Portfolio investors bullish on SL, but FDI requires long-term stability: StanChart

• Shares investors highly impressed with the tightening SL has done over the last few years
• Says progress is clearly reflected in the metrics 
• Notes outlook for FDI remains a longer-term prospect, as sustained performance and policy stability will be key determinants
• Asserts greater efforts are needed to show that SL’s policies are consistent
• Urges SL to reassess its tariff structure, as high para-tariffs continue to limit intermediate exports

By Nishel Fernando

Standard Chartered Bank yesterday expressed optimism about Sri Lanka’s economic outlook, highlighting renewed confidence among portfolio investors. 

While acknowledging that foreign direct investment (FDI) inflows will take time to materialise, the bank noted that maintaining the country’s steady performance could pave the way for long-term investor interest.
The bank’s research heads emphasised that discussions with international investors indicate a positive shift in sentiment toward Sri Lanka.

“I think they’ve been very impressed with the tightening that the country has done over the last few years. The progress is clearly reflected in the metrics that we see in front of us. So, all of that has been actually very well received by international investors,” said Standard Chartered Global Head of Fixed Income Research & Head of Asia Research Kaushik Rudra.

However, he clarified that the current optimism is largely from portfolio investors, those who invest in debt, rather than FDI investors. “They are actually quite happy with Sri Lanka. Most of them are running overweight positions in Sri Lanka, so that’s actually a very positive sign,” he said, speaking at Standard Chartered’s Annual Global Research Briefing in Colombo.

Despite this confidence, the outlook for FDI remains a longer-term prospect, as sustained performance and policy stability will be key determinants.

Standard Chartered Bank Sri Lanka CEO Bingumal Thewarathanthri underscored the critical role of policy consistency in attracting FDI, noting that frequent policy changes—often driven by shifts in political leadership—have deterred investors in the past.

“Of course, you have to have a single window for trade. You have to have a single window for investments. Your turnaround time has to come down. We have serious problems with land and access to capital, and all of that. Those things have to improve. But first of all, we have to show that our policies are consistent,” he said.
Building on this, Thewarathanthri highlighted the need for Sri Lanka to attract large-scale investments to make a significant leap in FDI inflows.

“We had a discussion with BOI, and the FDI pipeline is promising from a number of transaction standpoints. I think we have a huge number of transactions, but these are all small-ticket ones, with an average ticket size of US$ 3-4 million. I think we need the big ones to get that quantum leap. We need transactions with a minimum ticket size of US$ 300-400 million, or half a billion,” he added.

Alongside investment prospects, trade remains a key area for Sri Lanka’s economic positioning. Thewarathanthri pointed out that Sri Lanka ranks 34th on the trade deficit basket in the United States, signalling a need to enhance reciprocal trade relationships.

“If they look at reciprocal trade, Sri Lanka ranks 34th in terms of trade, which is small. You’ve got a larger trade deficit, so that’s something to watch,” he said.

In terms of cost competitiveness, he noted that Sri Lanka remains attractive compared to regional peers, with lower production costs offering an advantage for investment.

“Our average salary is US$ 150, whereas in Vietnam it’s US$ 400, and in China, it’s US$ 1000. I can’t recall Bangladesh’s numbers exactly, but even in Bangladesh, we have a lot of Sri Lankans working there. Power prices are now, I would say, okay. So, because of the devaluation of Sri Lanka’s currency, from a cost perspective, Sri Lanka is still very attractive. It’s about getting scale and setting up more factories to meet that demand,” he said.
Amid global trade fragmentation, Rudra noted that South-to-South trade is gaining momentum, presenting an opportunity for Sri Lanka.

“... Sri Lanka sits right in the middle of that, so it is actually very well-positioned to leverage potentially the future of trade and benefit from it. So, obviously, it can position itself and benefit from some of those dynamics,” he added.
Further highlighting trade challenges, Standard Chartered Economist for South Asia Saurav Anand urged Sri Lanka to reassess its tariff structure, as high para-tariffs continue to limit intermediate exports.

“This has gained a lot of attention even in the current time programme and the World Bank report which came out last year. Sri Lanka was highlighted as having one of the highest rates of para-tariffs, at least in South Asia. So, there are efforts to bring it down, because what happens today in Sri Lanka is that intermediate exports are low compared to what the rest of the world does,” he said.

Vehicle imports may not hit US$1 bn mark this year

Sri Lanka’s vehicle imports may not hit US$1 billion mark this year, according to Standard Chartered Bank.
“We might not hit the billion dollar number. I think we are close to 200 million by now in terms of LC openings. But after that initial set of vehicles come, there will be again a bit of a wait-and-watch kind of a scenario,” Bingumal Thewarathanthri said.

Despite volumes falling short of expectations, he noted that there will still be some pressure on the rupee.
 “I know all the brand new vehicle importers have placed orders. That’s coming as well. Second hand importers are also playing a role. I mean that is very large. But the expected volume might not happen the way we like, but it will come. We have seen the flow already. And there will be of course some pressure on the rupee as well,” he said. (NF)