Treasury Bond liberalization

THE opening of the local Treasury Bond market to foreign investors by the Central Bank of Sri Lanka marks a qualitatively new phase in the development of Sri Lanka's capital market.

It is another major measure in the liberalization of the country's economy and a strong stimulant to the continued inflow of foreign investment. As indicated by the Central Bank, the move could lead to a further "broadening of the country's investor base".

Indicative in these developments is the State's keenness to keep the local economy in a state of robust health.

A huge influx of foreign investment per se may not be a pointer to dynamic and substantial development but moneys well invested lead to economic growth and the generation of more and more employment.

Given Sri Lanka's strong regulatory environment mediated by organisations such as the SEC and BoI, the possibility of profitable investment being made is great.

All this is good news for the State which is hoping to reach the 8 percent growth mark by year's end. However, the State would need to ensure that the inflow of funds results in a strengthening and expansion of the local production base.

For, money needs to "chase" goods and services for a robust perpetuation of the economic system, if not the possibility is great that we would be having inflation and an escalation of living costs.

So, the State's regulatory agencies have quite a job on their hands, guiding and directing the incoming moneys to profitable investment. In other words, the State has to continue on a course of steady fiscal discipline.

It goes without saying that the State's investment policy must be aimed at attracting to this country long-term, productive investment. We need to guard against "fly by night" investors who are drawn to Sri Lanka by the lure of short-term gain.

One of the chief means of achieving this is the effective containment of the conflict which is, of course, receiving the attention of the Government.

Besides these not so obvious implications of the incoming foreign investment, the State could be said to have acted very pragmatically by opening the Treasury Bond market to foreign investors. For, now there could be substantial funds for the financing of the State's budgetary operations. The possibility emerges of bridging the budget deficit more easily.

In the final analysis, the State should ensure that Sri Lankans of all economic backgrounds are commercially active. This could be facilitated by ensuring that greater economic equity prevails. It is a people with sufficient financial means who could keep the wheels of the economy humming.

Therefore, economic liberalization is hugely welcome as long as growth and equity reign in a balanced fashion.

To achieve these laudable objectives, State economic planning has to continue to occupy a position of importance.

Foreign direct investment has added to the robustness of our economy over the years, but our attitude should not be one of welcoming foreign investment or finances merely because such heavy foreign finances prove prestigious.

The regulatory environment should be continuously strong to ensure that these funds serve the national interest and requirements

We need also hardly say that the incoming foreign investment must be accountable. Besides being long-term investment, such moneys should contribute towards the empowerment of the local people.

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