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Sri Lanka Business Forecast Report Q1 2010Published by: Business Monitor International Published: Oct. 30, 2009 - 60 Pages Table of Contents
AbstractWe expect 2010 to be another challenging year for Sri Lanka in spite of the end of the civil waragainst the Liberation Tigers of Tamil Eelam (LTTE) in May 2009. The conclusion of a lasting peaceagreement should be easier to achieve once President Mahinda Rajapaksa has strengthened hisgrip on power in elections in early 2010. We expect economic growth to remain weak in 2010 on theback of poor domestic and external demand, but to accelerate in 2011 and 2012 as reconstructionefforts and other foreign direct investment pick up. However, a continuation of growth of 6.0+%will be conditional on far-reaching economic reform, a policy option not favoured by the currentadministration.We expect President Rajapaksa to consolidate his power by calling presidential elections in early2010 to capitalise on the surge in popular support following the ending of the 25-year civil war inMay 2009. A renewed presidential mandate will likely be followed by parliamentary polls to giveRajapaksa the legislative backing with which to achieve a political resolution of the conflict withTamil separatists. We believe the influence of Beijing as Sri Lanka’s most important ally will continueto grow in coming years, with Chinese investment helping the Sri Lankan economy recover fromthe global economic downturn. We maintain our 4.4% real GDP growth forecast for 2010, in spite of our upward revision of expected2009 growth from 2.2% to 3.3%, as weak external demand and higher unemployment should holdback consumer spending. However, we expect real GDP growth to accelerate in 2011 and 2012as gross fixed capital formation and exports gather pace. The strong contribution of gross fixedcapital formation will help Sri Lanka post real growth rates of 6.1% and 6.5% in 2011 and 2012respectively. We expect real GDP growth to peak at 6.8% in 2013 as reconstruction projects reachcompletion and foreign direct investment starts to slow. Despite the government’s military victory over the rebels, which should ease security concerns,the underlying issues affecting Sri Lanka’s business environment are mostly unchanged. Theseproblems include corruption in the judiciary (and particularly in the contract-bidding process) aswell as inadequate physical infrastructure. Although the government is pressing ahead with itsinfrastructure programme, it relies on increasingly scarce foreign funding to do so. More broadly,the business environment is unlikely to see a significant improvement under President MahindaRajapaksa, who has been pursuing a more nationalistic and less business-friendly economic policythan his predecessor. Get Full Details About This Report >> |
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