Entering IMF program key for Lanka’s revival – First Capital
Posted on March 15th, 2023

Courtesy The Daily News

First Capital says that they believe that attaining the required financial assurances and entering into an IMF program is key for Sri Lanka’s revival while a well planned reform program will ensure acceleration in the recovery trajectory.

At this juncture, Sri Lanka stands with a high level of hope with Sri Lanka so far moving on track of a possible RESURGENCE in the economy!”

The improvement in the tourist arrivals and worker remittances are key criteria that positively impact the Balance of Payments while potential debt inflows are expected from IMF and multilateral agencies. Further we also expect significant inflows from foreigners in both equity and debt capital markets while sale of state owned enterprises With the significant support we expect foreign reserves to reach USD 3.0Bn by Jun-23 and USD 3.5Bn by Dec -23 while Sri Lanka is likely to reach a comfortable level by end 2024E possibly surpassing USD 4.0Bn even after starting to settle foreign debt.

*With the IMF requirement to market price utilities, the Government implemented another electricity hike potentially resulting in a higher impact on the nonfood segment. However, in spite of the hike inflation may continue to die down.

We maintain our GDP growth expectations from our Sep.-22 Report (Mid-Year Outlook). Despite a gradual recovery from 2H2023 onwards, a positive GDP growth supported by private sector consumption is likely only by 4Q2023. Sri Lanka’s budget deficit is estimated to be at 11.0% of GDP which is comparatively at a significantly high level. However, the slow improvement in revenue is expected to reduce the budget deficit to 8.0% of GDP while the sale of assets and recovery in GDP may further reduce the deficit to 5.1% of GDP.

Though the Local Government elections have no bearing on the Parliament or the President, the results of the election may create policy uncertainty. There is a tendency that election results may be mixed with no party obtaining a clear majority. The ruling party obtaining a weaker voter base is sufficient to create uncertainty on the political front.

However, there is a high probability that the Government and the President may desire to govern for their full term instead of going for elections which may create some amount of stability, provided the Government can retain the relevant no. of MPs intact. Presidential election is next in line in just over 18 months (in Nov. 2024)”

Worker Remittances to cross USD 5Bn

First Capital correctly forecasted a total USD 3.8 billion from worker Remittances for 2022. The stability of the exchange rate and confidence in achieving the IMF Board resulted in stronger inflows in terms of worker remittances from December 2022 onwards where worker remittances crossed the USD 400Mn mark for the month.

Workers’ Remittances are expected to continue throughout 2023 year end potentially reaching USD 5.4 billion while it is estimated to reach USD 6.2 billion by 2024 year end. First Capital Research anticipates around 1.2 million tourism arrivals for 2023 end resulting in potential tourism earnings of USD 1.9Bn in 2023 end.

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