Sri Lanka’s GDP Growth Accelerates to 8.2% on Higher Investment

Sri Lanka’s economic growth
accelerated in the second quarter on higher investment and as
the central bank avoided the interest-rate increases that have
contributed to a slowdown elsewhere in Asia.

Gross domestic product rose 8.2 percent in the three months
ended June 30 from a year earlier, the statistics office said in
Colombo yesterday. That compares with a 7.9 percent gain in the
previous quarter. The median of four estimates in a Bloomberg
News survey was for an 8.4 percent gain.

Sri Lanka’s central bank has kept rates unchanged since the
start of February to support expansion and take advantage of
stability after the end of a 26-year civil war. By contrast,
growth has cooled in Asian economies from Taiwan to South Korea
and Malaysia as a faltering U.S. recovery and Europe’s debt
crisis curb demand for the region’s exports.

“Sri Lanka’s economy is reaping the benefits of peace,”
Samantha Amerasinghe, a Colombo-based economist at Standard
Chartered Plc, said before the report. “The central bank has
room to keep rates low because of easing inflation.”

The benchmark Colombo All-Share Index, which has climbed
3.2 percent since Dec. 31, fell 0.7 percent yesterday. The Sri
Lankan rupee has strengthened 0.8 percent to 110.09 against the
dollar this year. The GDP data was announced after the markets
closed.

Farm Expansion

Sri Lanka’s agriculture expanded 1.9 percent in the three
months through June after shrinking 5.1 percent in the previous
quarter, according to the statistics office. Services increased
8.8 percent and industry grew 9.4 percent last quarter.

Sri Lanka’s macroeconomic conditions are “quite strong”
and the nation’s monetary policy stance is “appropriate” to
support growth, the International Monetary Fund, which has
disbursed $1.75 billion to Sri Lanka under its $2.6 billion loan
program, said Sept. 6.

Governor Ajith Nivard Cabraal lowered the central bank’s
reverse repurchase rate by 1.25 percentage points to 8.5 percent
from July 2010 to January this year, and has kept the benchmark
at that level since then. He is scheduled to announce the next
monetary policy decision today.

Cabraal has room to keep borrowing costs unchanged after
inflation in the South Asian nation slowed in August to a seven-
month low of 7 percent, helping spur investment.

Peace Dividend

Peace following the end of the conflict against the
Liberation Tigers of Tamil Eelam in May 2009 is also attracting
foreign investment and luring tourists back to the tear-drop
shaped Indian Ocean island.

Sri Lanka Telecom Plc (SLTL), the nation’s biggest fixed-line
phone company, said in July that it’s spending about 11 billion
rupees ($100 million) to expand networks, including in the
island’s north and east where the war was fought.

President Mahinda Rajapaksa has pledged to spend $1 billion
annually for at least three years from 2010 on projects
including coal-fired power plants, expressways and container
shipping terminals.

Overseas visitor arrivals rose 35 percent to a record
537,787 in the first eight months of 2011 from a year earlier,
according to the Sri Lanka Tourist Board.

Hong Kong-based Shangri-La Asia Ltd. plans to invest as
much as $130 million in a second resort in Sri Lanka, Chief
Financial Officer Madhu Rao said July 4. Fortis Global
Healthcare Holdings Pte bought a 28.6 percent stake in Lanka
Hospital Corp. in March.

The central bank said Aug. 19 that foreign direct
investment reached $413 million in the first half of the year,
and that a target of $1 billion set for 2011 “is largely on
track.”

Sri Lanka’s government aims to spur growth to 8.5 percent
in 2011 from 8 percent in 2010.

To contact the reporter on this story:
Anusha Ondaatjie in Colombo at
anushao@bloomberg.net

To contact the editors responsible for this story:
Hari Govind at
hgovind@bloomberg.net;
Stephanie Phang at sphang@bloomberg.net

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