REUTERS: The Sri Lankan economy is expected to expand 7.2 percent this year despite a sluggish increase in the first three months of 2015, on higher growth in tourism, banking and garment manufacturing, Finance Minister Ravi Karunanayake said yesterday.

Karunanayake’s forecast is higher than what economists expect and is above the Central Bank’s estimate of 7 percent growth for the year.

The Central Bank said in April it expected growth to slow from last year’s 7.4 percent year-on-year because of a slowdown in government-led construction and subdued private investment in the first quarter amid corruption probes on several Chinese-financed infrastructure projects.

“We expect a 7.2 percent growth this year. Despite the slow construction sector, tourism, garment manufacturing and banking are growing faster,” Karunanayake told Reuters. “There are a lot of foreign direct investments expected this year.”

The US $ 75 billion economy grew at an annual 6.4 percent in the first quarter of this year, the same pace it recorded in the last three months of 2014 and hovering at its slowest pace since the first quarter of 2013, the statistics office said on Monday.

Growth in the construction sector slowed to 4.1 percent in the first quarter, less than a third of the annual average growth rate of 12.8 percent in the last eight years, the government data showed.

Krystal Tan, Asia Economist at Capital Economics said in a note to investors that the country’s growth would pick up in the coming quarters due to rising private sector credit after a rate cut by the Central Bank in April, improving economic prospects in the U.S. - a key export destination - and big wage hikes for state sector employees.

Sluggish growth in infrastructure, political uncertainty ahead of a parliamentary election, and a retrospective tax would however weigh on growth, Tan said.
“Overall, we doubt Sri Lanka’s economy will be able to match its strong showing of recent years,” Tan said while cutting the 2015 growth estimate to 6.5 percent from 7 percent, well below the average 7.4 percent growth of the past five years.

Prithviraj Srinivas, an economist with Global Research at HSBC, said growth was likely to come under pressure since an atmosphere of policy uncertainty persists, although the Central Bank had some ammunition left due to lower inflation.
 

Sri Lanka seeks to borrow US $ 500mn to pay some project costs
 

REUTERS: Sri Lanka called on banks and investment houses yesterday to propose terms for a foreign currency term financing facility as it seeks to raise up to US $ 500 million to meet the costs of some externally-funded projects stated in its 2015 budget. This comes after the government raised nearly US $ 1 billion via a 10-year sovereign and development bond on May 28.

The Economic Affairs Ministry said in a statement the foreign currency term financing facility (FTFF) was likely to be at a fixed or floating rate “linked to U.S. dollar six-month LIBOR with a maturity period not less than three years”.

Finance Minister Ravi Karunanayake said last week some international banks have offered unsolicited proposals to lend at 325-375 basis points and the country could collect about US $ 1 billion soon.

Karunanayake has said the borrowing of the new government, which came into power after a January 8 election, has been on the rise because it is compelled to pay off heavy debts built up by the previous administration, mainly for infrastructure projects.

The new administration has slowed many infrastructure projects mainly financed by China amid allegations of corruption and over-estimation of projects by the previous administration headed by Mahinda Rajapaksa, who has rejected such allegations.