ECONOMYNEXT – China has indicated that up to 2,500 companies looking to invest abroad could invest in Sri Lanka if the island can create an enabling environment, Central Bank Governor Indrajit Coomaraswamy said.
"They have said they can bring somewhere between 2,000 and 2,500 companies if we are able to absorb it," Coomaraswamy told a meeting of Sri Lanka Ceramics Council, an industry body.
"This is because their costs are going up in South China and they are shifting capital, and we are one of the countries they are willing to use as a base."
Coomaraswamy said Hambantota in the south of the island could be a city of 300,000 to 400,000 population city in the next 5-10 years, benefiting people in the Moneragala and Uva areas, which are among the least developed in the region as well as the Southern Province itself.
China had wanted 15,000 acres to set up industrial zones in Hambantota, and it wants to take control of a port and airport in the area built with Chinese debt that the government is unable to service.
Sri Lanka has been chosen as a location to build a ‘Silk Road Station’ on China’s ‘One Belt One Road’ initiative. Sri Lanka is located on a so-called ancient East-West Maritime Silk Route.
Sri Lanka had good government-to-government relations with capital surplus countries in the East like China, Japan, Korea and Singapore, which could be used to draw foreign direct investment, he said.
"What is different about these countries compared to some other Western countries is that in those countries if the government decides that it wants to assist a country, it is able get its companies to come and invest," Coomaraswamy said.
Sri Lanka cannot ‘sit back’ and expects the investments, but had to create an enabling environment by improving customs procedures, logistics and land, he said.
The government was also on the path to trim its budget deficit to 3.0 percent of gross domestic product by 2020, which will allow the economy to be stable.
Sri Lanka’s economy had become de-stablised due to excess demand generated by the budget, and fixing the budget was key to economy stability, low inflation and competitive exchange rates, Coomaraswamy said.
Other analysts have also warned that a budget deficit itself cannot de-stabilise the economy or generate high inflation and currency troubles as a budget will simply take resources from citizens and the state will spend.
Excess demand comes when the central bank ‘accommodates’ a budget deficit with central bank credit (printed money), which is a type of large scale counterfeiting that drives bank credit and import to unsustainable levels. (Colombo/Nov21/2016)