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Lanka expects economic upswing as war ends

Some experts have pegged the economic cost of the war at $200 billion. That’s not good news especially after the Central Bank governor Ajith Cabraal said that the country’s growth rate was likely to fall below 3 per cent for the current year, a sharp drop from 6 per cent in 2008. Sutirtho Patranobis examines...

world Updated: Apr 07, 2009 23:32 IST
Sutirtho Patranobis

The costs of fighting an ethnic conflict for 26 years can be broadly divided into two categories. The numbing human and social costs can be rolled into the first. No arithmetic, of course, can quantify the human, social and political cost of Sri Lanka’s war.

But a three-decade-year old war has cascading economic impact too. In 2009, Sri Lanka, which has all but broken the conventional military might of the Tamil Tigers, is likely to feel the pinch of the war’s economic price than ever before. More so, because external economic factors are also breathing down its export-oriented economy.

Some experts have pegged the economic cost of the war at $200 billion. That’s not good news especially after the Central Bank governor Ajith Cabraal said on Monday that the country’s growth rate was likely to fall below 3 per cent for the current year, a sharp drop from 6 per cent in 2008.

“If things get worse, we expect economic growth to slow down to between 2.5 per cent to 3.5 per cent this year,” Cabraal said during the launch of the bank's 2008 annual report.

Sri Lanka’s economy posted 6.0 per cent growth in 2008, down from 6.8 per cent in 2007.

Economists say the cost of the military campaign against the Tamil Tiger rebels has hurt the economy, with the defence budget taking up 1.6 billion dollars this year. This comes on top of three billion dollars spent in the previous two years

But Cabraal said the end of the war would boost economic growth as the embattled north and east would be opened up for development.

A Central Bank economist, on condition of anonymity, said a spurt of economic activity is expected in the north after the war is over. “Like in the east, north would also see economic activity, which will spur growth,’’ he said.

These comments came after the IMF recently concluded a visit to Sri Lanka to negotiate a 2.4-billion dollar bailout package.