COLOMBO, Sept. 15 (Xinhua) -- The official visit to Sri Lanka of Chairman Wu Bangguo of the Standing Committee of China's National People's Congress, which will start today, would have enormous impact on bilateral relations between China and Sri Lanka, analysts here said.
Economist Sirimal Abeyratne, who is also the head of the Economics Department in the University of Colombo, said he is upbeat on the benefits of the visit to Sri Lanka not just in political but more on economic cooperation.
Abeyratne said that the Sri Lankan government should work for the expansion of trade between the two countries and not just depend on loans in order to make the economic growth of the country sustainable.
According to the Chinese embassy here, during Wu's visit more than 10 agreements would be signed by the two countries.
Wu's trip is the most high profile visit to Sri Lanka of a Chinese official since the island-nation emerged victorious three years ago from a bloody civil war with the separatist Tamil Tiger guerrillas.
Dr. Abeyratne pointed out that Sri Lanka's exports to China correspond to a measly 1 percent of the island's total trade.
"Trade between the two countries is still at an early stage but is very important given the size and depth of China's market. Relations need to expand beyond investment and loans. If it does so then it would be enormously beneficial for Sri Lanka," he noted.
Despite a brutal civil war that began in 1983, economic growth has averaged around 5 percent in the last 10 years. Due to the global recession and escalation of violence during the final stages of the war, the country's gross domestic product (GDP) growth slowed to 3.5 percent in 2009 and foreign reserves fell sharply.
Relatively high fiscal deficits and double digit inflation were the main macroeconomic issues resulting in high levels of public debt, high interest rates and unstable currency that Sri Lanka experienced in the past, particularly during the conflict.
China remains involved in almost all the large scale projects taking place in the Indian Ocean island-nation.
Some of the biggest projects financed by China include a 1.3 billion U.S. dollar coal power plant on the northwestern shore as well as a host of other investments in the south of the country including a 1.2 billion dollar port and 209 million U.S. dollar airport.
China has also pledged 760 million U.S. dollars to improve the country's road network and is also heavily involved in highway construction.
So close has the relationship between the two countries has become that Chinese Ambassador to Sri Lanka Wu Jianghao described it as being the "best in history" despite the two countries having diplomatic ties since 1955.
Private sector business confidence rebounded quickly with the end of the war and an International Monetary Fund (IMF) agreement in July 2009, which concluded in July this year. Under the IMF program Sri Lanka signed onto a Stand-by Agreement of 2.6 billion U.S dollars that bolstered foreign reserves and kept the economy from plummeting into a balance of payment crisis.
Consequently, Sri Lanka recorded strong growth in 2010, as GDP grew by 8 percent. Official foreign reserves, including borrowings, reached 6.6 billion U.S. dollars, which is equivalent to six months of imports, according to the Central Bank.
The year 2011 brought even better results with the island- nation recording 8.3 percent growth, the first time that the country managed to record such high growths in consecutive years. Sri Lanka has also completed most of its resettlement of 150,000 people displaced by the war.
The government also rehabilitated around 11,000 carders that were formerly members of the Liberation Tamil Tigers of Eelam ( LTTE that fought for a separate homeland in the country until 2009.
Political stability was also assured with the re-election of President Mahinda Rajapaksa and his government for a second term during the first few months of 2011.
The biggest concern for the country in 2012 has been a prolonged drought that has affected thousands of farmers and has resulted in electricity cuts and reduced projected growth from 7.2 percent to around 6.7 percent.
However, analysts from Asia Wealth Management in their latest report have pointed out that this is still ahead of the growth expected by other Asian and developed countries.
It said latest projections made by the IMF indicate Sri Lanka's expected growth of 6.75 percent for 2012 is considerably higher against the growth forecast for most of the emerging Asian economies of 5.6 percent.
IMF projections indicate India's growth to be at 6.1 percent, Pakistan at 2.6 percent and Bangladesh at 5.9 percent in 2012. Further, the average growth forecast for Vietnam, Philippines, Indonesia and Thailand is 5.4 percent, well below that of Sri Lanka for the period.
Special Report: Top Legislator Wu Bangguo visits Iran, Myanmar, Sri Lanka, Fiji