Ravi K. sees good omens for economy

• Says investors are keen, plans to increase reserves and insists doing business costs are down

By Channa Fernandopulle  

An upbeat Finance Minister believes Sri Lanka’s economy is on the right track and ready for investment to spur growth. 

Finance Minister Ravi Karunanayake in an exclusive interview to the Daily FT insisted corruption combating efforts have been successful and the country has managed to regain international confidence. He noted the improved global image of the country would positively impact Foreign Direct Investment (FDI) opportunities. 

“Today people love to come to Sri Lanka to invest, because it is a country on the move. People feel that there is new opportunity; there are no ridiculous start-up costs. In the past 20%-25% of costs comprised of start-up costs, so they would question how you can start a Rs. 10 billion investment when you have to give Rs. 3-4 billion to unknown people. That was the situation under the previous Government but today you get people from all over the world looking to come to Sri Lanka and start up a business,” he said.

A variety of businesses are keen on Sri Lanka’s prospects, according to the Minister. 

“Banks are interested, you have people willing to lend, hotels are coming in, the construction industry is booming, just a 120 days is not enough to reverse the negative effects of 12 years of mayhem,” he added. 

Post-war Sri Lanka has consistently struggled to meet FDI targets rarely growing above $1.2 billion despite policy makers targeting $4 billion by 2016 to double per capita income. However, Minister Karunanayake insisted Government plans would continue to strengthen the economy. 

“In terms of our reserves, when we took over they were roughly in the range of $ 7.1 billion and as of this moment it is in the range of $ 8.2 billion, which we expect to bolster with another $ 600 million through high profile companies like Barclays, Credit Suisse and others on rates of between 3.25%-3.75% so we expect reserves to move to about $ 9 billion in the future,” he noted. 

Sri Lanka’s economic growth is expected to decline to 6.9% in 2015 due to slowing construction activity, according to the World Bank, which has also warned private sector sentiment would be cautious till economic policies of the new Government stabilise. The International Monetary Fund (IMF) earlier in the year gave a growth outlook of 6-7%, and the Asian Development Bank (ADB) a growth of 7%. The country grew by 7.4% in 2014. 

However, Central Bank Governor Arjuna Mahendran is confident Sri Lanka’s economy will average around 7% during the first half of 2015, with growth picking up in subsequent years, as he told Daily FT last week. His views largely fall in line with statements made by Karunanayake. 

“By the end of six months this year, we will average around 7%. There’s nothing to worry,” a confident Governor said.

“I think things are looking good. Once we hit $ 4,000 per capita, the economy will shoot up. I am hopeful that we reach that level by the end of this year, in which case we can look at 8% to 9% economic growth in the next five years,” he added.

Further explaining economic factors, Mahendran said that the agriculture sector was recovering after the drought last year, which was a good indication. However, he noted the construction sector had slowed down, mainly because the new Government was reviewing some of the infrastructure projects. 

However, he pointed out that agriculture picking up and construction slowing down would balance out the difference. “That way I think it will keep the economy evenly balanced,” he said. 

Further clarifying his point, the Governor said private construction such as housing was booming. 

“Exports are doing well. Now that the rupee is down by 2% against the dollar, that will also help competitiveness and exports will continue to grow. Exports and FDIs are the two areas we need to improve on. Those are the two areas we are focusing on. The Minister of Industry and Commerce has his plans in the export sector. The BOI is developing its plans for FDIs. With those two I think in the medium term we could go beyond 7.5%.” 

For full interview, click here.