In 2007 Sri Lanka's economy expanded by an estimated 6.8 percent against 7.7 percent a year earlier.

"We have two big challenges. Saving the country from terrorism and balanced regional growth," President Rajapakse said at the release of annual report of Sri Lanka's central bank.

He said Sri Lanka has maintained a gross domestic product (GDP) growth rate of more than 6.0 percent for three years running.

The latest surveys showed that poverty has fallen from 23 percent to 15 percent. GDP per person was 1617 US dollars, which was near to that of the Philippines

"These are big victories. They are not private victories. They are national victories," President Rajapakse said.

"We are no longer a poor country. As a country we are slowly going forward as a middle income country.

"We have to stop having a mentality of being poor. We need to think about ourselves as stakeholders with some means."

In the past several months Sri Lanka has cut several subsidies, especially in energy that analysts say has been a severe drain on national resources.

To keep the economic growth momentum Sri Lanka needed to keep investing in infrastructure. The President said he had kick-started power projects such as a coal plant and the Upper Kotmale hydro plant which had been delayed for years.

Colombo port was being expanded and a new port was being built in Hambantota and airports were being expanded, and roads and flyovers were also being constructed.

"Despite criticism and obstacles we are building big projects while facing terrorism effectively," President Rajapakse said.

"We have given all financial resources for the war without any holding back. It is not easy. We have to protect both the country and the economy. This is the reality."

He said the urban poor and middle class was particularly badly hit by inflation. Sri Lanka's inflation hit a record 23.8 percent high in March on a controversial new index while an older index showed a record high of 28.1 percent.

"The best protection against rising prices is to provide jobs and opportunities," President Rajapakse said. Unemployment was now down to 6.0 percent.

"In 2001 economic growth was negative and people said the economy collapsed. When economic growth is around 7 percent for three years, foreign reserves at the highest level, unemployment at the lowest, is the economy falling? Is this a joke or is it a treachery?"

The government was going ahead with a strong resolve on the war, especially after the assassination of Jeyeraj Fernandopulle by the Tamil Tigers.

"Some people want us to stop the war. They want to stop the march to the North and molly-coddle the terrorists," he said.

Central Bank governor Nivard Cabraal said the government was targeting a growth rate of around 7.0 percent for 2008 but inflation may be in double digits.

He said the latest surveys showed that poverty has fallen faster in rural areas than in the Western province.