By ERIC BELLMAN
COLOMBO—Fresh investments and consumer optimism spurred by the end of the war in Sri Lanka are helping the economy here more than expected, said the country's central bank governor.
The Central Bank of Sri Lanka likely will raise its projection for gross-domestic-product expansion this year to 7% from an earlier estimate of 6%, said its governor, Ajith Nivard Cabraal. The revision could happen as early this week, he told The Wall Street Journal.
"We have already started to enjoy economic activity taking a very quick march upwards," he said in an interview from his Colombo office overlooking the Indian Ocean. "The stock market is doing much better, bank lending is coming back and local investors are getting upbeat about what they should be doing."
Mr. Cabraal said the central bank was waiting to confirm whether the strong numbers for the first quarter were in line with initial estimates. If they are as strong as he expects, then the bank will raise its forecast, he said.
Expatriate Sri Lankans are sending more money home, foreign investors are expanding their operations here, the government is in the middle of an infrastructure push and local consumers and companies are spending more than before, confident that their spending plans won't be spoiled by war.
Last year the government won its three-decade-long war against the Tamil Tiger separatists, opening the north and east of the country to more development and so far ending regular terrorist attacks in the country's capital of Colombo.
Sri Lanka was confident enough about its security situation that last week it hosted one of its biggest international events ever held here. The International Indian Film Academy awards attracted more than 1,000 people from the Indian film industry and its fans.
"We are emerging out of the conflict and it is important for us to convey the message that Sri Lanka is open for business and we are back on track," said Mr. Cabraal.
Initial growth will come from an inflow of capital to the country from Sri Lankans living overseas and foreign investors, he said, while the next round will come from making the formerly Tiger-controlled areas of the country more productive by investing in them and integrating them with the rest of the island-nation's economy.
Mr. Cabraal will visit the north this week to open six new bank branches, which will make it easier for local businesses to raise money. The regions are already seeing an upsurge in new investment in agriculture and fisheries, he said. "If you go up north you can see many new fields that are already being cultivated."
The government is hoping those regions will also make ideal destinations for eco-tourists. Before the conflict started in 1982, Sri Lanka used to attract about half as many tourists as Thailand. Last year it attracted less than one-twentieth the number of tourists who visited Thailand. While tourism accounts for only around 1% of the country's GDP now, it could climb as high as 6% as tourists return to the country, Mr. Cabraal said. The government is trying to increase the number of tourists who come to Sri Lanka from around 500,000 per year currently to 2.5 million per year in the next five years.
Inflation, which is currently less than 6%, so far seems under control, despite the surge in spending and investment, he said. The central bank wasn't as aggressive as other central banks around the world in lowering interest rates last year to counteract the global slowdown.
"Many have expected us to decrease rates further, but we have not done that," he said. "It is very likely we will not see the inflationary pressures mounting."
The most direct peace dividend, however, hasn't had a huge impact on the economy, he said. The country's military spending of around $1 billion is likely to fall only around 10%, as the military is retooled and retrained for peacetime.
source - http://online.wsj.com/
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