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Standard Chartered Bank Managing Director, Head of Global Research Dave Murray (centre) gestures during a media briefing in Colombo. Others from left are Head, South Asia Economic Research Anubhuti Sahay, Chief Economist, Asia David Mann, Energy Analyst Priya Narain Balchandani and Economist, South Asia Saurav Anand - Pic by Daminda Harsha Perera
By Nisthar Cassim
The Standard Chartered Bank yesterday reinforced the fact that though countries and corporates are facing many challenges and risks globally, there are plenty of opportunities for growth for the brave.
“Obviously what's catching the headlines at the moment are the challenges and risks. I definitely think there are massive opportunities for those who are prepared to be a little bit brave and relook at some of the historical approaches, given the new environment the country and the world is in,” SCB’s Managing Director, Head of Global Research Dave Murray told journalists in Colombo yesterday.
“When it is the darkest, you look for the light,” he said, adding that Sri Lanka has seen some encouraging reforms to improve fiscal discipline and policy initiatives to stimulate higher economic growth.
Coming from an emerging markets background, he said what creates the greatest positive impetus in terms of value creation is when you see governance being improved alongside growth. This along with smarter policy, a focus on execution, deepening and broadening of the markets etc., as part of a virtuous cycle, must be pursued along with difficult reforms.
“Emerging market countries such as Sri Lanka have got extraordinary opportunities which are undeniable, but whether they have fully grasped those opportunities is a much more debatable issue. Sri Lanka needs to take more positive steps forward than back,” emphasised Murray, who led a top research team to Colombo yesterday.
Standard Chartered Bank yesterday held its Global Research Briefing 2017 exclusively for its clients. Apart from Murray, Chief Economist, Asia David Mann; Head, South Asia Economic Research Anubhuti Sahay, Economist, South Asia Saurav Anand and Energy Analyst Priya Narain Balchandani were part of the team. All four economists have visited Sri Lanka on previous occasions.
The Global Research Briefing to SCB clients focused on a world which has grown accustomed to central banks being the only game in town supporting growth; one in which low interest rates have prevailed for close to eight years. However, the election of Donald Trump as the next US president is changing the global environment, and there are four major shifts to watch for in 2017: from a US-based world order to a multi-polar world, from fact-based politics to ‘post-truth’ politics, from free trade to protectionism, and from monetary easing towards fiscal stimulus.
SCB’s latest Global Focus titled ‘Welcome to the Jungle’ anticipates an extremely challenging 2017.
“Socio-politics are tough to call. We have seen some big surprises in the socio-political front during the last six months,” Murray said, adding that SCB is envisioning an environment of what he described as “fat-tail risks” which are large.
“We have a view but perhaps the risks around the view are little higher than they usually are.
Companies and countries need to be nimble and thoughtful about protecting oneself against the tail-risks. Options include hedging and diversification and being at least aware of what could go wrong around your core strategy,” he added.
Great regional cooperation, reforms and more fiscal space
Chief Economist Asia Mann said some of the global pressures and drivers Sri Lanka needs to be aware of and respond to include wild swings from the external environment, especially the West which has recently witnessed bad economics meeting bad politics. “We have seen that in US election and in Brexit. We have seen difficult types of environments to predict. Protectionist and populist measures from the west rather than the east. If a country is looking for allies in the jungle, then the recommendation is look to the east which is delivering 60% of global growth and dominating. This is a huge sea of change from where we were 15 years ago,” Mann said. “China and the rest of Asia, including South Asia, are growth drivers. So getting closer economically will help, apart from greater intra-region tourism,” he added.
In that context, the SCB team said Sri Lanka must further step up its cooperation with Asian giants China and India, maximising the strategic geographic location.
SCB South Asia Economic Research Head Sahay said Sri Lanka has huge potential, provided it continues to pursue with the IMF reforms platform with the right mix of fiscal and monetary policy.
SCB Economist, South Asia Anand said, given the high debt redemptions slated for 2018/19, Sri Lanka needs to shore up its reserves with higher exports and Foreign Direct Investments (FDIs). Additionally, Sri Lanka needs to build more fiscal space going forward.
“Right now, Government has no space to provide counter cyclical measures to boost growth in case the economy turns sluggish. With IMF program help by 2018/19, Sri Lanka should have sufficient fiscal space to counter any external or domestic vulnerability if they arise,” Anand added.
He also emphasised that the return of GSP+ from the European Union was positive for Sri Lanka and will help cushion any major impact from other developments in the West. Planned new FTAs will help boost exports as well.
Oil prices tipped to go up
SCB’s Energy Analyst Balchandani said the bank has a bullish view on oil prices, estimating it to go up to $ 65-70 per barrel and an average of $65-66. Factors include supply deficit and looming cuts by OPEC and non-OPEC countries and booming demand in Asia.
“Current prices are still unsustainably low to support growth in the production arena to keep pace with demand, which is still growing. The rate of growth of the demand is slowing down, but demand continues to increase,” she said.
According to her, demand for oil will continue to rise despite forecasts of slowdown in trade and GDP growth. “China is growing at a rapid rate. Chinese refinery throughput volume has broken its own record four times in 2016 to 11.4 million barrels per day, which is phenomenal. India and Indonesia and the entire Asia region are buying more crude. So the growth is very much intact,” Balchandani pointed out.
On the question of whether SCB sees local elections and its outcome a concern, they said that though governments tend to be populist during elections, it doesn’t expect any issue since the coalition has enough “political capital”. However, SCB expressed hope that the Government will persist with reforms even beyond what is agreed upon with the IMF, thereby further stimulating the growth momentum.
