Interview: Jim McCabe

What is your view on Sri Lanka’s growth momentum and development in the banking sector?

JIM MCCABE: The progress Sri Lanka is making on many fronts is very encouraging. The government’s timely and necessary infrastructure plan will require many different sources of financing, and the banking sector will have the opportunity to formulate innovative and constructive forms of financing. Standard Chartered will continue to partner development and enterprise, helping to bring in international capital through, for example, the recent two-tranche $1.5bn eurobond.

We are continuing to see healthy banking sector asset growth due to large-scale lending in sectors such as housing and construction. The banking sector grew by 21% in 2015 and 17% in 2016. Sri Lanka has an active capital market, and we see banks regularly tapping funds through rupee debentures. As the market matures and infrastructure funding needs to increase, we anticipate an accessing of both global bond and loan markets. We took Sampath Bank on a very successful road show and syndicated a three-year loan with strong participation from Middle Eastern and Indian banks. We believe more banks will come into the market during 2017.

How is Brexit and the prospect of a slowdown in the EU likely to affect Sri Lanka?

MCCABE: The medium- to long-term impact remains uncertain, as does much about the Brexit process. While a slowdown in the UK economy and a decline in GBP are likely to have a short-term negative impact on exports, any spillovers to the EU will have an impact on Sri Lanka’s trade, 10% of which comes from the UK and nearly a third of which comes from the EU. In all likelihood Sri Lanka, like other nations, will have to renegotiate its trade agreement with the UK.

The impact on tourism is another consideration. Nearly 25% of Sri Lanka’s tourists are from Western Europe; the UK accounts for 9%. Sri Lanka has not seen a reduction in tourism numbers and is currently seeing strong year-on-year growth from both traditional and non-traditional markets. Recent trends also show strong growth in tourists from India and China, which may offset any slowdown in Europe.

How well positioned is the government to balance the challenges of the Megapolis project to ensure its successful development?

MCCABE: The government has a $40bn plans for the Megapolis project for the redevelopment of the country’s capital. The Western Region Megapolis Planning Project comprises 150 smaller projects, including the Colombo Port City project, and will include a trade centre, a high-rise central business district with at least 60 new towers, a science and technology city, and a rapid transit system aimed at reducing congestion in Sri Lanka’s most populous region, which is home to almost 6m people.

The government hopes that the project will significantly reduce the unemployment rate from 4% to 2% by 2020 and then sustain that rate until 2035 by creating an additional 2.1m jobs. The government proposes to fund the initial phase with aid from different international institutions, including the World Bank and the Asian Development Bank.

What impact will the US Federal Reserve’s December 2016 rate hike have on the economy?

MCCABE: Because Sri Lanka depends on debt capital inflows to strengthen its foreign exchange reserves, this could create difficulties in terms of higher borrowing costs, particularly given its high debt repayment obligations in the coming years.

Any further economic slowdown in the Middle East caused by, for example, global oil prices remaining depressed, could also put a sizeable dent in remittances from the region, which account for more than 50% of the country’s inward remittances.