US embassy cable - 05COLOMBO421

UNCLAS COLOMBO 000421 
 
SIPDIS 
 
DEPARTMENT FOR SA/INS, J. BRENNIG 
COMMERCE FOR C. CARNES 
TREASURY FOR A. BENAISA 
DEPARTMENT PLEASE PASS TO MCC: D. NASSIRY 
MANILA FOR USADB 
 
E.O 12958:N/A 
TAGS: ECON, EAID, CE, ECONOMICS 
SUBJECT: Despite Tsunami, 5.5 percent growth forecast 
 
1.  Summary:  The Central Bank of Sri Lanka expects 
the economy to grow by 5.5 percent in 2005 despite the 
extensive damage suffered in the tsunami.  The bank is 
counting on key economic sectors and reconstruction 
activity to aid growth.  The Central Bank forecast is 
higher than the post tsunami growth forecasts of the 
international financial institutions.  End Summary 
 
2.  According to initial projections of the Central 
Bank, economic growth in 2005 would be around 5.5 
percent compared with an original forecast of 6 
percent.  The Central Bank's post tsunami growth 
forecast is higher than the recent forecasts of the 
international financial institutions (IFI).  A joint 
Asian Development Bank (ADB), World Bank (WB) and 
Japan Bank for International Cooperation (JBIC) damage 
and needs assessment report released in early February 
estimated GDP growth of around 5 percent in 2005 - 
with tourism and fisheries sectors declining by 30 
percent and 35 percent respectively and construction 
sector growth increasing from 5 percent to 9 percent. 
According to the report, overall tsunami related 
losses are estimated at USD 1 billion (or 4.5 percent 
of GDP).  In a separate assessment released in early 
January, the IMF cut its GDP growth forecast to 4 
percent in 2005 from its previous forecast of 5 
percent.  Clarifying the higher Central Bank forecast, 
the Central Bank's Director of Economic Research, H.N. 
Thenuwara, told EconFSN that they expect a stronger 
recovery in tourism - leading to lower losses than 
predicted by the IFIs - and higher growth in the 
construction sector.  Thenuwara acknowledged, however, 
that these are optimistic assumptions, and that the 
final numbers could be much closer to the IFI 
assumptions. 
 
3.  The Central Bank report said that relief, 
rehabilitation and reconstruction would help mitigate 
the negative impacts of the tsunami.  All key sectors 
of the economy are showing signs of improving.  Growth 
is expected to stem mainly from services (transport, 
storage and telecommunications).   In addition, 
construction will be a major contributor, aided by 
post tsunami activity (Note: the construction sector 
is projected to almost double its growth rate in 2005 
and as a sector, it accounts for almost twice as much 
GDP growth as tourism. End note).  The agricultural 
sector is expected to perform well this year due to 
favorable weather.  Textile and apparel exports are 
also expected to maintain solid performances. 
 
LUNSTEAD