Economy

Investor confidence in Lanka improving steadily - Minister Dr Sarath Amunugama

Sri Lanka continues to reap peace dividends after ending the three decade long war against terrorism, said Senior International Monetary Cooperation Minister Dr. Sarath Amunugama.

Speaking at the 2011 annual meeting of the World Bank Group International Monetary Fund in Washington, he said the economy grew by 8 percent in 2010 which is the first full financial year after conclusion of the war. There is strong evidence of continuation of the growth momentum in 2011 and beyond as the first half of 2011 also grew by 8 percent.

International investor confidence on Sri Lanka has been improving steadily. International rating agencies upgraded Sri Lanka’s sovereign ratings and revised outlook in a positive direction in the second consecutive year.

Despite some turbulence in international capital markets due to concerns on sovereign debt vulnerabilities in advanced countries, the Sri Lankan government was able to raise capital from international capital markets at historically low rates, reflecting renowned investor confidence on Sri Lanka due to improving macroeconomic fundamentals and political stability.

Relatively high fiscal deficits and double digit inflation were the main macroeconomic issues resulting in high levels of public debt, high interest rates and unstable currency was experienced by Sri Lanka in the past particularly during the period of the conflict. Prudent monetary and credible fiscal policies that were implemented by my government have helped bring down inflation to a manageable level and maintain single digit inflation since 2009.

The fiscal consolidation process has steadily brought down fiscal deficits from 10 percent of GDP in 2010 to below 7 percent in 2011. Our medium term macroeconomic programme targets further fiscal consolidation aiming at bringing down debt to GDP ratio below 60% by 2016 as compared to above 100 percent of GDP in 2004.

Improved macroeconomic management has helped stabilize both the interest rate and exchange rate which are conducive for higher investments. The healthy external sector performance was reflected in a less volatile exchange rate, while post conflict productivity gains helped maintain competitiveness.

The private sector is responding positively to emerging economic opportunities arising from permanent peace and greater integration of the Northern and Eastern provinces with the main stream economy of the country.

Private sector credit is currently expanding at around 30 percent reflecting renewed investor confidence compared to negative growth experienced in the recent past.

Such a rapid credit growth is not likely to create excessive demand in the near future as the country now has enhanced capacity to absorb excess demand supported by major infrastructure development programmes commenced under the leadership of President Mahinda Rajapaksa. During the last phase of the war our armed forces rescued 290,000 civilians used by the terrorists as a human shield. My government is implementing a comprehensive infrastructure development programme specially targeting the Eastern and Northern provinces where infrastructure facilities were lagging due to the war.

In the process of political reconciliation, the government has already conducted Local Government Elections in both conflict affected provinces and Provincial Elections in the Eastern province.

Provincial Elections for the Northern province will be held in the near future in order to establish an elected provincial administration work in August 2010 and is making a good progress. We continue to benefit substantially from assistance extended by multilateral and bilateral development partners and renewed confidence placed by international investment community in Sri Lanka.

“At the last Annual Meeting, we expressed our concern about too slow global recovery, particularly in advanced economies. Unfortunately, after one year there is more uncertainty and recovery is slower than expected in advanced countries in addition to growing turbulence in the euro area and the US,” he said.

“Sovereign debt crises are emerging in the euro area and its contagion effects could spill over to other regions as well. Sovereign risks have already spilled over to banks in the euro area and as a result some have lost access to private funding markets. This has raised risks of severe credit contraction with further negative consequences on recovery”.

The political impasse over fiscal consolidation in the US has increased the uncertainty of the pace of recovery, investor and consumer confidence without any positive signs such as reducing high level of unemployment and improvements in housing markets and household debt overhang. We are more concerned about the emerging crises than in the past as there is hardly any space for fiscal policy in advanced countries to support recovery in view of looming debt vulnerabilities. “Monetary policy has limited space with interest rates already at historical low levels in advanced countries and quantitative easing has failed to deliver desired results.

In this environment, emerging market countries have a very limited role in rebalancing acts - shifting from public to private demand and from external to domestic demand - unless advanced countries resort to coherent policy actions to reduce sovereign risks and prevent contagion while strengthening the resilience of their financial systems,” Dr Amunugama said.

Ex-BP boss quits Russian joint venture

Moscow, - Tony Hayward, the former head of BP who stepped down after the Gulf of Mexico oil spill catastrophe, is leaving his post on the board of its Russian joint venture TNK-BP, the company said Monday.

Hayward, who came under huge criticism for his role in the clean-up of the oil spill, took on the role at TNK-BP as a BP-appointed director in July 2010, when Robert Dudley took over as head of the British giant.

Hayward “informed the board that he would step down from the TNK-BP board of directors in order to pursue other opportunities,” TNK-BP said in a statement.

“The board accepted his resignation, while at the same time recognising the significant contribution Mr Hayward has made to TNK-BP’s development,” it added.

Hayward become notorious in the oil spill fiasco for declaring “I would like my life back” and then being spotted sailing off the south coast of England at the height of the crisis.

TNK-BP is owned 50 percent by BP and 50 percent by a group of Russian billionaires. Its operation of huge oil fields in Siberia makes it one of the British firm’s crown jewels and accounts for a quarter of its total production.

But it has also been hit by the bitter boardroom power struggle that followed BP’s failed bid to strike a lucrative Arctic oil project with Russia’s state held firm Rosneft, a deal that TNK-BP also coveted.

The BP-Rosneft deal collapsed when the Russian shareholders in TNK-BP — who include banker Mikhail Fridman — protested that it violated their own shareholder agreement with BP.

BP has since come under pressure from a multi-billion-dollar lawsuit filed by a minority investor in the TNK-BP Holding company and in the past month was hit by raids on its Moscow offices by bailiffs linked to the case.

The British firm’s troubles were also discussed during this month’s visit to Moscow by Prime Minister David Cameron, who raised the issue with both his Russian counterpart Vladimir Putin and President Dmitry Medvedev.

Notably, TNK-BP did not specify who would replace the BP appointee to the board.

“A replacement for Mr Hayward will be appointed to the board in due course, at which point the company will make a separate announcement,” the company statement said.

Fridman, currently serving as TNK-BP’s acting chief executive, said he was “immensely grateful to Tony Hayward ... (and) confident that his future endeavors will be successful and fulfilling.”

TNK-BP suffered a hugely damaging dispute in 2008 that saw Dudley, then its chief executive, accused of damaging the Russian shareholders’ interests and then effectively forced to leave Russia.

That dispute was patched up after Dudley’s departure and the shareholders agreed to appoint Maxim Barsky TNK-BP chief executive effective from January 1, 2011.

However amid rumours Barsky could be on his way out of the company and headed for a different assignment, he has still to take up his post, leaving Fridman leading TNK-BP in an acting capacity.

AFP