President says economy should grow up to 8.5% in 2011

By Ranga Sirilal and Shihar Aneez

COLOMBO, (Reuters) - Sri Lanka’s economy should just about achieve its 8.5 percent growth target this year, despite internal and external shocks, President Mahinda Rajapaksa said on Monday.

Analysts and economists have said the economy could miss the official 2011 growth target of 8.5 percent due to the recent floods, which caused $500 million in damage, according to a government estimate, and due to high global commodity prices coupled and oil prices.

“We can manage 8 to 8.5 percent growth this year, we would like to go for a 9 percent but it is not possible with all those,” Rajapaksa who is also the finance minister, told reporters.

The island nation’s economy is estimated to have expanded 8 percent in 2010 and the Central Bank has forecast growth of 8.5 percent this year, the highest rate since independence in 1948, as the country continues to benefit from a surge in optimism since the end of civil war in May 2009. Since independence, Sri Lanka’s highest economic growth rate was 8.2 percent in 1978, a year after the country liberalised its economy.

The Central Bank is targeting keeping inflation between 4 percent and 6 percent this year amid high prices of global commodities and crude oil, which have been hit by supply disruptions after the recent turmoil in oil-producing nations in the Middle East and low supply due to the recent floods.

“Inflation can be tackled. We need to protect the local farmers and producers. We will not just reduce the taxes of imports. There is a mechanism to control inflation,” Rajapaksa said without elaborating. Sri Lanka imports all its oil and Rajapaksa said that the government might increase local fuel prices in line with global oil prices.

 “Don’t know by how much, it all depends on the global price rise,” he said.

The crises in Libya and the Middle East raise the risk of a loss of earnings from Sri Lankan expatriate workers there and a drop in tea demand from the Middle East.

“It will affect the remittances but we will move into different countries such as Korea,” Rajapaksa said.