Sri Lanka forecasts growth rate of 8%, mid-single digit inflation for 2012

Jan 04, Colombo: Sri Lanka Central Bank has lowered economic growth forecast for 2012 to 8% from the previous forecast of 9% made at the beginning of last year due to the sluggish global economy and European debt crisis while managing the inflationary pressures to achieve a mid-single digit rates of inflation for the year.

Presenting its road map for 2012, the Governor of the Central Bank Ajith Nivard Cabraal said the Bank’s Monetary Policy will be formulated to maintain Consumer Prices Index-based inflation between 5 and 6% in 2012, assuming favourable domestic supply conditions, and international commodity and fuel prices remain unchanged.

Last year, the economy grew at an estimated 8.3%, boosted by growth in the industrial and tourism sectors, Cabraal said in his annual monetary policy address.

“We had earlier forecasted 2012 GDP growth at 9%, but have lowered it due to global economic situations, the debt crisis in Europe and possible low growth in key western markets,” Cabraal said.

Although the Central Bank will be keen to accommodate the higher growth of economic activity, its priority would be to check inflationary pressures in the economy, he emphasized.

In 2012, the Bank expects the Agriculture Sector to contribute to the economic growth substantially. The sector is expected to expand at 7.3% compared to 2.0% in 2011.

However, the growth forecast for Industry Sector declined to 9.0% compared to 10.1% in 2011 and the Services Sector is expected to expand at 7.7% compared to 8.6% last year.

The Central Bank also expects the fiscal deficit to decline in 2012 to a 6.2% of GDP from the 7.0% of GDP in 2011 as domestic financing is expected to increase by Rs. 16.5 billion to Rs. 271.6 billion in 2012 due to more borrowings from non-bank sources.

According to the road map the trade deficit is expected to expand further in 2012, but the Bank says it will be cushioned by the projected earnings of US$ 1.2 billion from tourism, Worker remittances, projected at US$ 6.5 billion, and projected FDI of US$ 2.0 billion.

The Bank said it will continue to cooperate with the International Monetary Fund (IMF) with a follow up or surveillance programme, which is to be negotiated.

The last test date for the US$ 2.6 billion IMF Stand-by Arrangement programme was December 31, 2011 and a review mission is expected in the third week of January.

Read the complete Road Map for 2012

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