Country established in Asia as frontier market

Charumini de Silva

Sri Lanka is more established in Asia as a frontier market. However, it is important to be vigilant on the monetary movement of the country.

Without a proper concentration on the monetary policy the situation could be unsecure, Asianomics Limited Founder and Managing Director Dr Jim Walker said.

He was speaking at a presentation on Positioning Sri Lanka as a Frontier Market organized by the IIFL Ceylon recently.

“Sri Lanka has many quality companies, which practise good quality management as well. It is another plus point that the majority of these companies is focused on the domestic market,” Dr Walker said. The Asian frontier market consists of Cambodia, Vietnam, Bangladesh and Sri Lanka.

Pakistan is beyond frontier at present. Small and open emerging markets with limited monetary policy weapons are like a double-edged sword.

There is an increased interest from global fund managers on the frontier markets.

The Central Bank of a country plays a key role in any economy.

Balancing monetary and exchange rate policy in a global transition from the dollar standard or central banking is a challenge for the frontier markets.

“Sri Lanka could get a clear idea from Vietnam and Cambodia. The control of policies is vital to sustain in the market,” he said. Speaking to Daily News Business Central Bank Deputy Governor Dharma Dheerasinghe said monetary policies in an economy is essential especially to a country such as Sri Lanka, which is poised for high economic growth in years to come.

The presentation of Dr Jim Walker was excellent. Hence, there are points which could be taken as lessons for Sri Lanka to position the country as a frontier market.

“In our context it is a challenge for us to maintain the inflation rate at a lower rate. By the end of this year we expect the inflation rate to be around mid single digit; to assist the process of growth.

Inflation is a pressure, but we are confident that it will be maintained to achieve the expected growth rate of 8 to 8.5 percent this year,” the Deputy Governor said.

Having high inflation, unemployment, poverty rates and unstable exchange rates will not help the country to position as an emerging market thus, macroeconomic variables are needed for an economy.

Improving external sector performance is a key. Policies are focused on all these aspects and achieving a high economic growth is vital for an emerging economy such as Sri Lanka rather than for an advanced economy, he said.

The expansion of the capital market is necessary. The capital market is much broader than the equity market. Large scale companies entering into the capital market is appropriate to expand the market.

However, Sri Lanka still does not have a corporate bond market. To enhance the capital market, setting up a corporate bond market is critical.

“Having a debt market will help the corporate to raise debts and will also help to strengthen their balance sheets since the long-term debts are healthy for balance sheets.

In the years to come the listed companies in the Colombo Stock Exchange (CSE) will have the opportunity to gradually improve their skills enabling them to enter into international capital markets at a much stronger manner,” Dheerasinghe said.