COLOMBO (AFP/Reuters) - Sri Lankas economy is poised to expand by 6.5 percent this year, the central bank said Monday, after slower growth in 2009 due to the operation to crush the Tamil Tigers and the global crisis. The Central Bank of Sri Lanka in its annual review of the economy said the intense fighting was one reason for growth of just 3.5 percent in 2009. Other factors that curbed growth were lower farm output, a slump in global demand for Sri Lankan clothing and tea and foreign hedge funds pulling out money from government bonds. The agricultural sector grew by 3.2 percent, less than half the pace of the 7.5 percent logged in 2008, while the industrial sector expanded by 4.2 percent in 2009, down from 5.9 percent a year earlier. The services sector, which includes telecoms, ports, banking and aviation, grew at a slower 3.3 percent, down from 5.6 percent, the bank said. The economy managed to post positive growth partly thanks to a 2.6-billion-dollar bailout by the International Monetary Fund, the bank said. President Mahinda Rajapakse, re-elected in January after crushing the Tamil Tiger rebels last May, has vowed to spend more than a billion dollars to build new ports, roads and power plants in 2010. The bank said there had been a steady stream of foreign financial flows since the end of the 37-year conflict that claimed more than 100,000 lives according to UN figures. The islands balance of payments recorded an unprecedented surplus of 2.7 billion dollars in 2009 while foreign exchange reserves hit a historic high of 5.1 billion dollars in the same year. Meanwhile, Sri Lanka will renegotiate with the International Monetary Fund to revise budget deficit targets upward, after failing to reach the goal set last year as part of a $2.6 billion loan, the central bank said on Monday. Releasing its 2009 annual report, the central bank said Sri Lankas economy will grow at a three-year high of 6.5 percent this year, accelerating from last years eight-year low of 3.5 percent, helped by the end of a 25-year civil war and recovery in the global economy. It also forecast growth of 7.5 percent and above from 2011 through 2013 in the $42 billion economy. Last year, Sri Lankas fiscal deficit hit an eight-year high of 9.8 percent, well over the IMF target of 7 percent, central bank data showed. That prompted the IMF to delay disbursement of the loans third tranche. The central bank in its report forecast this years budget deficit to be 7.5 percent and 6.5 percent next year. Negotiations with the IMF will be held based on these numbers, K.D. Ranasinghe, the central banks chief economist, told Reuters. You cant immediately reduce the budget deficit from a high level. It should be done gradually. Under the 20-month loan deal approved in July, Sri Lanka agreed with the IMF to reduce the deficit to 6 percent by the end of this year and 5 percent by 2011. Koshy Mathai, the IMFs resident representative for Sri Lanka, said the lender will discuss the loan after the island nation presents its 2010 budget. That is expected in May, after the parliament due to be elected on Thursday convenes. High deficits and big government spending for years have hampered Sri Lankas economy, which economists say has a natural growth rate of about 6 percent. On Friday, Central Bank Governor Ajith Nivard Cabraal said Sri Lanka had met end-March IMF targets for net domestic financing, net international reserves, and reserve money. The loan has helped to stabilise the rupee currency and interest rates and boost investor confidence, prompting some foreign investors to buy government securities and enter the stock market after the end of the war in May.