Central Bank lowers 2011 GDP growth to 8.3%

• Revises from 8.5 pct yr/yr; still a record high growth
• $1 b inflow into stocks, debt expected before end-Dec
• Sri Lanka deals with Asia investors, not from Europe, US

COLOMBO(Reuters): Sri Lanka’s Central Bank on Thursday lowered its full-year growth target to 8.3 percent from its earlier estimate of 8.5 percent due to contraction in the agriculture sector in the first half of 2011.

The revised target will still be the island nation’s highest ever annual growth rate, surpassing the 8.2 percent expansion last recorded in 1978 and last year’s 8 percent, which was a 32-year high.

“This year, the economy will grow at 8.3 percent,” Central Bank’s Deputy Governor Dharma Dheerasinghe told Reuters in the sideline of an economic forum in Colombo.

“This is because of negative growth in agriculture sector. Overall, the agriculture sector posted a negative 1.8 percent growth in the first half.”



The Central Bank has maintained its key policy rates at six-year lows since January to facilitate growth.

Two rounds of floods in the first two months of the year left the crop production in tatters and an estimated $500 million in floods damages.

The agriculture sector, which contracted 5.1 percent year-on-year in the first quarter, has recovered slightly in the second quarter with a 1.9 percent expansion.

The government had been expecting a significant improvement in the agriculture sector this year with additional lands being cultivated in the island nation’s north and east, after the end of a 25-year war in 2009.

The Central Bank has been maintaining the rupee currency steady by selling dollars in the foreign exchange market despite the International Monetary Fund asking it to limit intervention and allow flexibility.

Dheerasinghe also said the country would receive a massive inflow of foreign investment before the end of this year.

“On average, we will see $1 billion inflow from foreign investors mainly into equities and corporate debts. This is why we have been maintaining the rupee steady,” he said.

The rupee has risen 0.7 percent so far in 2011 but has been kept in a rough 110.00/20 range to the dollar over the past month despite the local currency is under downward pressure.

The Central Bank sold a net $614.6 million in July and August alone, latest data showed.

“We have got some large institutional investors from abroad they will be buying domestic corporate shares. Local banks are also in deal for some corporate debts,” Dheerasinghe said.

He shrugged off concerns over global slowdown that could possibly hinder foreign inflows into the country.

“We are not working with Europe and U.S. investors. They will be mainly from Asia,” he said. “We’ve seen large outflow from the stock market. With this huge inflow we expect the stock market to end the full-year with a net inflow.”

Sri Lanka, which has historically posted balance of payment (BOP) surpluses through borrowing and grants, has estimated a BOP surplus of $775 million by end of 2011.