Sri Lankan economy strong, inflation below expectations – Finnance Minister

Ravi Karunanayake

Sri Lanka’s economy should grow by 7 percent this year, up from 4.5 percent last year, while inflation will end the year far below market expectations, Finance Minister Ravi Karunanayake said on Monday.

Speaking exclusively on a Reuters Global Markets Forum, Karunanayake said Sri Lanka would be able quickly to refinance much of its foreign borrowing at lower cost after next week’s general election.

Predicting a “stupendous victory” for Prime Minister Ranil Wikremesinghe’s reformist government at the Aug. 17 poll, Karunanayake said he hoped to formalise an investor-friendly set of policies after the election.

Commenting on the growth outlook, he said: “I am a born optimist and I am of the opinion we would be able to maintain a rate of around 7 percent.” His comments referred to gross domestic product figures that have been rebased to 2010.

Inflation would be “far lower” than consensus expectations among analysts of 2.7-3.2 percent at the end of the year, he added.

Wikremesinghe’s government has sought to refinance loans taken out under former President Mahinda Rajapaksa to back major investment projects, many of them Chinese led.

Rajapaksa, ousted in a presidential election in January, is campaigning to return as prime minister in an electoral contest that pits his pro-China stance and against the non-aligned position taken by the current government.

“High debt is certainly a major concern but this is a necessary evil we had to inherit,” said Karunanayake, a senior figure in the minority government led by the United National Party that is targeting a parliamentary majority.

Despite opposing the expensive borrowing taken out under Rajapaksa, the government is determined that Sri Lanka is seen as a “financially disciplined nation”. Friendly states have come forward to help Sri Lanka refinance its debts, he said.

“Friendly world nations have accepted us with open arms and on many instances are willing to lend at 0.05 percent 1 percent, as opposed to the previous commercial borrowing which was averaging 2-9 percent,” the minister told the online event.