Sri Lanka should channel capital flows to direct investment: rating official

Dr. Ganeshan Wignaraja and Dr. Dinusha Panditaratne

Nov 18, 2010 (LBO) – Sri Lanka can expect higher post-war growth, with lower inflation, higher employment provided deficit spending can be checked and capital inflows channeled to direct investment, a senior rating official said. “The two key reasons underpinning growth is the return of peace and all that it implies for investor confidence,” Roopa Kudva, South Asia head for Standard & Poors’, a rating agency, told a forum in Colombo.

“And also the expected economic reforms under the IMF (International Monetary Fund) standby agreement are going to be key factor.”

Kudva is also chief executive of CRISIL, an Indian rating agency connected to S&P. She said Sri Lanka’s growth this year would exceed 6.5 percent though official projections are near 8.0 percent.

Kudva said Sri Lanka had favourble demographics. Like India, the dependency ratio has fallen in recent years and unemployment was low at around 5.0 percent. This increased the capacity for domestic consumption.

“It clearly underpins the base for strong domestic consumption which will provide a boost for economic growth.

Fiscal Risk

Sri Lanka could get sustainable high growth if large scale private investment comes and government budgeting im