Sri Lanka coalition may be perceived as investor unfriendly: Standard Chartered

Economic downturnGlobal banking group Standard Chartered Bank said the presidential election in Sri Lanka may result in ‘some’ economic uncertainty with President Maithripala Sirisena’s manifesto perceived as investor unfriendly with a lot depending how successful reforms are.

Sirisena won over his rival Mahinda Rajapaksa last week.

Rajapaksa sought an unprecedented third term on winning the war against separatists and large scale infrastructure development.

Sirisena’s campaign call was the end of nepotism and corruption and establishment of rule of law.

“While the election removes near-term political uncertainty, we believe it also introduces some economic uncertainty,” Standard Chartered Bank said in a global report ‘Sri Lanka – A Change of Guard’.

It said some of the promises mentioned in Sirisena’s manifesto were ‘slightly’ popular.

“Sri Lanka’s fiscal deficit is high compared with its ‘B-‘ rated peers and faces a heavy external debt amortization burden of 3.5 billion US dollars in 2015,” the bank said.

The forex reserve position has also moderated in recent months to 8.2 billion US dollars from 8.8 billion US dollars in October 2014.

The bank said Sri Lanka’s sovereign bonds trading in international markets could see a downside of 20 to 25 basis points with the medium term outlook depending on the coalition’s ability deliver reforms.

It said the possible cancellation of projects such as the 1.4 billion US dollar Colombo Port City project and the 400 million dollar Crown Resorts project of Australian gaming tycoon James Packer, may be perceived as FDI and investor unfriendly.

The coalition has said that it would re-assess government funded infrastructure projects and cancel them if they proved to be commercially unviable.

Last week Standard and Poor’s raised concerns over coalition plans to expand subsidies and welfare spending amidst low revenue gains which could ‘jeopardize Sri Lanka’s hard-won progress in reducing large debt and interest burdens’.

The coalition is expected to present a new budget for 2015 on 29 January.

The previous regime was criticized for overspending and borrowing with piece-meal revenue reforms failing to generate revenue growth in line with economic growth.

Nepotism, rent seeking and poor law and order were shown up as reasons for Sri Lanka’s poor track record in attracting FDI since the conflict ended with high targets never achieved.

Sri Lanka only attracted 1.4 billion US dollars in foreign investment in 2013 as against a 2 billion target, earlier set at 2.5 billion.

The Sri Lanka Economic Association has over the years called for better fiscal discipline and governance, rule of law and institutional integrity including an independent central bank.

“That both heads of the central bank (Ajith Nivard Cabraal) and capital markets watchdog (Securities and Exchange Commission’s Dr Nalaka Godahewa) resigned after the new president came to power demonstrates the low level to which our institutions have been brought down to,” an economic said not wanting to be named.

“These appointments have always been political, but they are expected to be independent apolitical to the best of their ability. When a regime changes usually heads roll, but this should not necessarily happen at the central bank or SEC.

“It is sad when politicians play politics with these institutions, but when officials blatantly demonstrate that they serve their masters and not the public, it is even worse. This is an opportunity for the new government to change this culture; or will they continue with it.” (Economy Next)

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