Sri Lanka FDI up in 2014 with state airline loan

COLOMBO (EconomyNext) – Sri Lanka’s foreign direct investment rose 17 percent from a year earlier to 1,685 million US dollars in 2014 helped by 175 million US dollars borrowed by a loss-making state-run firm, official data show.

Companies registered with the Board of Investment, the state investment promotion agency has received 782 million US dollars in the form of equity and loans from shareholders and related parties down from 887 million US dollars, a year earlier.

Another 162 million US dollars came to Colombo Stock Exchange listed firms and other private companies.

Pure borrowings from third parties are have taken a higher share in so-called ‘foreign direct investments’ according to current methods of classifying foreign investment.

Sri Lanka generally follows the International Monetary Fund’s, BPM 6 manual where, a firm with more than 10 percent foreign holdings could be considered to receive FDI.

"Direct investment is a category of cross-border investment associated with a resident in one economy having control or a significant degree of influence on the management of an enterprise that is resident in another economy," IMF’s BPM 06 manual says.

At one time people generally thought of FDI as shareholders equity and their own advances, though considering third party borrowings as foreign investment may be acceptable since the firms themselves are responsible for earning money to pay them back.

SriLankan Airlines, though a BOI company is a fully state owned firm and its borrowings are also guaranteed by the Treasury and the tax payers are responsible for paying it back.

World Bank data tables list Sri Lanka’s FDI in 2013 as 916 million US dollars, not 1,437 million US dollars,





There are also other economic classifications that do not make sense, analysts say.

Though firms like SriLankan or Ceylon Electricity Board are clearly a part of the state, they are considered ‘private’ for purposes of calculating domestic savings for example.

When Sri Lanka’s state enterprises make large losses, so-called ‘private savings’ go down and economists, bankers and others exhort people to increase savings. Even without SOE losses, Sri Lanka’s national savings are low due to excesstive state consumption which generates a deficit in the current account of the budget, dragging down domestic savings.


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