Increased domestic economic activities after the end of the war and expected export growth as the global economy recovers will help, the IMF Director for Sri Lanka, Koshy Mathai, told Reuters.

"The global environment is still not very strong as recovery is slow. On that basis 5.5 percent is a good number," he said.

IMF has set targets for Sri Lanka on reserves, monetary policy, and fiscal deficits for loan disbursement and Mathai said the island had met its July and September targets to get the first two tranches of the loan, Reuters reported.

"We think that they would have met the reserve targets and monetary policy targets. Fiscal is the one where the government itself says there is a question," Mathai said. "We haven't seen data yet, but one worry is what's happening on the expenditure side".

The $40 billion economy, which was hit by a balance of payment crisis early last year, has already received two tranches of a $2.6 billion IMF loan and the third is due soon, Reuters reported.

Sri Lanka could issue its third international bond later this year with a longer, 10-year maturity, the central bank governor said in London on Tuesday.

The loan has helped to stabilise the rupee currency LKR= and boost global investor confidence to invest in post-war Sri Lankan government securities and the bourse .CSE. It also helped to stabilise interest rates and to sell a 5-year $500 million sovereign bond last year.

"Now basically there is a stable macro economy. There is fiscal concern that needs to be remedied in order to make sure that things remain stable."

The global lender said Sri Lanka has done well in monetary policy and reserve targets.

"We see right now the monetary policies are in the right place. We don't see any signs of overheating in the economy. We don't see demand-driven inflation," Mathai said.

Annual inflation, which reached a record high of 28.2 percent in June 2008, slowed to a record low of 0.7 percent in September last year. It hit a nine-month high of 6.5 percent in January.

Foreign currency reserves, which were at an eight-year low of $1.3 billion in March 2009, are now at record high of over $5 billion. Mathai said the central bank should continue to increase its reserves to allow high imports when rapid growth starts.