Politics bigger uncertainty for investors: Eran

• Confident economic fundamentals will remain strong leading up to polls 
• Sees politics as a bigger cause of uncertainty, but defends democratic process
• Projects economic recovery, despite $ 1 b loss from tourism   
• Optimistic Budget deficit will remain unchanged even after revision, but Govt. spending on some projects to remain 
• Says UNP will field a candidate aligned with newly-fragmented voters

By Uditha Jayasinghe

State Minister for Finance Eran Wickramaratne yesterday said the biggest uncertainty for investors was not the economy but Sri Lanka’s tenuous politics, but reassured that the Government was focused on maintaining strong economic fundamentals in the run up to elections. 

State Minister for Finance Eran Wickramaratne – Pic by  Lasantha Kumara

Speaking on the second day of the CT CLSA Asia Frontier Forum, Wickramaratne acknowledged that the Easter Sunday attacks had been a hit for the economy, but was confident of the slump being temporary. He also insisted that even though the Government was working on revising the 2019 Budget, they were focused on maintaining the 4.5% deficit. He also said policymakers will remain consistent on the fiscal consolidation process the Government has been focused on for several years. Nonetheless, Government spending on programs such as Gamperaliya will continue, he said.    

Wickramaratne also pointed out that prior to the attacks, the Finance Ministry had focused on establishing strong macroeconomic fundamentals, which had led to the Government reducing its deficit and bolstering investor confidence. 

“The significant point of departure from this was the Easter Sunday attacks. While we were making progress on the economic front and tackling the fundamental issues and putting Sri Lanka on a path of reform and future growth, suddenly we have this disaster we have to face.” 

“The immediate downfall was the impact on tourism, the reduction of numbers and revenue. We had about $4.4 billion in tourism earnings last year, and targeted about $5 billion this year. I have been monitoring tourist numbers over the last week, and they are increasing daily, and we are doing everything to ensure we recover after the first season. We expect a drop in arrivals and revenue, but I don’t think total impact will be more than $1 billion,” he said. 

The State Minister of Finance echoed observations made by Central Bank Governor Dr. Indrajit Coomaraswamy, that the Easter Sunday attacks appear not to have hit manufacturing, industries, and services, which would enable the economy to “rebuild quickly.” He also said tourism would have limited impact, as the Government was able to restore normalcy in a few weeks, and given investors’ confidence that national security is top priority. He also recapped the relief package rolled out for the tourism industry, which includes a moratorium and VAT reduction. 

“The biggest uncertainty an investor could have going forward is not the economy but politics, and what could happen over the next few months. Sri Lanka has long democratic traditions, and the first election due is going to be the Presidential Election, which should be held before the end of December, then Parliamentary Election in August. It is possible to have early Parliamentary Elections around March. So the calendar is clear. We have generally had a two-party system, and candidates have been traditionally from them.” 

However, Wickramaratne observed that the fragmentation of vote bases seen elsewhere in the world in likely to happen in Sri Lanka, with voters realigning themselves in new ways. Wickramaratne gave few details on the internal workings of the United National Party (UNP), but assured it would present a candidate that was aligned with the changes seen in the vote base. He was also confident there would be no deviation from the existing economic policies, hinting that he was optimistic of the UNP winning the upcoming election cycle.