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Sri Lanka year in review 2015: OBG

Dec 21, 2015 (LBO) – Sri Lanka has emerged with a renewed emphasis on economic reforms and fiscal consolidation, which has allayed concerns for many local and foreign investors, a year end review by the Oxford Business Group said. Full statement follows....... In the wake of general elections earlier this year, Sri Lanka has emerged with a renewed emphasis on economic reforms and fiscal consolidation, which has allayed concerns for many local and foreign investors. Until August, election delays had effectively created a wait-and-see approach in the private sector, with investors pressing pause on several high-profile projects. Most notably, the country’s largest-ever foreign investment – the 1.4 billion US dollar Colombo Port City real estate project funded by the China Communications Construction Company – remains on hold as the year comes to a close. Road to fiscal consolidation Released in November, the 2016 budget signalled the new coalition government’s first major policy declaration and included a reduction in investment ownership restrictions and a variety of tax incentives. The government will be looking for these reforms to help boost foreign direct investment (FDI), which has averaged just 1.5 percent of GDP over the last five years, compared to an average of 3.1 percent among other “BB”-rated countries. None the less, concerns remain over the government’s ability to improve revenues while also reining in expenditures. The government announced a 5.9 percent fiscal deficit target for 2016, only a slight decline over the 6 percent forecast for 2015, and according to ratings agency Fitch, the budget “provides no clear plan for fiscal consolidation over the medium term”. Government revenues have been in decline since 2010, falling to just 12.3 percent of GDP in 2014 due to weak tax administration and collection structures. A further 6.4 percent drop in income tax collection is expected in 2016, placing greater pressure on other revenue streams to support the government’s projected 38 percent rise in overall revenue. Adding to the pressure is a continued rise in expenditures, which are expected to reach 22.3 percent of GDP in 2016, up from 19.1 percent in 2015, fuelled by major government investments in infrastructure, healthcare and education. The fiscal imbalance has been exacerbated by public sector salary hikes and increased social welfare spending in 2015 – some of the first moves made by the new coalition government –alongside price controls on green-leaf tea and subsidies on natural rubber and fertilisers. Market measures To help fund the deficit, Sri Lanka’s government visited international capital markets twice in 2015. In late May the country sold a 650 million US dollars, 10-year sovereign bond at a rate of 6.125 percent, while the second 10-year oversubscribed bond offer, issued in late October, sold at a coupon rate of 6.85 percent, raising some 1.5 billiob US dollars. The higher pricing of the second offer was attributed in part to a decline in Sri Lanka’s foreign reserves – which fell from 8.8 billion US dollars to 5.6 billion US dollars in the 12 months to October 2015, according to figures from the Central Bank of Sri Lanka (CBSL) –as well as broader global economic uncertainty. The rupee’s decline, which mirrors a general weakening of Asian currencies this year, reached a record low of 143 rupees: one US dollar in late November, down some 10.5 percent year-to-date. Trade figures Declining crude oil prices – which fell by more than 50 percent in 2014 – offered some relief for the country’s balance of payments, and were ultimately passed on to consumers and businesses through state-led reductions in gasoline prices. The country, which hopes to achieve 100 percent energy self-sufficiency by 2030, currently imports fossil fuels to satisfy around 44 percent of domestic consumption. Energy imports have traditionally cost the country 5 billion US dollars per annum in foreign exchange, equivalent to roughly 25% of total import expenditure and nearly half of export income. According to the CBSL, declining prices and imports led to a 60.5 percent reduction in the nation’s fuel import bill as of August. However, these energy savings have been largely offset by Sri Lanka’s rising import bill overall. An easing of duties saw consumer spending on imported motor vehicles nearly double y-o-y in the first eight months of 2015 to 905 million US dollars, according to the CBSL, though loan-to-value caps and higher taxes on vehicles, along with the depreciation of the rupee, are expected to curb consumer appetite into 2016. Overall, exports continued to decline as a percentage of GDP in 2015, after falling by double digits in 2013 and 2014. On a cumulative basis, export earnings fell by 3.4 percent y-o-y in the first eight months of 2015, according to central bank data, largely due to weak global demand. Industry stake holders continue to underscore the importance of diversifying and adding value to Sri Lanka’s export basket and trade relationships, replicating the country’s earlier success in the garment market. A variety of sectors, including branded tea, rubber products, gems, IT and business process outsourcing, are all seen as potential avenues for expansion. Tourism ranks as top performer Tourism, meanwhile, posted record growth in 2015. Thanks in large part to Chinese tourists, whose numbers have risen more than 10-fold since the civil war ended in 2009, Sri Lanka saw arrivals surge over the year, surpassing the 1.5 million mark in November for an 18.1 percent y-o-y increase. Tourism, along with inward remittances, represents an important component of Sri Lanka’s foreign exchange earnings, though both are vulnerable to volatility in international economic conditions. As major international hotels, including luxury players Shangri-La and Grand Hyatt, continue to emerge in Sri Lanka, the country will be looking to reinforce its tourism profile overseas in 2016 and beyond.    
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Nirmalan Dhas
Nirmalan Dhas
8 years ago

The Oxford Business Group is just that, a business Group and it is looking at Sri Lanka from the point of view of doing business with Sri Lanka. There is no doubt that it will be possible to do business with Sri Lanka now that the “Protection Money” network has been temporarily pushed back.

Sri Lanka however is a lot more than “Business”. It is about “Development” and not just “National Development” but at the very least “Regional Development” by virtue of which its developmental impact has the potential to be planetary in its scope. What is on the table for takers is nothing short of the following and in fact a great deal more since the table can hold just so much at a time…

“The Colombo Stock Exchange (CSE) structured so as to accommodate the listing of companies domiciled abroad, and marketed as an entrepot through which capital is raised and investment made in the regions of the IOR-ARC, SAARC, BIMSTEC AND ANTARCTIC that are linked by the island.

Operational infrastructure and supporting services to be developed along the islands low lying coastal plains to enable the housing of strategic corporate headquarters, global marketing operations, human resource development systems and high tech processes of value additions on this island while sales and shipping are confined to the regional production bases in the IOR-ARC, SAARC, BIMSTEC AND ANTARCTIC.

This coastal plain to be developed as a storage and processing area for water flowing down from the catchments in the islands central massif, and the yield used for inland fisheries as well as processed and exported to areas of the planet where drinking water is in short supply. The entire water management system may be covered with solar panels in order to
reduce evaporation and control sunlight.

Permanent residential facilities for citizens along with their resilient and sustainable social support and species survival systems and supply chains (R7SC), to be guided through incentives to move inland onto the plateau that forms a raised collar around the islands central massif so that this transition is completed by 2099.

The initiation of global processes of environmental repair, rehabilitation, regeneration and development (GPE3RD) will help prepare the coastal plains and the plateau to accommodate this shift in human habitat and land use and will become a large source of employment”.

The scope of business activities is always defined by the underlying developmental paradigm. A great deal of research needs funding as we move forward in the task of constructing ours. Groups like the Oxford Business Group should give deep thought to investing in research in Sri Lanka. The future depends on the sophistication of the developmental paradigm that we are able to generate.

8 years ago

OBG or OMG I dont know. They have no idea of what they are doing. One man’s opionion mostly im told. No critical analysis or data. Sambaru of news and views from WTC. Goodriddence

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