Sri Lanka to meet deficit target on faster growth

Saturday, 4 June 2011 01:01 - - {{hitsCtrl.values.hits}}

Sri Lanka will meet its budget deficit target as economic growth boosts revenue, according to Senior Minister for International Monetary Cooperation Sarath Amunugama.

The end of a 26-year civil war in May 2009 has boosted consumer demand and investment in the island nation, which aims to cut its budget deficit to 6.8 per cent of gross domestic product from eight per cent last year. It will meet the target without cutting social spending thanks to an economy which expanded by 8.6 per cent in the fourth quarter, Amunugama said.

“When you have eight per cent, nine per cent growth, then your revenues are going up,” Amunugama said in an interview in London, “Our revenues are going up so we are on course.”

Sri Lanka, which secured a $ 2.5 billion loan from the International Monetary Fund in 2009, hopes to lure investors attracted by the country’s proximity to India, the world’s second-most populous country, he said.

White sand beaches and investment in improving highways and airports should boost Sri Lanka’s appeal as a tourist destination now that the war with Tamil separatists is over, Amunugama said.

“In the next couple of years, we could go up to one million and in five years we can go up to 2.5 million” tourists from the current 700,000 per year, Amunugama said.

Sri Lanka doesn’t need to raise interest rates, and inflation, which hit a 27-month high of 9.8 per cent in April, is caused by “exogenous factors,” such as the price of imported oil, Amunugama said. The rate of price increases slowed to 8.8 per cent in May.

The Central Bank of Sri Lanka on 16 May left rates unchanged for a fourth straight month, saying that rising food supplies and currency gains will help moderate inflation. Policy makers in April increased banks’ statutory reserve ratio to eight per cent from seven per cent to check price gains.

“Inflation is at a reasonable level,” and the Government doesn’t need to make its rupee exchange rate more flexible, either, said Amunugama.

Further oil price gains pose the biggest potential problem for Sri Lanka, he said. Oil traded for as much as $ 100.90 a barrel in New York today, and has advanced 8.6 per cent this year to date.

“If oil prices go to $ 130, $ 140 a barrel, then all bets are off, not only for us, but for other countries, for China, India,” the Minister said.

More companies planning IPOs SEC Chief tells Bloomberg

(Bloomberg) — Sri Lankan companies are planning six or seven initial public offerings, according to the head of the country’s Securities & Exchange Commission. Financial and information technology companies will make the offerings, SEC Chairperson Indrani Sugathadasa said in an interview in London. “We expect a lot of IPOs to come in, at the moment there are six or seven IPOs in the pipeline,” Sugathadasa said, with more listings improving local market liquidity. Sri Lanka’s Colombo All-Share Index soared more than threefold since the end of a 26-year civil war in May 2009 and climbed 11 percent so far this year. The country’s eight 2010 IPOs raised $36.5 million, according data compiled by Bloomberg.

Sri Lanka has also received “about 10” bids to set up a commodity exchange on the island and authorities hope to award a tender by the end of the year, she said.