Country Report Sri Lanka November 2008

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 continue terrorist 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. The United Peoples Freedom Alliance (UPFA) administration is set to secure re-election in the 2010 parliamentary election.
• Real GDP growth will slow to 4.2% in 2009 before accelerating to 5.1% 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 13% in 2009 and 7.4% in 2010.
• Weaker apparel exports will see the current-account deficit remain high, at 4.8% of GDP in 2009 and 5% in 2010.
• We believe that Sri Lankas economic outlook is subject to strong downside risks. The exchange rate and investment growth are areas of particular concern.

Monthly review

• Political parties from the Indian state of Tamil Nadu are believed to have prompted the Indian government to issue a statement of concern over civilian deaths in the conflict in the north of Sri Lanka.
• Sri Lankas budget for 2009 forecasts a reduction in the fiscal deficit to 6.5% of GDP, from 7% of GDP in 2008, although such targets are often missed.
• The budget raises defence spending by 20% and imposes a new 1% tax on imports, manufacturing and services to pay for nation building?.
• The budget also introduces a range of import duties to encourage domestic production, especially in agriculture. In addition, the Port and Airports Levy is set to rise from 3% to 5%.
• Value-added tax will be reduced from 15% to 12%. Fuel prices will also be cut.
• Sri Lanka abandoned a quasi-peg between the Sri Lanka rupee and the US dollar after foreign-exchange reserves plunged in October to a reported US$2.6bn.

Source: Country Report

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