Reconstruction will ease tsunami setback in Sri Lanka

Asian Economic News, Feb 22, 2005

COLOMBO, Feb. 16 Kyodo

Sri Lanka's Central Bank, in an optimistic monetary policy statement Wednesday, said that reconstruction work and foreign aid will help mitigate the negative effects of the tsunami disaster.

''The relief, rehabilitation and reconstruction work initiated by the government in the tsunami-affected areas will help mitigate the negative impact of the tsunami disaster, particularly in the fisheries and tourism sectors,'' the bank said in its regular monthly monetary policy statement.

It noted that fisheries and tourism have already begun to recover and said that agriculture, which had a lean 2004, will turn around this year due to favorable weather.

Sri Lanka estimates tsunami reconstruction work will cost about

$1.8 billion and hopes that about a third of this will be available by way of foreign grants.

The bank, which had projected 6 percent gross domestic product growth in 2005 before the tsunami pounded three-fourths of the island's coast Dec. 26 killing an estimated 40,000 and causing billions of rupees in property damage, later trimmed a percentage point of the projection after the tsunami.

But the latest statement projects this year's growth at ''around 5.5 percent,'' higher than an International Monetary Fund estimate of 4 percent.

The bank also forecast expanded industrial output with a major contribution from textiles and apparel, which are the country's leading manufacturing industries, together with healthy growth in construction helped by post-tsunami activity.

The bank said while export earnings would grow this year, so would imports as a result of input from abroad for relief, rehabilitation and reconstruction.

But expected foreign assistance, increased remittances from Sri Lankans working abroad and foreign debt relief from donors will help the balance of payments this year, possibly into surplus, it said.

''(This would) increase external reserves thereby reducing the pressure on the exchange rate,'' the bank said.

Sri Lanka's external trade deficit was a record $1.94 billion to November last year due to the high cost of oil imports.