The International Monetary Fund said it raised Sri Lanka’s growth target and is “cautiously positive” on prospects as it reviews the island’s economy for the release of a second payment in its $2.6 billion aid package.
But while investors are interested, they have not yet committed, the figures show.
The Washington-based lender expects growth of 3.5 percent in 2009, up from a July estimate of 3 percent, as the $41 billion economy is showing signs of “bottoming out,” Brian Aitken, the IMF’s Mission Chief for Sri Lanka, said in the capital Colombo on September 22.
“We will assess developments in the next two weeks also and if all goes well will take a decision on seeking approval for the release of the second tranche,” Bloomberg report Aitken as saying.
The IMF provided Sri Lanka with $322 million when approving the 20-month package. Aitken said the second payment would likely be worth about $320 million.
In return for the IMF loan, Sri Lanka agreed to reduce its budget deficit to 5 percent of gross domestic product by 2011, from 7 percent this year, and maintain flexibility in the exchange rate in order to build foreign reserves to cover 3 1/2 months of imports and bolster the economy.
Aitken said Sri Lanka’s deficit target for this year was “ambitious” and would require constraints on expenditure while raising revenue with growth.
However, while investor interest in Sri Lanka has grown since May, actual investment has not.
Last year, Sri Lanka got $889 million in foreign direct investment, according to official figures. So far this year, the country has only gotten $400 million - well off pace of the government target of $2 billion by the end of 2010.
The pillars of Sri Lanka's $40 billion economy - garments, remittances from the Middle East, and tourism - have all been hit by the global downturn. Real estate has also faltered.
Sri Lanka's Minister of Investment Promotion, Navin Dissanayake, says Hyatt halted construction on a luxury hotel project in Colombo late last year. The hotel chain declined to comment.
"Economic investments that we thought would come are not, for the moment, coming because of the global financial crisis," Dissanayake told The Associated Press during a recent trip to Mumbai to rally investor interest.
The government is increasingly looking to Asia to underwrite an economic recovery.
"We feel as a small developing country that our investment will be more heavily coming from China and India. Their companies are aggressive and bullish on outbound investment. And we have good political relations," Dissanayake said.
He said he's gotten a "very positive" reception in Asia, but so far just one big project has kicked off since May: a $75 million luxury beach resort near the northwestern town of Kalpitiya, to be managed by Thailand's Six Senses hotel group.
Mohan Weragoda, chief executive of Inventures Pvt Ltd., an investment advisory firm based in Colombo, said he's working on foreign investment deals worth $250 million with several Asian companies he declined to name because negotiations are ongoing.
Last year his firm brought $40 million in foreign investment into Sri Lanka, he said.
"The country needs large projects and they wouldn't have come when the war was going on," he said.
Milan Zatakia, chief executive of Millennium AeroDynamics Pvt. Ltd., an airport design, operations and logistics firm based in Mumbai, said he hopes to help upgrade and expand Sri Lanka's airports, some of which are in former conflict areas.
Zatakia said he's been approached by a half dozen hedge funds, which he declined to name citing confidentiality agreements, who are interested in funding his expansion into Sri Lanka.
"There's a crying need for infrastructure in our part of the world and there's money available for it," he said.
