Financial Times

Forex reserves equal 5.3 months of imports
Sri Lanka’s foreign exchange reserves rose to $ 4.3 billion – worth 5.8 months of imports by the end of February 2006 – while the Central Bank’s gross official reserves increased to $ 2.8 billion by end March 2006, the Bank said last week.

The Bank in its monthly state-of-the-economy report said that with the increased inflows to capital and financial accounts, the balance of payments (BOP), which recorded a surplus of US$501 million in 2005, continued to register a surplus of about $142 million by end March 2006.

Both exports and imports expanded in February with imports growing at a faster rate due to the increase in intermediate and investment goods, including petroleum imports. Although the trade deficit widened, the continued high growth in private remittances, an increase by 33 percent to $421 million during the first two months of 2006, helped in containing the current account deficit.

The statement said that the expansion in economic activities is expected to strengthen further in 2006 “building on the strong growth momentum in 2005” and favourable external economic environment.

The agricultural sector is expected to expand reflecting better performance across all sub-sectors, including a full recovery in the fishing and coconut sub-sectors.

The industrial sector is expected to grow further in 2006 benefiting from the improvements in both export oriented industries and domestic market-oriented industries supported by increased market access through multilateral and bilateral trading arrangements.

The construction sector is expected to improve substantially with new housing as well as tsunami reconstruction activities. The value addition from hydropower generation is expected to increase as a result of favourable weather conditions. The available indicators suggest that the dynamism in the services sector, especially in port services, telecommunication, trade, tourism and financial services sub-sectors, will prevail 2006.

Inflation, the report said, is expected to remain at moderate levels in 2006.
The Monetary Board of the Bank said that after reviewing the recent economic developments and prospects, it has decided to maintain the policy interest rates of the Central Bank at their current levels and to continue with the conduct of open-market operations to decelerate the monetary expansion to the desired path.

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