The Asian Development Bank (ADB) forecasts Sri Lanka's economic growth is expected to maintain its strong performance of the last 2 years.
The Bank in a recently released report on the development outlook for Asia in 2012 that the pace of expansion for Sri Lanka will moderate this year partly due to the slower growth in industrial countries and weaker growth in global demand and trade and also due to domestic factors.
"The rebound has largely run its course and with little slack in production capacity signs of overheating have emerged that will require tighter demand-management policies to forestall the buildup of serious economic imbalances," the report titled "Asian Development Outlook 2012" noted.
Despite the slow pace the growth is expected to be high around 7.0%, the ADB predicts, taking into account the favorable contribution from the investment, exports, tourism, remittances, and consumption. The contribution from agriculture is also expected to be high assuming normal weather. The agriculture sector grew at 1.5 % in 2011 due to the bad weather that affected the tea industry and the domestic rice supply.
The growth for 2013 is expected to bounce back to 8.0% with increased domestic and foreign investment as the global economy starts to pick up next year.
The ADB observes that while the government tries to narrow the budget deficit in 2012 to 6.2% of GDP by stringent monetary policies, it will be hard to reach the target since when the target was set, the government had expected a higher growth rate of 8.5-9% and inflation in mid-single digits for this year.
The government plans to bring the deficit down to 5.8% in 2013, by improving income tax and value-added tax collection and further streamlining current expenditure.
The ADB expects the annual inflation to be 8% in 2012 and fall marginally to 7.0% in 2013.
Export growth is expected to be 11.0% in 2012.
The trade gap is projected to stabilize as the import expenditure eases due to the higher interest rates, tighter credit, and depreciation in rupee exchange rate imposed by the Central Bank in February.
"Tourism-related inflows will stay a major earner," the ADB forecasts.
According to the ADB, the outlook for 2012 will be a moderate but still strong growth while with stronger industrial-country growth and a pickup in trade in 2013, a stronger export growth is projected to help narrow the current account deficit to 6.0% of GDP.