Oct 03, Colombo: Asia's money lender, the Asian Development Bank (ADB) forecasts a healthy growth of 6.8 percent for Sri Lanka's economy and 7.0 percent inflation this year.
In the latest Asian Development Outlook (ADO) Supplement released Wednesday the ADB said the growth in Sri Lanka started to recover in 2013 from a dip in 2012.
"Looking forward, eased monetary policy, continued recovery in services, and improvements in agriculture assuming normal weather will support stronger performance in the second half," the lender said.
ADB kept the growth forecast unchanged from its April 2013 ADO projection at 6.8 percent for this year, and predicted a 7.2 percent growth rate for the next year with an inflation of 6.5 percent.
"GDP growth rebounded to 6.8 percent in the second quarter of 2013 from 6.0 percent in the previous quarter, driven by service sector recovery. Industry maintained high growth, while agriculture suffered under bad weather from late 2012," the update to ADB's Asian Development Outlook report said.
"Power generation, which can constrain economic activity, picked up in May to grow by 9.2 percent but dropped slightly in June. Imports recorded positive growth in April and June. The deceleration in credit to the private sector shows signs of abating."
Sri Lanka's inflation eased to 6.3 percent year on year in August from close to 10 percent in early 2013.
The Central Bank eased policy rates in December 2012 and again by 50 basis points in May, subsequently reducing in June the statutory reserve requirement by 2 percent. Bank lending rates decreased from 14.4 percent in February 2013 to 12.1 percent in June, easing the deceleration of credit to the private sector.
Both exports and imports showed signs of recovery in the first half as the pace of decrease eased, the ADO report said.
The trade deficit declined by 7.1 percent from the second half of 2012 while Workers' remittances grew by 9 percent in the first half.
Workers' remittances and earnings from tourism partly offset the trade deficit. Financial inflows have been strong, with foreign direct investment amounting to $540.0 million.
The rupee has been under pressure since June from greater import demand.
Foreign holdings of government securities dipped in late August, which further weakened the rupee by 5percent against the US dollar from the end of May to the end of August.
Sri Lanka's gross official reserves equaled 4.1 months of imports in June 2013, down from 4.5 months in March.
The lender expects the External Trade to remain weak and inflation to be contained for the rest of the year at 7.0 percent as food prices remain stable. It expects the inflation to further decrease in 2014 to 6.5 percent.