Concern about Sri Lankan inflation.

In October 2006, talks in Geneva aimed at ending a 20-year civil war in Sri Lanka collapsed, and fighting promptly broke out anew. The civil war is another example of ancient ethnic hatreds, which have, so far, defied rational solutions anywhere.

The renewed civil war affects Sri Lanka's economy in many ways. The continued loss of life added to the "tens of thousands" already killed-according to one prominent source-is something no country can afford.

Beyond that government spending needs to increase to try to contain the violence. And warnings from other countries to their citizens thinking of traveling to Sri Lanka have a negative effect on tourism, a major source income for the country.

A report distributed by Reuters on October 6, 2006 said, "Sri Lanka's government plans to sharply raise its state spending in 2007 from levels it budgeted for this year, including a rise in defense spending amid renewed civil war." Inflation, which hurts consumer spending, jumped almost immediately after renewal of hostilities.

On December 29, 2006, Bloomberg News reported, "Sri Lanka's economic growth slowed for a second quarter as interest rates at a four-year high and escalating violence in the island's civil war curbed spending."

In the same story, Bloomberg said that the country's central bank raised its key interest rate to "the highest in Asia." The inflation rate is at a 10 year high.

Adding to the inflationary pressures of war, a strike at Sri Lanka's tea plantations was settled by offering workers a 33 percent wage hike. This is a double-edged sword since these workers, 200,000 strong, will be induced to spend while at the same time inflation is eroding their purchasing power.

These very significant troubles, however, appear not to have not had the big negative effect on Sri Lanka's growth prospects that might be expected. GDP for the third quarter 2006 rose 7.5 percent following a 7.6 percent rise in the second quarter 2006. The International Monetary Fund (IMF) estimates GDP growth for 2006 at 5.6 percent, with growth for 2007 increasing at a stronger pace to 6.0 percent.

SRI LANKA MUST FIND A SOLUTION TO ITS CONTINUING CIVIL WAR

The population growth rate for Sri Lanka is well below the regional average, due in part to a birth rate of 19 per thousand inhabitants, which is lower than the average of 25 per thousand for South Central Asia. Job creation has not kept up with growth of the labor force in recent years, and it is unlikely that the situation will improve further in 2007. Unemployment is running about 7.7 percent (2005), and this continues to dampen consumer confidence.

Sri Lanka's population reached 20-million people mid-2006, which amounted to just over 1 percent of South Central Asia's 1.6-billion inhabitants. According to data released by the Population Reference Bureau (PRB), Sri Lanka's population will reach 22-million by 2025. Also, according to that source, Sri Lanka is going to have the same population level of 22-million in 2050.

The PRB revealed that a low 20 percent of Sri Lanka's population lived in urban areas during 2006, and that the country's population density is 784 people per square mile. Sri Lanka is about 15 percent smaller than Panama in land area. But Sri Lanka has 6 times as many inhabitants.

Another source of demographic data, the CIA's World Factbook, indicates that 24 percent of Sri Lanka's population was birth to 14 years old in 2006, while 69 percent was 15 to 64 years old, and 7 percent of the populace was 65 years of age and over.

The CIA estimated that the country's population growth rate was 0.78 percent in 2006. According to the United Nations Population Division, in the year 2050, 17 percent of Sri Lanka's population will be birth to 14 years old, while 55 percent will be aged 15 to 59, and 28 percent of the populace will be 60 years of age and over.