Standard Chartered economists say Sri Lanka is “quite hot” for foreign investors
Standard Chartered Bank’s Global Research economists say that Sri Lanka’s extremely high yields followed by the Government’s recent policy reforms made the country “quite hot” to attract foreign investors.
Standard Charted Bank Chief Economist Asia Global Research, David Mann has said that since Sri Lanka’s yields in fixed income channels like sovereign bonds and local currencies were quite attractive compared to other countries, foreign investor confidence in Sri Lanka has notably increased, adding that despite the speculation of a gradual depreciation, he said it was impossible to ignore the attractiveness of Sri Lanka’s yields.
Mann has also pointed out that there is a lot of money on the side-lines that could be pumped into emerging markets for either better value or for some major event driven sell-off which will then trigger the offering of the opportunities they are looking for.
“There are extremely high yields compared to other economies, which had a lot more foreign participation. More gains are in store for Sri Lanka bonds due to their performance. You can say it is partly because of the IMF program and the path of travel,” he has said.
“They are still spending the whole time waiting, meanwhile everything keeps climbing stronger and you actually see a lot of foreign investors starting to be obliged to get more adventurous. That is exactly somewhere behind why we have seen a surge of interest for markets like Sri Lanka, amongst all our foreign investor clients. They are willing to get a lot more adventurous because they are running out of the usual suspects that are not offering the same value anymore,” he has added.
Standard Chartered Bank Economist Global Research Financial Markets, Saurav Anand has said that the Government of Sri Lanka’s (GoSL) decision to make fundamental changes regarding reforms have had a favourable impact on the economy, adding that another 25-basis point rate hike is expected during the course of the year.
Anand has also commended the GoSL’s fiscal performance having increased its revenue in 2016 by implementing VAT.
He has also applauded efforts to maintain policy consistency, ease of doing business and the expansion of trade agreements as positives for attracting FDIs to Sri Lanka, despite FDI per capita being lower than other countries in the region.
“Tax changes have been ad hoc in the past. The investor needs to be assured that the tax policies will not be changed and getting the whole Inland Revenue Bill is critical at this point. Sri Lanka needs to attract FDIs that can bolster exports as most of the FDIs that have come to the country are in non-tradable sectors like construction,” he has said.
However, he has added that efforts to restructure the BOI and Customs Department were time consuming, but expressed optimism over non-tradable FDIs once the Colombo Port City Project commenced by mid-2018.
“We maintain our forecast to be USD 155 as capital account dynamics are likely to remain favourable. The signing Hambantota Port deal in July 2017 is likely to alleviate further near-term BoP concerns and as a part of the deal, the Sri Lanka Treasury will receive around USD 900 million by January 2018. In addition, the Government is trying to amend the law which will help it to borrow for future events. I think 2020/21 debt repayment can be taken care of,” he has stated.
He has also said that as a result of the floodsSri Lanka may see some pressure in growth during Q2 and Q3, but expected things to pick up by Q4. Anand has also reaffirmed the Central Bank (CB) Governor, Dr. Indrajit Coomaraswamy’s belief that currency depreciation could be limited to 3%-4%, with inflation likely to average around 5% compared to 6.4% during Q1 as food prices ease, and core inflation maintained between 4%-5%.
He has further noted that the CB having purchased USD 722 million in foreign exchange signalled the GoSL’s attempts to build its foreign reserves.
OSL TAKE:
Sri Lanka becoming an attractive option for foreign investment will open up the possibility for prospective investors and innovators to review options within the country making it possible for all manner of services and industries from various sectors to expand.
| Article Code : | VBS/AT/01092017/Z_1 |