Nov. 9 (Bloomberg) -- Sri Lanka’s government will maintain fiscal and monetary stimulus through to 2010 to stoke an economic recovery after the end of a 26-year civil war, the island’s deputy finance minister said.

“The economy is growing and there is no hurry to roll back stimulus,” Sarath Amunugama said in an interview on the sidelines of the India Economic Summit in New Delhi today. “After the war, the space is open for faster growth.”

India will “wind” down fiscal stimulus from 2010 as growth in Asia’s third-largest economy recovers to more than 7 percent, Prime Minister Manmohan Singh said yesterday. Sri Lanka’s economic growth may accelerate to between 7 percent and 8 percent next year after slowing to 4 percent in 2009, Amunugama said earlier today at the summit organized by the World Economic Forum.

The island’s government is committed to achieve a budget deficit target of 7 percent of gross domestic product this year, Amunugama said in the interview.

He said the government planned to discuss with the International Monetary Fund the impact on its fiscal targets due to increased spending for the return of about 280,000 displaced Tamils from the island’s war-torn north.

The government said last month it is accelerating the settlement of Tamil refugees held in transit camps since the defeat of the Liberation Tigers of Tamil Eelam in May, after coming under international criticism for delaying their release.

IMF Loan

The IMF today said the approval of a second payment in its $2.6 billion loan to Sri Lanka indicates a strong performance and fiscal commitment of the island economy.

The Washington-based lender’s executive board on Nov. 6 agreed to disburse $329.4 million to Sri Lanka after a review of its policies implemented under the 20-month loan agreement approved in July.

Amunugama said Sri Lanka had received $800 million in foreign direct investment so far this year and expected flows to increase to $1 billion in 2010.

Central Bank Governor Nivard Cabraal has driven down interest rates to a three-year low, taking advantage of easing inflation to spur spending and make up for slowing exports.

The Ministry of Finance said in July that it planned to focus spending in the government’s 2010 budget on rebuilding in areas captured from the LTTE.

To contact the reporters on this story: Anusha Ondaatjie in Colombo at anushao@bloomberg.net; Bibhudatta Pradhan in New Delhi at bpradhan@bloomberg.net

Last Updated: November 9, 2009 05:11 EST