India’s concerns over ECT understandable - Ajith Nivard Cabraal

State Minister of Money, Capital Markets and Public Enterprise Reforms Ajith Nivard Cabraal, in an interview with the Dailymirror, speaks about the present status of economy and steps for macroeconomic developments. Excerpts: 

Q:  It is challenging for the government this year because of the pandemic in main.  What are the specific measures being taken or planned to overcome these challenges on the economic front? 

The most important challenge which I see is to get the growth rate back. That has been reduced not only because of the pandemic, but because of the wrongful policies adopted earlier. During the last five years under the previous government, we had a contraction of the economy on a consistent basis. Every year, it was contracting. Now what we need is to have an immediate resurrection or revival of the economy. While getting the growth back, we have to make sure that our interest rates remain at low levels and the rupee becomes stable. The rupee was stable to a great extent in 2020 even though it was very, very challenging. The same challenge will be there for 2021 as well.  We believe that  it will be important  to get these matters into shape. I think the challenges will be better understood and dealt with by the economic managers.  

Q: There is a strain on the foreign exchange reserves.  How can we keep the rupee value stable then?
That is a challenge. We recognize it. We try to increase non-debt inflows as much as possible. We were giving additional two rupees for the remittances coming in.  Last year, we had US$ 7.1 billion in remittances. We want to increase it somehow to US$ 8 billion this year. That is an increase of a billion dollar.  Even in the case of tourism, we are gradually trying to open the country for tourists to get at least US$ 2 or 2.5 billion in the form of new income to the tourism sector.  Last year, it was almost zero.  If we can get US$ 2.5 billion this year, it will be a big jump. We have all been assured by the gem exporters that they could cooperate with the new tax holidays we are giving to increase their exports to US$ 1 billion this year. That means there will be additional US$ 700 million coming to the coffers.  Also, we are hoping to increase Foreign Direct Investment (FDI) up to US$ 2.5 billion. These are all designed to increase inflows into the country.  These are non-debt inflows into the country.  Earlier, we were thinking of debt inflows. Now, we are thinking of non-debt inflows into the country. It means Sri Lanka will be a lot more resilient and sustainable to deal with this situation. 

Q: But, we need a lot of foreign exchange to pay loan installments. That is a colossal amount. How can we overcome that problem despite the inflows?
That is taken care of. We are continuing with a bulk of other measures in this regard.  What I just told you is in addition to what we have been doing in the past.  Every year with the inflows we have had, we have been able to service at least US $ 4 to 5 billion. It won’t be different this year. This time, we are going to have additional inflows. That means we will be on a sustainable, comfortable position.  That is the most important thing. With the measures we are taking, we will be on track to deliver. We are not going to borrow in foreign currency unless it is to repay a loan. It means the debt component will not increase in the future. 

Q: You talked about inflows in terms of FDI. The government is talking about investment under the BOT (Built, Operate, Transfer) concept. Is it practically possible to attract such investments because all the economies have been hit by the pandemic, more or less?

We had three top investors coming to Sri Lanka to examine the situation. They come because they are confident that Sri Lanka, perhaps, could provide them with the opportunities to invest for the future.  All of them are having continual dialogues with us.  It means their interest is there. As you would have noticed they were all in the newspapers.  They are New Fortress Energy, Nathaniel Rothschild, Insaaf Mohideen from Silicon Valley. They all are serious, big time investors.  They came to examine ways and means of investment positions in Sri Lanka. There are so many who are continuing to do business in Sri Lanka. They are having a continuous dialogue with us because they are already here. In the near future, we will see a substantial number of new investments flowing in. 

Q: How confident are you that, these investments will become a reality?
We have to engage them continually. I have done it before. I have noticed it between 2006 and 2014. Even in the midst of the war, people invested in Sri Lankan treasury bills and bonds amounting up to US$ 3 billion.  We started up with the international sovereign bonds, and 400 of the topmost investors in the world had invested in our country. We had the Stock Exchange with all the top names in the world investing in equities in our country. It is not impossible to get them back. We need to have a consistent dialogue with them.  If we have it continuously, we will be able to attract them.

