RAM sees glass half full

By Cheranka Mendis

Despite the Central Bank’s forecast reading 7.2% growth for 2012, RAM Ratings Lanka CEO Adrian Perera is confident that the country can touch the 7.5%-7.6% mark by the end of the year.

Perera told the Daily FT that the new projection is a realistic number from the 8% noted at the beginning of the year and that 7.5% to 7.6% growth could be achieved thanks to the credit growth in the country.

He also asserted that the current average growth rate in Asia is expected to be 4%-5% or less this year and that the local rate, even with the downgrade, is on a higher mark than average.





With RAM Ratings ‘Sri Lanka’s Economic Outlook for 2012’ proposing a 7.6% growth for the country earlier this year, the downgrade makes the growth more “real” he said.

“Our Chief Economist Dr. Kim Yeah based in Kuala Lumpur forecasted 7.6% for Sri Lanka with a mild output gap, on the back of further capacity-building activities after extensive study and research. My view is that the country will hit a growth closer to that number. It was not that we were pessimistic about the country from the beginning, but that we were practical because of sovereign issues and global issues in the market.”

However, whether it is 7.6% or 7.2%, the growth is still commendably high compared to other countries, Perera said. “The rate 7.2% is not bad at a time like this, when all the others are recording lower growth. It is actually a very good rate which we now must look at developing further.”

He also commented that the country would have been affected if in fact the 8% growth had continued. “We had 8% growth for two years and if it had continued in its third year, the economy would go into auto pilot mode automatically. However, we cannot feed and sustain this kind of growth.”

Perera maintained that key reasons for the downgrade were the market conditions in the world with the Eurozone crisis having cascading effects on other countries, which includes India and China, and rising oil costs.

With all export-oriented countries in South Asia taking a hit, there was no preventing Sri Lanka from falling into a similar situation. However, the country must be cautious in terms of oil as the per capita consumption increases in USA, India or China is expected to further push up the oil prices, which could further stifle growth.

On the local front, the country must deal with issues that have cropped up in reserves and in not defending the currency. The local companies will also have to tighten belts and come up with new business models to overcome the challenges they would face with the downgrading of the growth rate.

Perera acknowledged that the new business models should focus on financial management, risk management, marketing, innovation, HR skills and productivity. “Productivity will drive growth and increase GDP. The country must ensure productivity increases across all sectors; especially garment tea and agriculture.”

On the regulatory and legal side, expenditure must be cut back and statutory laws must be passed without lengthy delays.

Sectors that will pick up this year are tourism, construction and the manufacturing sector, which would invariably drive forward the financial services sector. Business in the north and east will add more potential for development, he said.

What will be affected will be imports and in particular vehicle imports, which would in turn hit the leasing industry and the finance companies relying on vehicle imports. This, however, is not a bad thing, he said.

“Today the demand is for super luxury vehicles, which is not entirely a plus point for the country. High fuel consuming vehicles need to be hit. There is a chance for the Government to increase taxes on such high fuel consuming vehicles by 400-500%. This would help the Treasury and they will not be subsidised at the expense of others.”

“Going forward there is a lot of potential for the country and we believe it can and will grow in leaps and bounds. However, one must be realistic. When every other country is hit, you cannot expect things to be a smooth ride here. However, Sri Lanka will not hit rock bottom because of the downgrade. In fact, now the goal is much more realistic to work towards and I am confident the country can achieve 7.5%-7.6% growth by end 2012.”