Sri Lanka economy to grow at 6.7% – Moody’s

Posted on 06 December 2015 by admin



Moody's Investors Service says that continued GDP growth is driving the stable outlook for Sri Lanka's banking system. "While seeing some slowdown compared to the growth rates seen in 2013-14, GDP growth in Sri Lanka should remain healthy at 6.7% over 2015-16. And an accommodative monetary policy should support this growth outlook," says Srikanth Vadlamani, a Moody's Vice President and Senior Credit Officer.

Moody's Investors Service says that continued GDP growth is driving the stable outlook for Sri Lanka's banking system. "While seeing some slowdown compared to the growth rates seen in 2013-14, GDP growth in Sri Lanka should remain healthy at 6.7% over 2015-16. And an accommodative monetary policy should support this growth outlook," says Srikanth Vadlamani, a Moody's Vice President and Senior Credit Officer.

"In addition, greater participation from private sector in investments, compared to what was seen over the past few years, should provide an impetus to loan growth," adds Vadlamani. Vadlamani was speaking on Moody's annual outlook update for Sri Lanka's banking system, titled……"Banking System Outlook – Sri Lanka: Continued Growth Drives Stable Outlook". According to Moody's, asset quality will stabilize at their current levels.

Asset quality has improved over the past 18 months, with the gross nonperforming loan ratio coming down to 4.3% in June 2015, from 5.6% in December 2013. Problems in the pawning sector – the key reason for the pick-up in nonperforming loans in the recent past – have been addressed.

At the same time, banks' underwriting standards have been fairly tight over the past two years, as reflected in loan growth of only 14% over 2013-14.

Moody's says profitability will remain stable over the next 12-18 months, despite moderate pressure on net interest margins.

On the one hand, net interest margins will remain under pressure, primarily due to the low interest rate environment. On the other hand, banks will benefit from positive operating leverage as loan growth picks up, leading to an improvement in their cost-to-income ratios.

Some banks will also benefit from lower credit costs as the higher credit costs associated with pawning NPLs may no longer be required. Moody's also expects a deterioration in funding and liquidity conditions. Although the current level of liquidity in the system is adequate with the statutory liquidity ratio in the domestic book at 36%, liquidity should tighten over the outlook horizon, as Moody's expects annual loan growth of around 20%, faster than deposit growth of 16%.

As a result, banks' funding profiles will be under pressure, as they need to increase their dependence on more expensive sources of borrowing, including foreign-currency borrowings. Finally, Moody's expects government support of individual banks will be forthcoming, if needed.





Ceylontoday, 2015-12-06 02:00:00



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‘Sri Lanka – fastest growing country in Asia’ – Subramanium

Posted on 11 July 2014 by admin


Sunil Subramanium



Sri Lanka has immense potential as the country is the fastest growing country in Asia in terms of GDP growth, said Head Transaction Jones Lang Lasalle Sri Lanka Sunil Subramanium recently.

Subramanium said that Colombo city has also seen a significant development during the past few years.

Speaking at the Urban Development Authority organized Investor Forum at Waters Edge and making his presentation on Regional Statistics and Real Estate Opportunities he said that highest rate of literacy rate, number of graduates coming out of universities are some of the demand drivers for an investment in Sri Lanka.

“Retail has very high potential as Sri Lankan population has very disposable income though the variety available for the people to spend is very limited,” he said.

He added that cost of human resources and tax holidays offered by the Government have attracted many investors to Sri Lanka.

Subramanium added that average of occupancy in five star hotels in Sri Lanka has increased from 65 percent to 67 percent with the increase of tourist influx.

Sri Lanka is number one in terms of easy going business in South East Asia and it secured the 81st place in the world.

Subramanium added that Sri Lanka also secured the 19th place in terms of the best outsourcing destination in the world.

Chief Executive Officer, Axis Bank, Ashok K. Basu said Sri Lanka has seen unprecedented developed within the last few years.

“I can see myself how Sri Lanka has developed in all sectors within the last few years”, he said.

