InsideTrack: Economy – IMF Program in place; What lies ahead?

Dr. Eteri Kvintradze, IMF representative for Sri Lanka and the Maldives affirmed the IMF’s continuous support of the Extended Fund Facility (EFF) despite delays in the disbursement of the third tranche of the loan. She expressed confidence that Sri Lanka seems to be on track to meeting fiscal and inflation targets for 2017, with government revenue collections continuing its steady positive trend. The IMF rep pointed to the delay in passing the revised Inland Revenue Act (IRA) as the key reason for holding back the tranche which was due in April 2017. However, she believes drafting of the IRA is in its final stages.

Dr. Kvintradze was speaking at a recent session of the InsideTrack Series, an exclusive investor forum featuring veterans of Sri Lanka’s business, policy-making and development landscape hosted by leading Stockbroking and Research firm Asia Securities. The session focused on the topic “IMF Program in place; What lies ahead?” was attended by the coutry’s leading fund managers and high net worth investors. Dr. Kvintradze further stated that the revised Act should create a greater level of transparency, making the Act more user friendly and easily understood. In her opinion, the new Act may also serve as a factor in boosting FDI as it is expected to more clearly and simply state the tax regime for investments. This would eliminate the current practice of complicated and ad hoc tax holidays and concessions, factor that clouds the investment environment with uncertainty and complexity.

Dr. Kvintradze noted that from the IMF’s point of view, fiscal balance and reserve position are the two main quantitative indicators monitored while corrective policy implementation is also closely monitored as a qualitative measure. She expressed caution regarding the weak level of reserves, which was also highlighted in the Equity Strategy report “Dig deep to unearth value” published by Asia Securities in January 2017.

Audience questions raised several queries around the delay of the tranche as well as the IMF’s expectations for Sri Lanka. Answering an audience question on her expectations of Sri Lanka’s ability to meet upcoming debt repayments which intensify from 2019 onwards, Dr. Kvintradze she remained confident that once reserves are strengthened and expected FDI flows materialize, Sri Lanka will stand ready to meet the obligations. She further stated that the Central Bank is already in the process of a liability management plan in light of the upcoming repayments. She confirmed that the IMF will continue its observations of the economy post EFF on a bi-annual basis and ensure to stand ready to assist Sri Lanka on policy guidance if required. During the discussion, Dr. Kvintradze also suggested that despite some technical calculations point to Sri Lanka’s maximum annual GDP growth capacity being around 5%, the way to achieve much higher growth similar to that of many “Asian Tiger” economies would be by creating an environment conducive for and promoting reativity, innovation and open entrepreneurship.

Ahead of Dr. Kvintradze’s Q&A session, Asia Securities Macroeconomist Lakshini Fernando presented a summary of Sri Lanka’s economic performance this year together with Asia Securities’ macroeconomic forecasts for the next 3-year timeframe.

About Asia Securities

Asia Securities is Sri Lanka’s leading independent equity brokerage firm and is the local market execution partner for several of the world’s leading investment banks and brokers. Its client base includes prominent foreign and domestic institutions, foreign and domestic high net worth individuals and family offices as well as domestic retail investors. The firm has a 26-year history of leading market share and ranks top 2 in exchange turnover for the fiscal year. Asia Securities is also the only broker ranking top 3 in terms of both exchange turnover and trade volume. Asia Securities’ Research is widely considered the best in the market by the most sophisticated investors.