Country Report Sri Lanka January 2009

Outlook for 2009-10

• The government is expected to regain control of all territory held by the rebel Liberation Tigers of Tamil Eelam (LTTE, Tamil Tigers) by the end of 2009. The ethnic conflict will decrease in intensity in 2010.
• Unrest will continue in the Tamil community and the LTTE will carry out further attacks on civilian and military targets. Government plans to devolve power to Tamil regions will produce results only in the long term, if at all.
• The president, Mahinda Rajapakse, and his brothers will continue to dominate the government. Mr Rajapakse's United People's Freedom Alliance administration is set to secure re-election in the 2010 parliamentary election.
• Real GDP growth will slow to 3.2% in 2009, before accelerating again, to 5.4%, in 2010. Weak external demand will be partly offset by the positive impact that improving security will have on domestic demand.
• The rate of consumer price inflation is expected to remain rapid, despite weakening global food and oil price pressures. The Economist Intelligence Unit forecasts that inflation will average 10.2% in 2009 and 7.4% in 2010.
• As government spending on infrastructure investment falls, import growth will slow in 2009, helping to reduce the current-account deficit to 3.2% of GDP in that year.
• We believe that Sri Lanka's economic outlook is subject to downside risks. The exchange rate remains an area of particular concern.

Monthly review

• In a string of advances in January Sri Lanka's military regained control of the LTTE's administrative capital of Kilinochchi, as well as the strategic Elephant Pass on the A9 highway.
• A journalist critical of the government was shot dead by assassins on motorcycles in January. Another independent media organisation's offices were vandalised by armed men.
• Sri Lanka's foreign-exchange reserves dropped to US$2bn, or 1.7 months of imports, at the end of November, according to government data.
• On December 30th the government announced a series of measures designed to stimulate and support the export sector.
• Sri Lankans living overseas will be permitted to invest in Treasury bills and bonds in another effort to attract funds from abroad.
• Real GDP growth reached 6.3% in July-September, boosted by a 12.4% surge in agricultural output as land in Eastern province was brought back into productive use.

This report covers the following industry codes:
SIC Code: 60
NAICS Code: 52

This report covers the following industry codes:
SIC Code: 60
NAICS Code: 52