Top banks to improve Lanka’s report card

• HSBC, BOA Merrill Lynch and Royal Bank of Scotland appointed sovereign rating advisors to the government

Hong Kong and Shanghai Banking Corporation (HSBC), Bank of America Merrill Lynch, and the Royal Bank of Scotland have been appointed Sovereign Rating Advisors to the government until 2014 after an extensive evaluation process and one-on-one meetings with officials of 10 leading international banks, the Central Bank said in a statement last morning.

This follows the appointment of a Sovereign Rating Committee last month comprising public and private sector officials entrusted with the task of improving Sri Lanka’s rating on the World Bank’s annual Doing Business report which tracks the ease of conducting commercial transactions in over 180 countries.

The country’s ranking slipped to 105th from 183 economies in the latest report for 2010 from 97th a year ago.

"Of the ten indicators that make up the World Bank Doing Business ranking, we have scored well to start a business and to close a business. We have scored poorly on everything in between. This will have to change. We need to attract and retain good investments," Economic Development Minister Basil Rajapaksa told a recent conference of public officials.

The government also intends to do away with tax incentives given to foreign investors, provided procedures are streamlined and bureaucratic red tape is minimised.

With potential for phenomenal growth, some analysts believe Sri Lanka’s investment environment must be improved to such as extent that even investors would be willing to pay taxes to invest here and reap the benefits of economic growth.

Sri Lanka’s economy is expected to grow by 7 percent this year after recording a 3.5 percent growth rate in 2009. The government hopes growth would pick up to 8 percent by 2011, and per capita income would double to US$ 4,000 by 2016.

However, private sector credit would have to double from its existing level of Rs. 1,249.9 billion by 2016 if these targets are to be achieved.

Apart from improving the environment for private investments, the government said it would contain high budget deficits so as to allow private sector credit growth.

Treasury Secretary Dr. P. B. Jayasundera told a recent forum that the government was planning to adjust its fiscal policy in a bid to bringing down high budget deficits and create more space for private sector investments needed to take Sri Lanka’s economy beyond an 8 percent growth rate.

He said investments had to reach 35 to 40 percent of GDP for the economy to grow at 8 percent. At present, total investments amount to 25 to 27 percent of GDP. Public investments (capital investments by the government) amounts to around 6 percent, foreign investments 2 percent and domestic private sector investments 17 percent.

"We hope foreign investments would increase to 4 percent of GDP with many multinationals retaining their earnings in Sri Lanka now that the war is over. The government would maintain investments at 6 percent of GDP so the private sector would have to do the rest," he said.

"Public investments will not go beyond 7 percent of GDP. There is a reason for this. It is not because we need money from the International Monetary Authority (IMF) but because we want to enable the private sector take a greater role in the country’s economy.

"The government is planning fiscal adjustments because the private sector would need space to raise finances to fund large scale projects. For example blue chip companies would want to make investments in the tourism sector and raise funds," Dr. Jayasundera said.

source - www.island.lk