Is Sri Lanka a good place to invest post-crisis?

CPCEC and Board of Investment Chairman Dinesh Weerakkody 

The Colombo Port City Economic Commission (CPCEC) and Board of Investment Chairman Dinesh Weerakkody says, there is enormous potential for investment in the agriculture, tourism, information technology, renewable energy, and education sectors. 

He says the Government has committed to a wide array of important structural reforms. These include reforms to stabilise the current crisis, such as enhanced revenue mobilisation, improve tax administration, cost-recovery based energy pricing, safeguard financial sector stability, and a stronger social safety net to protect the most vulnerable. Also, reforms to enhance productivity and competitiveness, streamline Sri Lanka’s trade and investment environment, unlock the country’s growth potential, and address governance and corruption issues are a few others, he elaborated.

Dinesh Weerakkody responded as follows to a few questions posed to him by the Daily FT.

Q: What was the cause for the longstanding structural weakness of the Lankan economy?

Quite a few of the weaknesses we experienced were enhanced by a series of exogenous shocks. Poor governance, fiscal indiscipline, restrictive trade regime, weak public service, weak investment climate, episodes of loose monetary policy and an administered exchange rate, contributed to macroeconomic imbalances in the last two decades. Resolving a crisis of this nature is certainly challenging. 

Q: You have been the Chairman of the largest two private banks in the country? How adequate is the CPCEC Act on offshore banking in the Colombo Port City?   

A: In my view improvements are required to address the entire gamut of financial services that encompass banking, insurance, and non financial instruments. To ensure that the Colombo Port City has an effective banking regime in the port city, we have completed benchmark studies. 

Q: The State Minister of Finance says the banking sector is sitting on Rs 1.4 trillion of non-performing loans? If correct, what is the remedy? 

The problem is, billions in impaired tourism, real estate and other assets are sitting on bank balance sheets awaiting recovery with an improvement in the wider macro environment, which is very challenging. This pushes banks to redeploy resources away from credit growth and a much needed contribution to the GDP. Banks are vital bedrock institutions in any economy as they contribute significantly to the development of the economy through facilitation of business. Banks also create money and facilitate the growth of savings in the economy. They are instruments of the Government’s monetary strategy, among many others. The most important service provided by a bank is the provision of credit.  Credit fuels economic activity, allowing businesses to invest with leverage and beyond their cash on hand.  Banks should focus more to help revive the economy, not too much on exploiting profit opportunities to invest in financial instruments, which carry risks in conditions of lagging growth. Sri Lanka needs stronger, bigger banks. The Government should push for consolidation keeping in view synergies and the benefits of mergers.