President Mahinda Rajapakse also said he expected annual eight percent average growth over the next five years despite government forces battlingTamil Tiger rebels in the island's northeast.

"If we are to raise the living standards of our people to match those of the developed world even to some extent, it is essential to maintain an average growth rate of eight percent for the next five years," he said.

The statement of Rajapakse, who is also finance minister, came after the release of Central Bank figures showing that the economy grew by 7.4 percent in 2006, up from 6.0 percent in 2005. Last year's performance was the best since 1978 when the economy expanded by 8.2 percent.

However, the Central Bank figures were lower than the economic growth estimate of 7.7 percent for 2006 issued by the department of census and statistics on Thursday.

"Our 10-year plan is prepared with this (eight percent growth) target in mind," Rajapakse said.

Officials said the two sets of figures differed because they used different yardsticks and moves were under way to harmonise the numbers.

Rajapakse said the main challenge faced by the country during the past three decades was "terrorism in the North and East" and the search for a political solution to the Tamil separatist conflict which has claimed over 60,000 lives.