Country Report Sri Lanka March 2009

Summary

The government is expected to regain control of all territory held by the rebel Liberation Tigers of Tamil Eelam (LTTE, Tamil Tigers) by mid-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.
Speculation about an early parliamentary election has risen following the early dissolution of a number of provincial councils. The ruling United People's Freedom Alliance (UPFA) will make gains if early elections are held.
Real GDP growth will slow to 2.6% in 2009, before accelerating again, to 5.7%, in 2010. Shrinking 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 fairly high, despite weakening global food and oil price pressures. The Economist Intelligence Unit forecasts that inflation will average 6.6% in 2009 and 7% in 2010.
Imports will fall in 2009 owing to weaker investment spending, a drop in inputs of raw materials for export processing and the lower cost of imported commodities. The current-account deficit will fall to 2.3% of GDP this year.
We believe that Sri Lankas economic outlook is subject to downside risks. The exchange rate remains an area of particular concern.

The UPFA won provincial elections in Central and North-western provinces in February.
The LTTE launched an airborne attack on the capital, Colombo, on February 20th, but both aircraft involved were shot down.
In March a suspected Tamil Tiger suicide bomber killed 15 people at a Muslim parade in the south of the country attended by several politicians. The post and telecommunications minister, Mahinda Wijesekara, was injured.
The government has admitted that it is seeking a US$1.9bn support package from the IMF in order to shore up its dangerously low foreign reserves.
Output of tea reached a record 318.4m kg in 2008, with exports at the impressive level of 319.7m kg. However, the sector has been badly affected in recent months by poor weather conditions and weak external demand.
Consumer price inflation dropped to 7.6% in February, down from 10.7% in January, as global food and oil prices fell year on year.

Source: Country Report

This report covers the following industry codes:
SIC Code: 1;20
NAICS Code: 11;311