Upturn in global economy, boost for SL’s growth prospects - CB governor | Sunday Observer

Upturn in global economy, boost for SL’s growth prospects - CB governor

Dr. Indrajith Coomaraswamy
Dr. Indrajith Coomaraswamy

The upturn in the global economy has strong and positive tailwinds for Sri Lanka’s growth prospects, Central Bank Governor Dr. Indrajit Coomaraswamy told guests at the Sri Lanka Economic and Investment Conclave (SLEIC) 2017 last week.

He said for the first time there is synchronized growth in the United States, Europe and Japan since the 2008 global economic recession. These economies are recording positive growth. At the IMF meeting in October the mood was particularly upbeat on global economic growth.

The US and Europe are two major markets for Sri Lanka and signs are positive with the recovery in the US and Europe after a lengthy period of recession, is beginning to show growth.

Global growth for this year is 3.5 percent and 3.6 percent in 2018 according to the World Economic Outlook of the IMF. Growth for developing and emerging countries is 4.6 percent in 2017 and 4.8 percent in 2018, backed by improvement in trade and business confidence.

Growth in advanced countries is predicted at 2 percent in 2017 and 1.9 percent in 2018 moved by the uptick in trade. The threat of deflation is no more.

The US economy is outward looking. A positive feature is that the Fed is likely to tighten key interest rates given the recovery in the US economy. The Euro zone is now beginning to see better prospects after severe recession from the financial crisis.

The current upturn is positive. However, growth in not robust as the so called nice decade between the Asian financial crisis in the 1990s and the global financial crisis in 2008.

However, the governor said the spectre of rising protectionism and divergence in monetary, Geo political risk that is posing a threat to the Indian Ocean ring, uptick in oil prices and adverse climatic conditions are key threats that need to be recognised.

Extreme weather is the other risk. Natural disasters have become more intense and frequent. Climatic change impact should be mitigated. Production cuts by OPEC and Russia pushed global oil prices. If it grows higher it will have negative consequences to developing countries. Hopefully, we will not see oil prices go above US$ 60. Commodity prices will increase with surge in oil process.

With regard to FDIs Sri Lanka has the advantage due to its excellent relations with China, Europe and ASEAN countries. All prospects are there for Sri Lanka. One thing Sri Lanka must take cognizance of is China is moving from export of goods to capital exports using the One Belt One Road (OBOR) initiative.

The OBOR comprises more than physical connections. It aims creating the world’s largest platform for economic cooperation, policy coordination, trade and financing collaboration and social and cultural cooperation.

“Sri Lanka has historically been characterized by stop-go policies. The country has tended to be high budget deficit, high inflation, high nominal interest rate and over valued currency economy.

In order to address this and achieve sound economic fundamental the government is putting in place framework for policy making. The government is to institutionalize the fiscal consolidation process by introducing more binding targets in the Fiscal Responsibility Management Act. The Central Bank is taking steps to introduce a flexible inflation targeting regime,” the governor said.

Former Ambassador and Permanent Representative to the United Nations and Former Permanent Secretary to the Ministry of Foreign Affairs Dr. Palitha Kohona said ‘SLEIC 2017’ is a ground-breaking initiative to drive Foreign Direct Investments (FDIs) and foster stronger tied between Sri Lankan businessmen and its counterparts in other countries.

“It is the first of series of conclaves to highlight Sri Lanka’s potential for foreign direct investors.

Our goal is to use the occasion to explain what Sri Lanka has to offer to its overseas investors and businessmen from Wall Street, China and Singapore and many other countries from across the globe. The ultimate goal is to attract investors to Sri Lanka, as in the past to boost economic growth,” Dr. Kohona said. He said Sri Lanka’s Vision2025 which presents a blue print of economic development will be highlighted at the event.

Mega development initiatives such as the port city, hotels and resorts manufacturing and high tech development in the country are invitations to investors to explore opportunities in Sri Lanka. Sri Lanka is unfairly endowed with nature. There are immense opportunities to exploit. The keen interest shown by the Chinese businessmen to invest is a clear indication of Sri Lanka’s vast potential for investments. Our goal is to present the endless opportunities of this land to the world.