Hype runs out as economy struggles

Economic downturn      After crushing Tamil rebels four years ago Sri Lanka expected to become South Asia’s tiger economy, but exuberance has given way to mediocre growth and fears of more trouble ahead.

The country was almost broke when troops defeated separatist Tamil Tigers in May 2009, but Colombo predicted that ending 37 years of bloodshed alone would jump-start the economy and make Sri Lanka the “Singapore of South Asia”.

“Sri Lanka had a sudden opportunity at the end of the war, but we failed to leverage that,” said opposition lawmaker Harsha de Silva. The record 8.0 and 8.2 percent growth rates in the first two full years after the war gave way to a much slower 6.4 percent last year — slower than during some of the war years.

The IMF, which bailed out Sri Lanka with a $2.6 billion rescue package when foreign reserves hit rock bottom at the end of the war, is warning of a looming debt crisis and rising inflation.

On the eve of the celebrations marking the killing of Tamil Tiger leader Velupillai Prabhakaran on May 18, 2009, ending a protracted guerrilla war, the IMF country’s representative, Koshy Mathai, cautioned Colombo on the economy.

He said Sri Lanka’s revenue collection was among the lowest in Asia, public investment was also among the lowest and national debt at 80 percent of GDP was far too high.

Mathai has urged Sri Lanka to reform hugely loss-making state enterprises, including the electricity monopoly which raised tariffs by over 65 percent, a move that has sparked widespread protests from trade unions.

It prompted a devaluation and an interest rate hike.

The IMF, which bailed out Sri Lanka with a $2.6 billion rescue package when foreign reserves hit rock bottom at the end of the war, is warning of a looming debt crisis and rising inflation.

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