Economics happy-US wary over politics

Monday, 11 October 2010 23:56 -     - {{hitsCtrl.values.hits}}

By Cheranka Mendis

A top US trade official yesterday expressed optimism over Sri Lankan economy’s growth prospects but sounded cautious with regard to politics.

Assistant US Trade Representative for Central and South Asia Micheal Delany yesterday declared that Sri Lanka is expected to grow faster than expected as a direct result of the post-war momentum. However he expressed the view that there was greater room for improvement in political reconciliation.

“Industrialists must prepare to review their future projections set for Sri Lanka as the country is set to grow faster than expected. Even though many believe that due to civil unrest that existed up till last year, the country would not augment growth in large scale, the perception must change with the progress made by the economy,” Delany said addressing the breakfast meeting between Board of Directors of AmCham Sri Lanka and the visiting AmCham India business delegation organised by AmCham Sri Lanka.

He also noted that civil strife has made a much worse impact in other countries than what has been made in Sri Lanka. “I believe that most projections are overly conservative,” Delany added.

He stated that the country is facing “tremendous growth in the economy” and urged that potential investors and current businessmen to do an in depth analysis in forming projections.

 “You must get a good luck about what your projections are for this economy. It is going to be much higher than you expected now,” Delany said.

Delany stated that the country is turning a happier chapter in history and expressed concerns over political reconciliation which could be strengthened through economic development and employment generation. “If we can better human lives we will be able to facilitate strong political reconciliation with ease,” Delany added.

Chief of Economic and Commercial Affairs of the US Embassy in Sri Lanka Edward Heartney who was present at the breakfast meeting told Daily FT that what the government should aim at was to help double the economic growth.

 “The government must take into consideration what international investors have to say,” Heartney opined adding “While political stability plays a very important role the government must also look at facilitating business. They should take into consideration tax reforms; policy reforms etc and we hope to see improvement in business conditions through budget 2011.”

Infrastructure development was also highlighted as a drive towards gaining foreign direct investment (FDI) confidence. While the government has plans to make Sri Lanka part of many hubs they should continue their interest in building up more roads, ports and aviation.  In the case of tourism, a key sector for business growth, Heartney said that services, internal flights and hotel rooms must be increased, refurbished and be up to international quality levels. BPO industry is considered key as well, he said.

At the breakfast meeting a report published by Citi Bank was presented.  A quick glance of the report showed that fiscal reform are likely to be a top priority for Sri Lanka with fiscal consolidation likely in key reform areas which were an important precondition for IMF disbursals under the standby agreement. The government plans to phase reduction in the fiscal deficit from 9.9 per cent of GDP in 2009 to 8 per cent in 2010 and 4.8 per cent by 2013, moving a revenue surplus by 2012 without restoring privatisation, reducing public debt along with maintaining public investment of GDP with a focus on infrastructure bringing in positive and conducive environment for business.

Country Head of Citi Bank in Sri Lanka Glen Rase agreed that the picture of the country’s future is an upbeat one. What is interesting is that the country amidst rapid growth has had a fairly sharp decline in interest rates, Rase asserted. “Bond issues are heavily floating and what is interesting is that a ‘B’ rated country gets six per cent interest rate which is pretty remarkable.” The fast moving stock market only indicates the suppression of the economy in the past.

 “Growth prospects appear bigger and following the recent growth in second quarter of the year (GDP up 8.5 per cent YoY) we are revising the full year 2010 estimates to 7.4 per cent YoY,” said Rase quoting from a Citi Bank report. Continuing, he said that growth was likely to be supported by the benefits of agriculture due to the extension of production in the previously war impacted North and East, uptrend in industry due to infrastructure development and higher service sector growth on the back of a revival in trade and tourism.