Infrastructure building seen main growth driver in Sri Lanka

 ECONOMYNEXT – Infrastructure construction, funded mainly by foreign investors, is likely to be the main growth driver in Sri Lanka and will compensate for an anticipated fall in consumption, a new report said.

Capital Alliance Securities said in its outlook for 2017 that Sri Lanka’s economic growth for 2017 is expected to fall to 3.9%, from an estimated 5% in 2016, excluding foreign direct investment.

“The main growth driver is likely to be infrastructure construction, funded primarily by foreign entities,” it said.

The outlook, based on the assumption that 2016 budget proposals will get implemented, said it expects a more market oriented level for the rupee in 2017, primarily due to pressure on reserves.

“As a result, the rupee may fall to 163 (-8.6% YoY) against the US dollar by December 2017.”

The fall in the rupee will be exacerbated by the implementation of higher Value Added Tax, resulting in an 8.4% increase in inflation by year end, the report said.

Due to an increase in indirect taxes and a 4% rupee depreciation towards the end of 2016, the brokerage said it expects private sector credit growth to fall to 11.2% in 2017 from 19.5% in 2016.

The 2017 budget deficit is likely to be between 7.9-9.0% of GDP.

Capital Alliance Securities said it expects higher thermal oil use for power generation in 2017, which may result in the total oil bill increasing by USD 230 million.

The brokerage said its unmanaged calls have provided a 3-year annualized return of about 20%, while its recommended portfolios provided about a 50% return to clients using its service in 2016.





“A slowdown in consumption this year may result in the ASPI ranging between 6,136-6,678,” it said.

Capital Alliance Securities said it remains bullish on selected listed equities and expects its recommended portfolio to provide a 45%+ return.
(COLOMBO, Jan 30, 2016)

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