Q: In a recent interaction with the press, US Ambassador Alaina B. Teplitz said Sri Lanka should be even handed in seeking investors. Does it mean that Sri Lanka is not even handed at the moment?
We have consistent laws for everyone.  Investment laws are not designed for any particular person or country.  We don’t have any discrimination whatsoever.  Of course, some countries have more businessmen than the others. Quite a good number of Indian companies are here. Also, there is a number of US and European banks, European companies and establishments here. There are  plenty of examples to show a wide cross section of Indian, Chinese, Pakistani, US UK and Australian companies. So many countries have represented in our investment spectrum.  It shows that we are truly an investment destination, and with the new incentives we are providing, particularly in the Port City and the industrial zone in Hambantota, we are sure we will be able to attract a lot more investors. 

Q: It is important to improve our ranking in the Ease of Doing Business Index to attract investors. What are the measures being taken to improve it?
Unfortunately, during the last five years, our ranking dropped substantially. Before the last five years, as you know, we were rising sharply in our ranking.  But, that has unfortunately taken a beating. We need to put that right as well.  The last year was not the best year to deal with it.  From this year onwards, my ministry is also going to take several steps to improve the way Sri Lanka does business enabling people to sort out their contracts, to protect investors. We are planning to improve laws and all.  One of the key areas where we are improving is the development of courts with more Judges. We are investing heavily in that sector.  We are taking measures to improve every area where we are ranking very low. Then, Sri Lanka will be a good destination for people to do business.  Even the Stock Exchange is being improved. We expect to attract more and more capital into the country.  We are improving the Registrar of Companies and strengthening that.  A lot of people find it difficult to register proper deeds quickly. We will develop that area as well. 

We also try to support the development of local businesses.  We have the Board of Investment for foreign investors. But, local businessmen are also sent from pillar to post. I know how difficult for people to do businesses.  Those things need to be addressed.  We are trying to get one-stop-concept going everywhere. 

Q: Sri Lanka decided to renege from a commitment by the previous government to develop the East Container Terminal of Colombo Port (ECT) with India. India is perturbed over it. How would such kind of acts impact investor confidence in Sri Lanka?
Of course, that needs to be handled carefully.  We recognise that there is a concern arising in the minds of Indians, their government and enterprises. We need to engage them closely and explain to them our thinking and repair whatever the damage is done.  We have to admit that there has been some element of concern that has been expressed.  We should not hide behind the bushes on that. As a responsible nation, we need to speak to them further and address any misunderstanding that could arise. 

Q: There were media reports that India did not agree to give a further extension period to settle the US$ 400 million currency swap. Is that an act of retaliation by India over what happened on ECT?
That swap was taken for a specific period. That period has expired. There could have been an extension of that period if necessary.  We have to understand that India is also undergoing some economic challenges. Their economy is posting a negative growth because of COVID-19.  They also have a balance of payment which is quite challenging.  Their rupee is also having a bit of uphill task to value.  We have to understand this from the Indian point of view as well.  If India does think that it needs to have this swap back, it has every right to do so.  We must ensure that we honour our obligation  as quickly as possible. That is how things occur.  It shows our ability to honour any such request.

Q: But, how would it affect rupee stability here?
We have plans for that. The swap  was on the cards to be repaid.

Q: In your view, what is the most practical exchange value for rupee?
We will be able to stabilise it within the next few months around Rs.180 per US$. As the Minister, I can say that. If I were the governor, I wouldn’t have said it.  I have a little bit of freedom to do it now.  We should look at the macro fundamentals aligned in such a way that we have such a rate.  Once there is greater stability in time to come, we would attempt to have a more appreciative currency. That is the only way to make sure that Sri Lanka gets into a sustained, prolonged economic development plan. 

Q: We see a lot of businesses being impacted by import restrictions. What are the plans in store to ease these restrictions in measured steps?
It all depends on inflows as well. We have opened out the country now for tourism. We need to have more and more tourists coming back so that our foreign exchange can rise.  We have improved the ports, custom services and automation in those areas. We are happy with exports so far. We need to improve them further. We have taken steps to curtail unnecessary imports. All these are designed to improve our foreign exchange position.  We have also taken steps not to increase our foreign borrowings on net basis. The impact of these decisions will be felt in a period of time.  In the next years, the results of these decisions will be visible in a very, very clear fashion.