Urban Authority Chairman, Nimal Perera, Additional Secretary, Ministry of Defense and Urban Development, Rohan Seneviratne and Expatriate Sri Lankan leading lawyer in Melbourne and Chairman Fairfield Lawyers, Susantha katugampola were also present at the Investor Forum.





Courtesy: Chaminda Perera – Ceylon Daily News

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Sri Lanka’s Jan-Sept foreign inflows jump 45 pct y/y to $890 mln

Posted on 23 October 2013 by admin

Oct 23 (Reuters) – Sri Lanka attracted $890 million in foreign direct investment (FDI) in the first nine months of 2013, Investment Promotion Minister Lakshman Yapa Abeywardena said on Wednesday, a jump of 44.8 percent year on year.

The inflows, which also includes foreign loans by companies registered with the island nation's investment body, were $614.7 million in the first nine months of 2012.

They grew to $1.34 billion by the end of 2012, with infrastructure-related projects accounting for 45 percent of the inflows, data from the central bank showed.

"For the first nine months, we have got $890 million. This year we can achieve the $2 billion target," Abeywardena told Reuters. The $59-billion economy missed that target last year.

He said the Board of Investment (BOI), the island nation's investment body, has signed 15 projects for $8 billion in FDI which could create around 30,000 jobs in the country.

Abeywardena expects a total of at least $600 million FDI before the end of this year, for Australian gambling tycoon James Packer's Crown Ltd planned $400-million hotel resort that will include a casino, and a $850 million luxury resort by John Keells Holdings Plc., (Reporting by Shihar Aneez; Editing by Prateek Chatterjee)

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SRI LANKA: Economy grows by 6.8 percent

Posted on 13 September 2013 by admin

Sept 13, 20132 (LBO) – Sri Lanka's economy grew 6.8 percent in the June 2013 quarter from a year earlier, the state statistics office said. The agriculture sector shrank 1.1 percent; industry grew 10.1 percent and services 6.6 percent. In agriculture tea had contracted 0.5 percent, rubber had grown 2.0 percent, coconut had shrunk 25.4 percent and paddy was up 2.1 percent. Fishing contracted 5.3 percent. In industry manufacturing was up 5.3 percent with textile and apparel up 6.2 percent. Mining was up 12.6 percent. In services wholesale and retail trade was up 6.6 percent, transport 10 percent, hotels and restaurants up 21.1 percent. Telecoms was up 8.9 percent, banking and finance was up 6.3 percent. Government services grew 3.9 percent






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Building economic infrastructure for development

Posted on 22 November 2012 by admin




The development of economic and social infrastructure is vital for rapid economic development. Inadequate infrastructure has been a serious bottleneck for the country’s economic development. This was made dramatically clear when the country’s economy was seriously jeopardised by the energy crisis in the mid nineties. The energy crisis affected industrial production adversely to such an extent that the country’s economic growth was negative.

The setback to economic development owing to poor infrastructure in other areas is less apparent, though no less debilitating. Unsatisfactory road conditions, congestion of traffic, long hours to traverse relatively short distances are among the impediments to rapid development. The development of highways, ports, bridges, public transport, railways, telecommunications and irrigation are important for an economy’s development.

These constitute essential economic infrastructure whose development is vital to support investment. The efficiency of investment is determined by the state of a country’s infrastructure. The significant contribution of social infrastructure to economic development though less perceptible is no less important. Education and health make significant contributions to support economic development and higher levels of economic achievement are inconceivable without higher skills in science, technology and management.

Underdeveloped infrastructure

The country’s infrastructure has been underdeveloped in many areas to support a high rate of economic growth. Comparisons with less developed countries have often led us to complacency in the need to focus on infrastructure development. Financial constraints have restricted the capacity of governments to invest as much as is needed for the development of infrastructure. In fact government finances have been so limiting that in many years financial difficulties have resulted in cutting back of even voted capital expenditure. In many past years there have been cuts in capital expenditure owing to inadequate finances.

