Sri Lanka abandoned war and allowed increased foreign role in efforts to end its ethnic conflict, risking domestic political backlash, but 18 months later it is savouring the peace dividend.

A Norwegian-brokered truce has been troubled by violations from both sides, but it has delivered a better-than-expected 5.5 percent GDP growth rate for the first quarter of this year, compared to 0.5 percent in the corresponding period last year.

"Continuation of the ceasefire has led to enhanced service sector activities particularly in the telecommunications, transport, hotel and related services," Finance Minister K.N. Choksy said last week.

Unveiling a review of the economy, Choksy made it clear the

government was betting on peace to consolidate the recovery which began with the ceasefire that took effect from February last year.

He said the truce between government forces and the rebel Liberation Tigers of Tamil Eelam (LTTE) contributed to better economic activity which saw tourism earnings rise by 28 percent in the first quarter compared to the same period the previous year. Industrial production was up 4.6 percent while foreign remittances from Sri Lankans abroad rose by 11 percent, strengthening the island's external reserves position to cover 5.1 months of imports.

Greater foreign engagement in the peace process has been criticised by President Chandrika Kumaratunga and her People's Alliance (PA), which is the main opposition in parliament, but it has also brought unprecedented aid.