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Govt. split could impact on foreign investment
While Sri Lanka’s business community reacted cautiously to Friday’s stunning split in Government ranks, economists, speaking mostly off the record, said political stability has become an issue for foreign investors while academia and chambers now have an opportunity to speak about the ‘real’ economic statistics.
“The people cannot be fooled by rosy statistics all the time; the facts speak for themselves and people are more intelligent to see through what some top officials always keep saying to please their political masters,” one economist said, referring to the ‘always positive’ economic data on GDP growth and inflation trotted out by the Central Bank and the Treasury.
On Friday, senior Minister Maithripala Sirisena quit the Government with Minister Rajitha Senaratne and more than 20 other UPFA MPs. He later announced that he would be the common opposition Presidential candidate, endorsed by the United National Party, and resulting in the return of former President Chandrika Kumaratunga to the political stage.
Tourism, the first industry to feel the impact of political instability, is however unlikely to get affected unless there is violence and unrest, according to a cross section of industry. “Most people do not know or care about what is happening in another country unless there is a threat to their security. But we need to keep an eye is how travel advisories will be worded,” one veteran hotelier said, noting however that Sri Lanka’s biggest source market, India and emerging market, China don’t issue travel advisories unlike western nations.
Sri Lanka is targetting 1.4 million tourists in 2015 with the November-February period being the peak season for visitors.
The developments rocked the Colombo stock market as rumours and speculation spread across Friday leading to panic selling and erratic decision-making. “Traders were blindsided,” one broker said, adding that investors were weighing options. “There are questions about President Mahinda Rajapaksa’s next move. What will he do, will he postpone the elections, was a common question,” he said.
The main All Share Index fell by 128.7 points and analysts predicted the week ahead would be ‘extremely’ volatile. While business leaders were cautious and unwilling to comment, economists said political stability – a key indicator for foreign investors – was fragile at the moment with the Government losing its 2/3rds control of Parliament. “Foreign investors have sniffed this in the past five years too and that is why FDI never exceeded 1.5 per cent,” an economist attached to local stock brokerage, said.
The crisis in Government was also reflected in the budget process where several factual errors, correction of figures and implementing proposals even before the Budget is passed, has been the hallmark of the 2015 Budget. (See Business Times) A university economist said the Government has been drifting towards handouts and subsidies possibly realising the undercurrents within the government ranks. “This resulted in a reversal of market-led growth towards Government expenditure-led growth undermining the private sector,” he said, adding that in his own estimation, “the split was the culmination of accumulated economic ills plus weak governance”.
He said the failure in attracting high levels of foreign investment was due to the lack of political freedom, good governance and a corruption-free society.