Instead of having to wait for foreign companies to invest in Sri Lanka, in another four years time, local companies will step up seeking cross boarder investments in a net-foreign exchange surplus economy, according to the Central Bank (CB) Governor.
“By 2016, we would probably be a net foreign exchange surplus country. Some of you will look at investments abroad. Today, maybe it is difficult to fathom that thought, but it will take place. We have already seen such signs. Little by little, companies are progressing outside,” said Ajith Nivard Cabraal.
For this purpose, the CB has already relaxed structures within the existing foreign exchange regime in order to give companies an appetite to go beyond the shores.
“We know suddenly you cannot get in to these new areas. It has to happen through a learning curve. You should get ready for that as well,” he said urging the Lankan corporate sector to be proactive.
In recent ti mes, Hemas Holdings PLC announced a hydro power project in East African nation, Uganda with likely diversification into other areas such as FMCG. Aitken Spence PLC too is in the lookout for opportunities in Bangladesh to set up two thermal power plants. Commercial Bank PLC also said they were looking at expansion opportunities in Myanmar this year.
Delivering the key note address at a business forum organized by the global rating agency, Standard & Poor’s last week, the Governor further said with the gradual structural changes taking place in the external front, the country would not have to depend on foreign savings to finance investments.
“Our view is that beyond 2016, Sri Lanka will be a current account surplus country.”
The savings and investment behavior of an economy is reflected through the external current account balance. A deficit in the current account implies that a country invests more than it saves. Post-liberalized Sri Lanka has been borrowing outside to finance this negative savings investment gap.
“With the five hub concept that has been introduced, you will see a gradual change in the way our current account behaves in the future. We have already seen signs of that with the current account deficit moderating. We would see that happening in the next few years as well,” Cabraal remarked.
He said that new areas such as tourism, port development, emergence of professional services, oil and gas exploration, education, health and sports would be the new avenues of foreign inflows to support this change in the current account.
Sri Lanka’s current account deficit as a percent of GDP declined to 6.6 percent in 2012 from 7.8 percent in 2011. The CB projects to bring down the deficit further to 4.7 percent this year.
In order to grow at an 8 percent rate, Sri Lanka needs to maintain at least 33 percent of GDP in investments of which government commits at least 6.0 percent per annum while the rest coming from the private sector and direct investments.