‘Attracting global capital outflows, a challenge for Lanka’
Despite a gloomy global economic outlook with many developed
economies still facing constraints, there is a silver lining for Sri
Lanka due to global capital outflows from advanced countries, said
Senior Lecturer, Department of Economics, University of Colombo, Prof.
Sirimal Abeyratne said.
Prof. Sirimal Abeyratne
He said capital outflows from advanced economies will continue to
take place due to the recession in those countries and Sri Lanka stands
Therefore, in theory Sri Lanka should not have a problem in finding
private investment funds. However, the issue is, we have not benefited
from global capital outflows to attract even one percent of the world’s
Foreign Direct Investments (FDIs) which amounts to around US$ 15
billion. Sri Lanka has been unable to attract over US$ 1 billion so far
and this is a major challenge this year.
The challenge for policy makers is how are they going to make Sri
Lanka an investment-friendly and competitive country to enhance foreign
direct investments.Foreign direct investment inflows grew year-on-year
to $1.45 tn in 2013. However, FDI inflows declined by 8% to US$1.26
trillion due to the fragility of the global economy, policy uncertainty
and geopolitical risks. Inflows was estimated to be $1.75 tn in 2015 and
is anticipated to be $1.85 tn in 2016.The problem is that the 2016
Budget is a conditional budget which means its delivery is subject to
vital improvements in macro economic conditions such as sound economic
reforms, better policy environment, higher trade performance, more
private investments and high economic growth, Prof. Abeyratne said.
These targets cannot be achieved in a year. We are expecting short
term delivery of Budget outcomes subject to medium term economic
The other major issue for the country this year is the unprecedented
number of Budget revisions which either reduces revenue or increases
government expenditure which means the budgetary outcome will be
different from the estimated outcome at the end of the year.
He said as far as the foreign exchange market is concerned Sri Lanka
has a bigger challenge.
The sluggish export performance due to lack of reforms in the export
sector calls for the urgent attention of stakeholders.
A another issue is the trade deficit. Although we sustained it with
private remittances it is a growing challenge especially due to the
security issues in the Middle East. Thus in this scenario Sri Lanka
cannot maintain a flexible exchange rate.
The government will have to resort to foreign borrowings or go for a
stand-by agreement with the International Monetary Fund.
Prof. Abeyratne said even though this issue is solved through foreign
borrowing it will be only a temporary measure which will add up to the
foreign exchange crisis in the medium term.
Therefore, the need for export growth is inevitable and it needs
improvements in the business environment.
With regard to the recent reports of a drop in the unemployment rate,
he said Sri Lanka’s unemployment rate as shown in statistics does not
reflect the reality. The unemployment rate dropped in the recent past
mainly due to the increase in public sector jobs and government
expenditure. This is unsustainable as expansion should come from the
private sector which is not the case. Therefore, if the public sector is
constraining itself looking for macro economic stability unemployment is
due to rise.
The unemployment rate in the third quarter of last year increased to
five percent from 4.5 percent in the second quarter of 2015.According to
Labour Force Survey estimates of the Census and Statistics Department,
the number of unemployed people estimated during 3Q15 was 453,956.
Underemployment is an issue which is not properly reflected in the
According to statistics many are employed but their productivity or
contribution to the economy remains below standard, Prof. Abeyratne