Fitch says FDI inflow to Sri Lanka modest; urges to mobilise domestic savings

Fitch Ratings in a report yesterday said Sri Lanka’s strong economic growth is attracting foreign capital but foreign direct investment inflows remain modest compared with rated peers, leading to rising external indebtedness.

“This could be a source of vulnerability as the central banks of major advanced economies tighten global funding conditions,” the report noted.

Sri Lanka’s Central Bank said the country has received US $ 537 million worth Foreign Direct Investments (FDIs) in the first half of 2013.

Sri Lanka has set a FDI target of US $ 2 billion for 2013. In 2012, Sri Lanka received US $ 1.34 billion in FDIs, falling short from a target of US $ 1.5 billion.

Meanwhile, net inflows to the stock market and commercial banks in the first half stood at US $120.2 million and US $ 664.3 million respectively. Net inflows to the government securities market amounted to US $ 664.4 million.

“Such inflows display that the foreign investor confidence on Sri Lanka has remained unchanged despite the volatility caused by global markets reacting to the prospects of the tapering of quantitative easing by advanced economies,” the Central Bank said.

Meanwhile the Central Bank Governor, Ajith Nivard Cabraal said during a recent forum that even if the country missed the target, it wouldn’t matter much.

“Even if we miss it, it doesn’t matter. “We have had large FDIs. I know many people talk of FDIs not being sufficient. Yes, we are never satisfied. We don’t want to be satisfied ever.

The Fitch report further noted mobilising more domestic savings could help fund growth without increasing reliance on foreign capital. A smaller fiscal deficit would directly boost domestic savings, while lower and less volatile inflation could lead to higher private sector savings.