Sri Lanka Business Forecast Report Q4 2009

Publication Date	July 2009
Publisher	Business Monitor
Product Type	Report
Pages	52
ISBN Number	not applicable
Product Code	BMI00293

Buy this product or for assistance call +44 20 7060 7474

PDF £250.00$416 | €280

FAX Order above formats by FAX

Summary

Economy To Suffer Sharp Slowdown, Despite Military Victory Despite the army's emphatic victory over the Tamil Tigers in May 2009, Sri Lanka faces a difficult period ahead on both the political and economic fronts. Growth will come in far below trend in 2009, the current account and fiscal deficits will be sustained at high levels, and the public debt burden will continue to grow. While the end of the military campaign has improved the country's political risk profile, achieving a durable peace will be a formidable task. That said, we expect the economy to rebound strongly from 2011, driven by resurgent global growth and renewed investor confidence.

While our long-term outlook for the Sri Lankan economy remains broadly positive, the rapid deterioration of global conditions in H208 and H109 has already taken its toll. The impact of the slowdown has been apparent across all major areas of the economy, with the export and hospitality sectors among the hardest hit. Although government spending will provide a modest cushion, increases in public expenditure have been disproportionately weighted towards day-to-day costs rather than long-term capital investment. As a result of these challenges, we foresee growth coming at a multi-year low of 2.2% in 2009, before picking up to reach 4.3% in 2010.

In the wake of the military's long-running campaign against the Tamil Tigers, the government will face a number of challenges on the political front, the first of which is resettling an estimated 300,000 people displaced by war. Over the medium term, President Mahinda Rajapaksa and his allies will also come under pressure to deliver the promised 'political solution' to the Tamils' grievances, which had been on hold while the army concluded its operations. In anticipation of these challenges, the president will probably try to strengthen his mandate via fresh elections in early 2010.

Despite the government's military victory over the rebels, which should ease security concerns, the underlying issues affecting Sri Lanka's business environment are mostly unchanged. These problems include corruption in the judiciary (and particularly in the contract-bidding process) as well as inadequate physical infrastructure. Although the government is pressing ahead with its infrastructure programme, it relies on increasingly scarce foreign funding to do so. More broadly, the business environment is unlikely to see a significant improvement under President Mahinda Rajapaksa, who has been pursuing a more nationalistic and less business-friendly economic policy than his predecessor.

Content

Executive Summary
Economy To Suffer Sharp Slowdown, Despite Military Victory
Chapter 1: Political Outlook
- SWOT Analysis
- BMI Political Risk Ratings
- Domestic Politics
- Rajapaksa To Seek Re-Election Before Political Settlement
- Having scored a decisive military victory over the Liberation Tigers of Tamil Eelam (LTTE), we believe President
- Mahinda Rajapaksa will now look to reinforce his political mandate with fresh elections in early 2010
- Table: Political Overview
Chapter 2: Economic Outlook
- SWOT Analysis
- BMI Economic Risk Ratings
- Economic Activity
- Despite Post-war Optimism, 2009 Forecast Still In Play
- Despite the characteristic optimism of local policy-makers, who recently revised their 2009 growth forecast up to
- 3.5-4.5%, we continue to believe that the Sri Lankan economy will grow by just 2.2% in 2009
- TABLE: ECONOMIC ACTIVITY
- Monetary Policy
- Easing Continues Apace, But Prices May Have Bottomed
- While the Central Bank of Sri Lanka's decision to cut its main policy rates by 50bps was in line with our expectations,
- we are concerned that its easing cycle may end prematurely as price pressures build in H209
- TABLE: MONETARY POLICY
- Balance Of Payments
- IMF Funds Still Required, Despite Improved Trade Position
- While we recognise that Sri Lanka's trade position has been much improved over the past several months, we are not
- convinced that the overall balance-of-payments position has strengthened enough to negate the need for a proposed
- standby arrangement from the IMF, as the CBSL has suggested
- TABLE: CURRENT ACCOUNT
- Foreign Economic Policy
- Commerce To Influence Sino-Sri Lankan Relations
- In keeping with a trend of growing Chinese influence in Sri Lanka, local officials confirmed in early July that Beijing
- would be granted an exclusive special economic zone (SEZ), just north of Colombo
Chapter 3: 10-Year Forecast
- The Sri Lankan Economy To 2018
- After The Downturn, Respectable Recovery
- Assuming the government manages to broker a workable peace agreement with the Liberation Tigers of Tamil Eelam
- (LTTE, Tamil Tigers), we would expect to see robust rates of growth from 2011, allowing Sri Lanka to diversify its economy,
- and increase its appeal to foreign investors
- TABLE: SRI LANKA LONG-TERM MACROECONOMIC FORECASTS
Chapter 4: Special Report
- The Fate Of ???Chindia'
- Overview
- Although China and India will continue to grow during the global recession of 2009-2010, they are not immune to the
- downturn, and face a number of risks in the near term
- China And India SWOT
Chapter 5: Business Environment
- SWOT Analysis
- BMI Business Environment Risk Ratings
- Business Environment Outlook
- TABLE: BMI BUSINESS AND OPERATIONAL RISK RATINGS
- Institutions
- TABLE: BMI LEGAL FRAMEWORK RATINGS
- Infrastructure
- TABLE: LABOUR FORCE QUALITY
- Market Orientation
- TABLE: ASIA, FDI ANNUAL INFLOWS
- TABLE: BMI TRADE RATINGS
- TABLE: TOP EXPORT DESTINATIONS
- Operational Risk
Chapter 6: BMI Global Assumptions
- Global Assumptions
- TABLE: GLOBAL ASSUMPTIONS
- TABLE: GLOBAL & REGIONAL REAL GDP GROWTH
- TABLE: DEVELOPED MARKET EXCHANGE RATES
- TABLE: EMERGING MARKET EXCHANGE RATES