Sri Lanka's economy bounced back strongly in 2010 and poised for a healthy grow the Asian Development Bank (ADB) said yesterday.

The country needs tightening monetary policies and state enterprise and finance sector reforms to support the higher growth, ADB added.

The ADB says after last year's rebound, the economy is expected to show continued high growth of 8.0% in 2011, supported by some strengthening in external demand, and maintain growth at that level in 2012.

Sustaining such performance will require fiscal consolidation, state enterprise and finance sector reforms, as well as flexible exchange rate management, the ADB suggested in its annual economic publication titled Asian Development Outlook 2011 (ADO 2011) released yesterday.

The Bank predicts the services and industry to lead growth in 2011 while the agriculture is likely to be hampered by the floods earlier this year that damaged the rice and other crops.

The ADB warns that the rising global food and oil prices and a shortfall in domestic supply of agricultural produce due to the flooding will lead to rising inflation, but only up to around 8%.

The report questioned the Central Bank's move in January to cut the interest policy rates in spite of the upward trend of inflation to relax monetary policies as an incentive for greater private investment.

"With the economy now on a higher growth trajectory and inflation pressures rising, however, monetary tightening may well be needed later in the year," the ADB noted.
Meanwhile, the ADB would finance Sri Lanka with about 300 million dollars annually over the next few years, with roads, water supply and sanitation getting attention.
"A new 5-year country assistance strategy for Sri Lanka is now being developed", ADB Country director Richard Vokes said.

"Going forward the expected lending level would be about 300 million dollars a year," he said.

"These may change towards the latter part of the 5-year period," the Country Director added.