Eran tells Mumbai forum SL’s economic outlook, investment opportunities positive

For Sri Lanka to achieve its 2025 goal ofbeing an upper-middle income country, the Government has formulated a three-year Economic Delivery Programme to Increase per capita income to $5,000, create one million new jobs and Increase Foreign Direct Investment to $5 billion per year,according to State Minister for Finance Eran Wickramaratne.

The State Minister of Finance made these comments while speaking at the India and South Asia Investor Conference 2018 held in Mumbai on 26 February. The Minister,speaking on the Government’s action plan to achieve these goals, said that many reforms were being implemented and a multitude of policies had been put into effect to stabilise the economy and to make a conducive economic climate for both domestic and foreign investors. As a result of the efficient management of the economy, he said encouraging developments in fiscal consolidation were recorded for the first time since 1954.

“Sri Lanka had its first primary budget surplus in 2017. The improvements in the economic climate have been reflected in the sovereign ratings by Fitch and Standard & Poor as they upgraded from a negative to a stable outlook,” he stated.

On monetary policy, Wickramaratne said that importantly core inflation had been well within target levels and with the Central Bank announcing a move towards a flexible inflation targeting framework, inflation expectations in the economy had been well-anchored.

Wickramaratne said Sri Lanka’s external sector had performed well with exports reaching $11.4 billion, 10% more than that of 2016 and higher still than the previous best of $11.1 billion in 2014. 

The two strongest sector growths were seen in tea and fisheries with 20% and 40% increases respectively – benefitting from Sri Lanka’s strategy of gaining market access to Europe through GSP +. The apparel sector will also be a major beneficiary of GSP+.

GSP+ wasre-implemented in May 2017 and the current regulations will be valid until 2023. There was significant growth seen in industries that export to the EU as a result of GSP+. For example, the average growth rate before GSP+ (2001-04) was 11.5%. During (2005-09) it was 16.4% and between 2010 and 2014 it was 7.4%. It is estimated that since the reinstatement of GSP+, growth in textiles and apparel, and electronics and machinery would be 21% and 28% respectively.

Among the products that enjoy 0% duty rate to EU markets are vehicles and vehicle parts, apparel and clothing accessories, fish, crustaceans, molluscs, animal and vegetable fats and oils and related products. 

In addition to Sri Lanka’s FTA with India, Sri Lanka is negotiating a comprehensive trade agreement with China. Together with the GSP+ with Europe, this will provide export-oriented investors in Sri Lanka with market access to Europe, India and China.

The Minister expressed the hope that Sri Lanka’s foreign reserves, which grew to $7.9 billion at the end of 2017 (around 4.5 months of imports), willincrease to $10 billion by the end of this year. While the quantum has increased, the quality of reserves too has improved, as the bulk of the reserve growth has been through earned reserves as opposed to borrowed reserves, reversing previous trends.

The improved reserve position and stability has enabled the Central Bank to consistently pursue a flexible exchange rate framework and will continue to do so in the future as well. The new foreign exchange Act of 2017 will provide further liberalisation of the capital account, including more flexible outward investment and capital flows from Sri Lanka. This will encourage further investment into Sri Lanka’s capital market.

On the side of governance, the Minister commented on the achievements of the regime since it was elected in 2015. He referred to the 19th Amendment to the Constitution which established independent commissions, including the Procurement Commission and the Right to Information Act which was a step towards greater transparency. 

The Government is also in the process of setting up a system of E-Procurement and passing a new National Audit Bill which has been approved by Cabinet. Furthermore, a Code of Conduct for Members of Parliament has been finalised and will be adopted soon.