Sri Lanka upbeat on economy

Sri Lanka is recovering from two decades of war

Sri Lanka's economic prospects are strong, its central bank has insisted, shrugging off fears that its peace-process-related recovery could backfire.

The rupee hit a 12-month high on Monday, buoyed by hopes that ongoing talks to end the country's 20-year civil war could spark an influx of foreign money.

This has, however, sparked fears that Sri Lanka may no longer be competitive in international markets, especially for its crucial textile exports.

But the central bank - which on Tuesday opted not to cut interest rates - argued that 24 straight years of a declining rupee had given Sri Lanka a strong export position.

The bank also predicted that foreign direct investment, potentially a valuable driver of post-war reconstruction, could hit a record $350m this year, up from $242m in 2002.

Looking for funds

Even more significant will be inflows of foreign aid; pledges of $4.5bn have already been agreed.

Much depends on the outcome of peace talks between the government and Tamil Tiger separatists, who signed a ceasfire in February last year.

Although the truce has broadly held, a final peace agreement has proved elusive.

In the meantime, the Sri Lankan Government is trying its best to bring cash into the economy.

This week, Prime Minister Ranil Wickremesinghe is visiting Malaysia to court the government and investors.