rate policy in February and has raised interest rates to their highest levels in more than two years.
“Sri Lanka could see a balance-of-payments surplus of $1.2 billion this year if the measures we have taken work,” CB Governor Ajith Nivard Cabraal said at a gathering to mark the release of the bank’s annual report for 2011.
“Our foreign currency reserves are also on a rising trend and are now over $6.1 billion and that is a comfortable level,” he told a news conference after the report was released.
“FDI inflows remain significantly below potential level and the country is yet to establish itself as a key destination for new FDIs,” CB said.
Tourism, a key area of focus since the war with the LTTE ended three years ago, had recorded 850,000 arrivals with $830 million as earnings.