Economy grows fastest despite armed conflict - Bloomberg News
[Monday, April 23, 2007 - 8.00 GMT]   

Sri Lanka is maintaining its fastest growth rate in 30 years states Bloomberg, the international financial news service.

With armed confrontations between the LTTE terrorists and the Sri Lankan Armed Forces taking place far from industrial and investment centres driving the US$ 26 million economy, investment in the country continues. "Businesses still invest, factories still produce. The main reason is because the conflict is localized,'' Agost Benard, credit analyst at Standard & Poor's in Singapore, told Bloomberg.
                                                  
Here are relevant excerpts of the Bloomberg report on the Sri Lankan economy dated today (April 23) by Anusha Oondatjie and Paul Tighe

Sri Lanka, which is also recovering from the Dec. 26, 2004, tsunami, saw its gross domestic product grow 7.4 percent last year, buoyed by a 10 percent expansion in Western province, the home of the textile and clothing
industries, the biggest export earners. Two rounds of peace talks last year in Geneva failed to make any progress toward ending the conflict in the South Asian island nation of 20 million people.

The Central Bank of Sri Lanka maintains its 2007 growth forecast of 7.5 percent. Manufacturing, which includes tea processing, rubber-based products and construction, grew 7.2 percent in 2006 from a year earlier, while services, such as cargo handling and telecommunications, expanded 8.3 percent.

Sri Lanka's garment industry, responsible for about 4 percent of the economy, supplies for brands such as Gap Inc., Banana Republic and Marks & Spence Group Plc.

Overseas Investment

The island last year attracted record overseas investment of $600 million, mostly from garment makers and telecommunications companies in the capital,
Colombo, located in Western province.

Dialog Telekom Ltd., Sri Lanka's biggest mobile-phone operator and a unit of Telekom Malaysia Bhd., said in February full-year profit rose to a record after spending about $150 million expanding its network to increase
customers.

The benchmark Colombo All-Share Index reached a record 3016.42 on Feb. 13. The index fell to 2729.21 points on March 16 and has since recovered about
1.5 percent.

"Entrepreneurs know what risks to take and foreign investment players who are active, already know the situation,'' said Saman Kelegama, executive director of Sri Lanka's Institute of Policy Studies. "Because the north and eastern provinces have been battered, their supply capacity has reduced.''

Tourist arrivals fell in eight of the 10 months since June as visitors stayed away from Sri Lanka's white-sand beaches, ancient Buddhist sites and hill resorts as a result of travel advisories from countries such as France
and Italy, citing the conflict. Tourism is Sri Lanka's third-biggest revenue earner.

Tamil Tigers

The LTTE, classified as a terrorist group by the U.S., European Union and India, says the Tamils, who make up less than a fifth of the population, are discriminated against by the majority Sinhalese.

The army inflicted defeats on LTTE forces this year, overrunning 16 rebel camps in the northeast in January and earlier this month seizing the eastern region around Batticaloa after taking control of the main road link for the first time in 14 years. The LTTE accused the government of trying to impose a military rather than a political solution to the conflict.

Government forces suffered defeats in the north, including the loss of at least 74 soldiers in battles in the Jaffna peninsula on Oct. 11.

Tired of War

"If the government gets more control over the east, it can be uplifted closer to other provinces,'' said Kelegama. "The people, who are sick and tired of the war, will appreciate economic activity increasing.''

Fighting around Batticaloa last month forced an estimated 95,000 civilians to flee to join 60,000 people already in refugee camps in the region, according to the United Nations.

Sri Lanka expects to receive $4.5 billion in overseas aid in the next three years for highways, expanding the Colombo port, and building its second coal-fired power plant in the northeastern port town of Trincomalee, the
government said on Jan. 30.

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Last Updated Date: April 23, 2007 - 8.00 GMT