Sri Lanka's economy grew by 7.4 percent in 2006, the highest growth rate since 1978, the central bank said Friday in a statement.

The island country's agriculture sector grew by 4.7 percent in 2006, contributing 11.1 percent to the overall growth while the industry sector grew by 7.2 percent, contributing 27 percent to the growth.

Contribution from the services sector was the highest at 62.6 percent as the sector grew by 8.3 percent.

"Economic expansion was broadbased in 2006 as all sectors grew at healthy rates," said the statement.

The bank said the economic expansion was achieved amid high oil prices, escalation of terrorist activity, natural disasters, post tsunami reconstruction and intense competition for exports.

However, the statement said critical structural reforms needs to be made both in the public and private sectors to move the economy to a higher growth path.

Analysts point out that finding a negotiated solution to the country's long drawn-out ethnic separatist conflict will also be crucial to sustain the island's economic growth.

Government troops and LTTE (Liberation Tigers of Tamil Eelam) rebels are currently being locked in fierce battles in the north and east.

More than 4,000 people have been killed since December 2005 despite a Norwegian-arranged truce in place.

The LTTE has been fighting for an independent homeland for Sri Lanka's 12.5 percent Tamil minority since the 1970s.

Source: Xinhua