Economy
From The Report: Sri Lanka 2016
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The Sri Lankan economy has been growing well recently despite a degree of political uncertainty and the global slowdown in emerging markets, with GDP expanding on average more than 6% since 2010. The new government inherited an economy with great potential but burdened by debt and lacking the types of investment to see it through to the next stage. Accelerating growth is now necessary, not only in order to pay down its debts but also to avoid the middle-income trap. Sri Lanka has developed new avenues for significant expansion, such as its burgeoning tourism sector, and investments in shipping and infrastructure. If the country can build on the steps it has already taken, there is no reason why it should not continue to prosper.

This chapter contains interviews with Ravi Karunanayake, Minister of Finance and Planning; Kabir Hashim, Minister of Public Enterprise Development; Ajit Gunewardene, Deputy Chairman, John Keells Holdings; and Mohan Pandithage, Chairman and Chief Executive, Hayleys.

Articles from this Chapter

Overview

Political change: With a new pro-business government in power, economic opportunities abound
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Sri Lanka prospered under its former president, Mahinda Rajapaska, a figure who is credited by many with ending the civil war and practising a highly directed, centralised style of management. During his tenure GDP growth remained high, rising over time and, despite some volatility, stayed positive throughout his administration. Now, the country is entering a period in which it stands to grow rapidly under what has been described as a more liberal, open and business-oriented government. The new…

Interview

Back on track: OBG talks to Ravi Karunanayake, Minister of Finance and Planning
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Interview:Ravi Karunanayake What changes will the new administration make? RAVI KARUNANAYAKE: We are a new government with a fresh mandate that will enable us to become much stronger than we are now. Our intention is to rectify many of the anomalies that have been present in past reporting and demonstrate the progress Sri Lanka can make. Fiscal and monetary policies will be spelled out in order to achieve our national targets. We believe Sri Lanka is on the threshold of a major period…

Analysis

Deals on debt: The government is moving to service its debts and make the country more attractive to foreign investment
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Sri Lanka’s debt picture is decidedly mixed. In some ways, the country has been greatly successful in managing its international exposures. Government obligations have fallen significantly, from over 100% of GDP in 2004 to about 74% in 2015. As the civil war ended, defence spending decreased, and this opened up previously committed resources for covering the budget and paying down debt. Yet at the same time, Sri Lanka’s debt burden remains high – particularly in comparison to its peers –…

Interview

Key changes: OBG talks to Kabir Hashim, Minister of Public Enterprise Development
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Interview: Kabir Hashim What are the immediate priorities when it comes to reorganising the state sector? KABIR HASHIM: The most important thing is recognising that the very mandate of this new ministry is not just to run state-owned enterprises (SOEs) but to restructure them. The main objective is to reduce the burden SOEs bear upon the treasury. We have a large number that are major liabilities and cause leakages in the budget, but we feel most of that can be changed. We also need to look at…

Interview

Fostering growth: OBG talks to Ajit Gunewardene, Deputy Chairman, John Keells Holdings
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Interview:Ajit Gunewardene What do major mixed-use developments mean for Colombo’s development? AJIT GUNEWARDENE: The mixed-use Cinnamon Life development is the largest private-sector investment in Sri Lanka to date, and it aims to capitalise on the growing numbers of tourist arrivals. Even though there have been noteworthy improvements in relation to general infrastructure and flight connectivity, Sri Lanka requires facilities offering entertainment and lifestyle activities. In light of…

Analysis

Money in motion: Overseas remittances and healthy tourism receipts are helping to keep capital circulating
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Worker remittances have been growing over time and now play an important role in the country’s international capital flows. They surpassed $7bn in 2014, up from about $2bn in 2006. Despite levelling off in early 2015, they then reached $8.2bn in 2015, which remains a large portfolio for a $75bn economy. Historically, workers’ remittances have been essential for the stability of the economy. They have brought in preciously needed foreign reserves during a time of war, and have also been seen…

Analysis

Revenue revisited: The government is exploring tax collection reforms to capitalise on the benefits of growth
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Sri Lanka has had a poor history of revenue collection. Tax revenues as a percentage of GDP have declined from above 20% in the early 1990s to about 12.2% in 2014. In comparison, Malaysia and Thailand are at about 15%, while Singapore is about 13%. India, however, is at 10%, although it also contains a far larger informal economy. So while the country has done a good job of increasing per capita income, it has done a poor job of capturing the fruits of that growth. The low levels of collection are…

Interview

Trading ideas: OBG talks to Mohan Pandithage, Chairman and Chief Executive, Hayleys
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Interview: MohanPandithage What factors have contributed to the declining contribution of exports to GDP? MOHAN PANDITHAGE: Sri Lanka’s exports have been characterised by two important features in the last couple of decades: limited diversification of products and limited diversification of markets. Around 60% of Sri Lanka’s exports are concentrated in the EU and US markets, while two products – apparel and tea – account for 60% of annual export value. The failure of the country to…