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CB chief tells foreign investors why they should invest in Sri Lanka now

Says SL’s economy has stabilised; expects next year to be year of economic recovery
Points to declining inflation, positive BOP and fiscal outlooks, undervalued currency as key reasons why foreign investors should look at SL
Says on fiscal side, SL has done beyond what IMF has recommended
Expresses confidence in obtaining creditor assurances to unlock IMF bailout package by January 2023
Says ADB and WB will extend fiscal support once programme support with IMF clinched


Central Bank Governor Dr. Nandalal Weerasinghe yesterday made an open call to the foreign investor community to take investment positions pertaining to Sri Lanka, as the country is about to enter the recovery path, leaving behind the worst of the ongoing economic turmoil.

With the tough but the required monetary and fiscal policies being implemented, he said the economic stabilisation has taken place and the next year would be a year of economic recovery.

 

“Our first priority was to regain the short-term stability. The economic stabilisation has taken place. From next year, we will move into a recovery path,” Weerasinghe told the CT CLSA South Asia Frontier Forum that kicked off yesterday in Colombo, with the participation of foreign and local institutional investors.

 

In this backdrop, he said, if any investor is to look at Sri Lanka, this is the most opportune time.
“If any investor wants to look at Sri Lanka, to me this is the right time. Currency has already depreciated; the real value of the Sri Lankan rupee is heavily undervalued based on the economic fundamentals. The BOP outlook is positive; the fiscal outlook is positive. Inflation is on a declining trend,” he pointed out.

 

After peaking at almost 70 percent in September, Sri Lanka’s headline inflation has turned around with October recording an inflation reading of 66 percent.

With the disinflation path kicking in, Dr. Weerasinghe expressed confidence in inflation declining to the preferred 4-6 percent band by the end of next year.

 

Complementing the ultra-tight monetary policy that has been implemented since April, the fiscal side was also tightened in several stages in May, August and November by way of tax increases, introduction of new taxes and some rationalisation in state expenditure.

 

“On the fiscal side, Sri Lanka has done beyond what the IMF has recommended. The government has addressed a lot of issues, including distorted utilities prices. Now it is a matter of implementing the required reforms to enhance the efficiencies of those institutions to ease the burden on the fiscal side and ease the burden on the public by providing competitive pricing,” Dr. Weerasinghe remarked.

 

Under the IMF package, Sri Lanka has also committed to convert the negative primary deficit about 4 percent this year to a surplus of 2 percent by 2026, gradually adjusting the GDP by 2 percent every year.

 

Dr. Weerasinghe also expressed confidence in gaining financial assurance from the country’s official creditors shortly to unlock the US $ 2.9 billion, 48-month IMF bailout package. “We are in the process of discussing with our bilateral lenders, India, China and the Paris Club nations, which includes Japan. We have made very good progress. The way that we have been progressing I’m confident that we should be able to receive financing assurances from our bilateral creditors with sufficient time for us to the go to the IMF Board somewhere in January, next year. Until then we can manage,” he said. “That will ease the foreign exchange situation a lot. Once the IMF approves the package, the ADB and World Bank are willing to support. They are already in discussions with the Finance Ministry over the policy package based on the short and medium-term structural reforms and growth enhancing reforms,” he added.

Daily Mirror