It is to the credit of the government that infrastructure development has been an important focus in the country’s development strategy. This is particularly so with respect to developing the country’s energy capacity, development of roads and irrigation. However there are many areas of infrastructure that require to be addressed. This is especially so with respect to the state of education and health. The economics of infrastructure development, especially the methods of financing, require serious evaluation.

Financing infrastructure

While the importance of infrastructure development is undeniable and the recent progress in the development of infrastructure commendable, the means of financing large investments in infrastructure have important economic repercussions. Two characteristics of economic infrastructure investment are that they are large and their economic returns take a long period of time. In many cases it is even difficult to determine precise benefits of infrastructure investment. Therefore the manner of financing infrastructure investment is a significant issue.

However beneficial investments in infrastructure are, if they lead to large fiscal deficits these would lead to inflationary pressures. Further, as there is a large import content in many infrastructure investment projects, such investment would increase import expenditure and strain the trade balance and balance of payments. Foreign financing is a means of avoiding these pitfalls, but large foreign borrowing too would result in high foreign debt servicing costs.

For these reasons the phasing out of infrastructure investment is needed. Even more important is the need to ensure that there is a prioritization of investment in infrastructure and to ensure that infrastructure projects lead to higher export earnings or reduce import expenditure. Investment in energy would no doubt increase the production capacity of the country and help export industries. In the case of roads and bridges, some highways would be economically more beneficial than others.

Similarly, the development of ports and other transport infrastructure has a range of cost: benefit ratios. Therefore the prioritization of infrastructure on the basis of costs and benefits is important. Import costs, export earnings and the impact of financing on the public finances and debt servicing costs should be considerations in infrastructure investment.

The Institute of Policy Studies State of the Economy 2010 report has discussed some of these issues. It is of the view that the additional expenditure on infrastructure investment must be found by reducing public expenditure in non productive areas and through public sector reforms. It states: "The priority for fiscal policy is to release financing for infrastructure investment and reconstruction spending. This entails that a mix of far reaching economic, institutional and policy reforms accompany a re-orientation of public finances.”

The IPS observes, “In the absence of such reforms, Sri Lanka will falter in putting its public finances in order – that is, cutting back on recurrent spending to support capital investment. Without such flexibility, a heavy infrastructure-led development drive will inevitably rely on borrowed funds. This will not only lead to an accumulation of the country's stock of public debt, and associated risks for macroeconomic stability, but will also mean that Sri Lanka's development priorities do not have the financing that is needed on a predictable basis.” The underlying principle is that the much needed increase in infrastructure should come from reduced government expenditure rather than through foreign borrowing.

The government’s current infrastructure investment is heavily financed by foreign borrowing. Foreign funded large infrastructure projects should have potential for increasing foreign exchange earnings or reducing import expenditure or else it would be a burden on the balance of payments. Further, there is need for prioritization of infrastructure investment on the basis of cost benefit analyses and the gestation period of such investment. All infrastructure investments are not of high benefit.

Summing up

One of the achievements of the government has been the improvement of the country’s economic infrastructure. This is especially so with respect to the enhancement of energy that was a serious constraint to economic development. Many obstacles and challenges were overcome to develop new power plants. Some may still argue that these power plants have adverse environmental impacts, ARE DAMAGING TO THE ENVIRONMENT. Nevertheless there is no denying the fact that they have augmented the country’s power supply at reduced costs through additional thermal power generation. Energy costs are high. Therefore the development of new sources of cheaper energy is vital. Efficient administration of public utilities too has a bearing on energy costs.

On the other hand, there are concerns that some economic infrastructure developments may not be cost effective. The methods of financing including large foreign financing of infrastructure projects have been questioned. Financing additional expenditure through savings from other expenditure has been suggested to reduce the inflationary impact of infrastructure investment. There has also been little attention to public-private partnerships for infrastructure investment.

However important infrastructure development is for the country, expenditure on infrastructure investment should consider the costs and benefits of such investment and how they are financed. All infrastructure investments are not equally valuable to the country’s economic and social development. In view of the largeness of infrastructure investment there should be a prioritization of infrastructure investment. The government should consider these aspects in the continuation of its infrastructure development programmes of the future.


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