Outlook for 2011-15

• The president, Mahinda Rajapakse, will remain in power throughout the forecast period, but by 2015 his popularity is likely to have fallen from its current high level.
• The United People's Freedom Alliance (UPFA) government is also likely to stay in power throughout 2011-15, owing to its huge parliamentary majority. Its main priorities are likely to be rural and infrastructure development.
• The Economist Intelligence Unit expects real GDP to grow at the relatively rapid rate of 7.4% a year on average in the forecast period. It could expand faster if investment in residential real estate takes off.
• Fast economic growth will come partly at the expense of price stability; we expect inflation to average 6.4% a year in the forecast period, despite supply-side improvements that will help to damp down inflationary pressures.
• Strong economic growth should ensure that the government makes gradual headway in reducing the fiscal deficit, which is expected to narrow to the equivalent of 4% of GDP (excluding grants and privatisation income) by 2015.
• Rising inflows on the services account should help to offset the impact of a rapidly expanding trade deficit, limiting the current-account deficit to an average of 4.4% of GDP a year in the forecast period.

Monthly review

• Heavy rains led to continued flooding throughout February. Over 1m people were affected by the floods, and at their peak in January 362,000 were displaced.
• Sri Lanka received another tranche of assistance from the IMF's Stand-By Arrangement in February, worth around US$220m. The Fund estimates that real GDP growth rose to 7.8% in 2010.
• Consumer prices increased by 7.8% year on year in February, compared with 6.8% in January, as flood disruption pushed up the cost of food.
• In 2010 tourist arrivals rose by 46%, to 654,476, while foreign-exchange earnings from the tourism sector increased by 64.8%, to US$575.9m. Visitor numbers continued to surge in January, rising by 46.2% year on year, to 74,197.
• A new, 42-km stretch of railway between Galle and Matara, in southern Sri Lanka, was inaugurated in February. The track allows trains to run at over 100 km/h, much faster than most trains in Sri Lanka.
• In February Malaysia's Dialog Axiata, the largest mobile-phone operator in Sri Lanka, announced plans to invest US$150m to upgrade its broadband and fibre-optic networks on the island.