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Wednesday, 22 August, 2001, 16:14 GMT 17:14 UK
Sri Lanka growth slows after attacks
Destroyed plane on the runway at Bandaranaike Airport
Last month's airport attack contributed to falling growth
The government of Sri Lanka is looking for new international loans to cope with a sharp slowdown, triggered by the growing global downturn and the recent attacks on Sri Lanka's sole international airport by Tamil Tiger separatists.

The economy, previously expected to grow at 4.5% this year, is now seen expanding by just 2.5-3% according to the Central Bank. The government's separate forecast is 3%.

Latest International Monetary Fund figures suggest growth in Sri Lanka of just 1% in the first half of 2001, against an original prediction of 3-4%.

"The factors are the airport attack, a weak agriculture sector because of a drought, external pressures including a recession, and a correction of oil prices," said the treasury secretary, PB Jayasundera.

Staying away

The attack further damaged a tourist trade already slowing thanks to a wave of recent Tiger attacks, and put airlines off returning to normal service. Cathay Pacific is still refusing to fly to Sri Lanka.

Kandy, Sri Lanka's second city
Tamil Tiger attacks have kept tourists away
It also meant insurers jacked up "risk premiums", stranding a group of Buddhist pilgrims in India after a $40 surcharge was slapped on their return air tickets.

And last week, before a rethink, Lloyd's of London extended the "war risk" surcharge to ships using Colombo's harbour, increasing costs per ship by an estimated $450,000 a visit and spurring some shipping companies to avoid the port altogether.

Exports were already down 1.5% in the first half to $2.43bn according to Central Bank figures.

New money

The government is now looking for a $200m loan syndicated through Deutsche Bank to help fund its budget, and has set a limit of 7% on the interest rate it is willing to pay.

Another $500m is due under an IMF poverty reduction and growth facility (PRGF).

And Mr Jayasundera says he hopes the IMF will allow a second, $30m tranche of the $253m in standby credit granted in April.

The money would support Sri Lanka's shrinking foreign exchange reserves, although it would probably require a new IMF agreement

Airport attack

The attack on Bandaranaike International Airport near the capital, Colombo, was seen as the key to the severity of the downward revision.

The factors are the airport attack, a weak agriculture sector because of a drought, external pressures including a recession, and a correction of oil prices

PB JayasunderaSri Lankan treasury secretary
Rebels from the Liberation Tigers of Tamil Eelam (LTTE) blew up eight jets from Sri Lanka's airforce along with half the fleet operated by Sri Lanka Airlines. The airport was closed for several days.

The cost of replacing the military aircraft has been estimated at $350m, half Sri Lanka's already overstretched defence budget.

The administration of President Chandrika Kumaratunga is also facing severe political problems, after parliamentary elections in June left the ruling People's Alliance in a minority government.

Parliament was closed down for two months from July 10 to avoid losing a humiliating no-confidence vote.

The opposition, led by the United National Party, has now agreed to talk formally about a government of national unity and to participate in negotiations with the Tigers.

But it is demanding independent commissions to run public services as the price of its acquiescence in a caretaker government.

Sri Lankan shipping minister Ronnie De Mel
"The increase in the war risk premium was a total disaster so far as the economy is concerned"
See also:

17 Aug 01 | Business
Sri Lanka ports in crisis
25 Jul 01 | Business
Sri Lanka's economy reels after raid
18 Aug 01 | South Asia
Sri Lanka army chief denies bribery
14 Aug 01 | South Asia
Sri Lanka drought action urged
04 Aug 01 | South Asia
Sri Lanka tightens security
30 Jul 01 | South Asia
Sri Lanka fears tourism slump
23 Jul 01 | South Asia
Sri Lanka opposition campaign goes on
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