Sri Lanka Business Forecast Report Q1 2009

Publication Date	November 2008
Publisher	Business Monitor
Product Type	Report
Pages	57
ISBN Number	not applicable
Product Code	BMI03036

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Summary

Economy To Suffer, But Political Scene To Improve

No state is immune from the effect of the global economic downturn. With a civil war to contend with on top of the plunge in worldwide investor confidence, Sri Lanka will not escape the harder conditions as we move into 2009. Growth will slow, current account and fiscal deficits will widen, and the debt pile will rise. While we believe that the political situation is broadly improving, an ongoing insurgency by the Liberation Tigers of Tamil Eelam (LTTE) will not let up until the government makes some diplomatic concessions, in our view. That said, we do not see recession or financial crisis our worstcase scenarios for some emerging markets and the government's generous spending plans will keep the economy afloat in 2009.

The impact of the global crisis on Sri Lanka will be felt through a decline in exports of goods and services (notably textiles and tourism), and a slowdown in foreign direct investment (FDI). That said, the economy still has considerable momentum, and our forecasts (growth of 4.8% in 2009) are far from disastrous. Government spending will remain robust and, with the financial sector being fairly underdeveloped, the feedthrough of the financial crisis to the consumer will be far less drastic than in most markets. Indeed, a drop in inflation should actually boost spending power.

Politically, 2009 will remain somewhat dicey: our core scenario is for greater government authority over the north in 2009, but this will be accompanied by an ongoing insurgency campaign for at least the next year. With the general election due in 2010 (and potentially coming even sooner), the budget deficit looking worryingly wide, and pressure from India and the rest of the international community over alleged violations of the human rights of the Tamil minority, we do not see the government managing to curtail the Tigers through military means alone. This suggests that it will be forced to pursue a diplomatic resolution later in our forecast period.

The business environment will continue to be hindered by negative global and local developments. On the global front, portfolio investment outflows and risk aversion will harm companies' ability to get finance. Domestically, the instability associated with an LTTE insurgency will restrict confidence among both foreign and local investors, and could damage infrastructure as well. Corruption also remains a major problem, as does inflation. However, all of these are areas that should improve from 2010.

Content

Executive Summary
Economies Suffer But Political Scene To Improve
Chapter 1: Political Outlook
- Swot Analysis
- Bmi Political Risk Ratings
- Domestic Politics
- Insurgency Means Increased Security
- The Successful Military Operations Against The Ltte Should Shore Up The Governments Control Over The North And
- Its Popularity Domestically
List Of Tables
- Table: Sri Lanka Political Overview
- Foreign Politics
- International Tensions Could Have Economic Implications
- Sri Lankas Focus On Domestic Stability Could Cause Tensions With International Allies, At A Potentially High Economic Cost
- Chapter 2: Economic Outlook
  - Swot Analysis
  - Bmi Economic Risk Ratings
  - Economic Activity
  - Growth To Dip 2009, Rebound From 2010
  - Our LongTerm Optimism Towards The Sri Lankan Economy Remains In Place, But Sharply Deteriorating Global
  - Conditions Have Forced Us To Revise Down Our Growth Projections For 2009 And 2010
List Of Tables
- Table: Economic Activity
- Balance Of Payment
- Exports And Tourism To Feel The Pinch Of Global Crisis
- The Sri Lankan Current Account Deficit Will More Than Double In 2008, And Remain High Throughout Our Forecast
- Period, Posing A Risk To The Currency
List Of Tables
- Table: Balance Of Payments
- Monetary Policy
- Rupee Depreciation A Risk To Inflation Downtrend
- We Expect Inflation To Ease Significantly Over The Coming Year, Although Currency Depreciation Could Limit The
- Effect Of Falling Demand And Commodity Prices
List Of Tables
- Table: Monetary Policy
- Chapter 3: 10Year Forecast
  - The Sri Lanka Economy To 2018
  - The Futures Bright.Eventually
  - Assuming An Eventual Diplomatic Solution To The Civil War Can Be Reached, We See Strong Growth Over 20132018,
  - Allowing Sri Lanka To Reduce Poverty And Make Progress On Its Millennium Development Goals
List Of Tables
- Table: LongTerm Macroeconomic Forecasts
- Chapter 4: Special Report
  - Why The Us Can Remain World Superpower
  - Wealth Is Shifting East
  - The Uss Current Financial Woes Will Not Necessarily Undermine Its Position As A Global Superpower
List Of Tables
- Table: Geopolitical Power Index
- Chapter 5: Business Environment
  - Swot Analysis
  - Bmi Business Environment Risk Ratings
  - Business Environment Outlook
  - Institutions
List Of Tables
- Table: Bmi Legal Framework Ratings
- Infrastructure
- Market Orientation
List Of Tables
- Table: Middle East & Africa Annual Fdi Inflows
- Table: Bmi Trade Ratings
- Operational Risk
List Of Tables
- Table: Top Export Destinations
- Chapter 6: Bmi Global Assumptions
  - Global
List Of Tables
- Table: Global Assumptions
- United States
- Eurozone
- Japan
- China
- Commodities