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Tuesday, April 27, 2010 - 6.04 GMT |
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New economic growth estimates, 7% or beyond
– Cabraal |
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"Estimates [on Sri Lanka’s economic growth rate] are likely to be revised to closer to 7 (percent) or even beyond 7 (percent)," the Central Bank Governor Ajith Nivard Cabraal told Reuters on Friday (23 April).
He is attending the International Monetary Fund and World Bank meetings this week.
Government debt prices and the rupee have also rallied on the IMF cash injection and the end of the war. Sri Lanka's economic expansion is likely to be more than the government's 6.5 percent forecast this year, owing to rapid growth in infrastructure development and tourism, Reuters added.
Sri Lanka has been able to slow its inflation rate to 6.3 percent in March from a one-year high of 6.9 percent a month ago, Cabraal said.
"Sri Lanka has been a high inflation country for a long time. We have been able to bring inflation down to very reasonable numbers within the last year, and we are conscious that we have to maintain that," he said.
"This gives a signal that we mean business as far as inflation is concerned, and we see the market reacting to that," he added.
More capital inflows are expected as the country's diaspora returns to invest after the end of 30-years of terrorism, Cabraal told Reuters.
"With political stability will come investment," the Governor stated.
"There will be investment that will come with tourism and infrastructure, but also there will be reinvestment by Sri Lankans themselves. That could be an important area for growth because the investment coming back could be the anchor for growth for next year and beyond," quoting the Governor, Reuters reported.
With the end to decades of terrorism last May, foreign investments increased with the current economic revival. Sri Lanka's stock market has returned more than 172 percent since it hit a trough at the end of 2008, spurred by the end of the conflict and a $2.6 billion International Monetary Fund loan that helped lift the country's sovereign debt ratings, Reuters reported.
Colombo Stock Exchange shares hit a new record on Wednesday (21 April) with the All-Share Price Index reaching a new all-time high of 4,052.10 points.
Cabraal also said the next time the government sells a Eurobond it will likely be a 10-year tenor, in order to improve its yield curve. But at the same time, Colombo is encouraging the private sector to sell their own bonds.
"There are several companies that are just going beyond the $1 billion-mark, and there are other companies close to that," quoting the Governor, Reuters reported.
"As Sri Lanka grows, there are many corporates that are possible contenders for global capital. It will be a good opportunity for foreign investors to invest in Sri Lanka."
Any risk that the South Asian island may face, Cabraal said, would be external. "If there is a slow take-off of the world economies, particularly in Europe, it can have an impact on Sri Lanka," he stated.
Meanwhile, in an interview with Bloomberg, the Governor stated that Sri Lanka may sell more U.S. dollar-denominated bonds this year to fund its budget deficit. The government hasn't decided on the sale even as investors show interest in such an issuance, he said.
"There is a possibility that we may do that but we have not taken a final decision," he said. "The appetite seems to be there. There have been many inquiries about such an issue and the reaction we have received has been positive," quoting the Governor, Bloomberg reported.
President Mahinda Rajapaksa has pledged to spend $1 billion on ports, roads and power plants this year to help drive economic growth, Bloomberg stated.
Sri Lanka’s budget shortfall is estimated to be 7.5 percent of gross domestic product in 2010, Cabraal said. Sri Lanka sold $92 million of dollar-denominated bonds last month.
The Central Bank on April 22 left the reverse repurchase rate at 9.75 percent, its lowest level since August 2005. The repurchase rate was maintained at 7.5 percent. Interest rates
can be kept steady "in the short term" because inflation is contained and it did not lower borrowing costs as much as others during the crisis, Cabraal said.
Consumer prices may gain 5 to 6 percent by the end of this year and aren't causing "any concern or difficulty," he said. The Central Bank is prepared to raise interest rates to deal with inflationary pressures even though the "time is not now," Cabraal said.
The Central Bank is targeting economic growth of 6.5 percent in 2010, which would be the fastest pace in three years, Bloomberg reported.
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