The Investor Sentiment - Equity and investments forum for Sri Lankans



Join the forum, it's quick and easy

The Investor Sentiment - Equity and investments forum for Sri Lankans

The Investor Sentiment - Equity and investments forum for Sri Lankans

Would you like to react to this message? Create an account in a few clicks or log in to continue.
The Investor Sentiment - Equity and investments forum for Sri Lankans

The Lankan Investor Forum - A more respectable and reasonable place for members to discuss matters regarding the CSEThe Lankan Investor Forum - A more respectable and reasonable place for members to discuss matters regarding the CSE

Please send an email to contact.lankaninvestor@gmail.com if you face any technical difficulties when posting

Latest topics

» CCS.N0000 ( Ceylon Cold Stores)
How sustainable is our growth momentum? EmptyWed Mar 20, 2024 11:31 am by Hawk Eye

» Sri Lanka plans to allow tourists from August, no mandatory quarantine
How sustainable is our growth momentum? EmptyWed Sep 13, 2023 12:16 pm by lauryfriese

» When Will It Be Safe To Invest In The Stock Market Again?
How sustainable is our growth momentum? EmptyWed Apr 19, 2023 6:41 am by කිත්සිරි ද සිල්වා

» Dividend Announcements
How sustainable is our growth momentum? EmptyWed Apr 12, 2023 5:41 pm by කිත්සිරි ද සිල්වා

» MAINTENANCE NOTICE / නඩත්තු දැනුම්දීම
How sustainable is our growth momentum? EmptyThu Apr 06, 2023 3:18 pm by කිත්සිරි ද සිල්වා

» ඩොලර් මිලියනයක මුදල් සම්මානයක් සහ “ෆීල්ඩ්ස් පදක්කම” පිළිගැනීම ප්‍රතික්ෂේප කළ ගණිතඥයා
How sustainable is our growth momentum? EmptySun Apr 02, 2023 7:28 am by කිත්සිරි ද සිල්වා

» SEYB.N0000 (Seylan Bank PLC)
How sustainable is our growth momentum? EmptyThu Mar 30, 2023 9:25 am by yellow knife

» Here's what blind prophet Baba Vanga predicted for 2016 and beyond: It's not good
How sustainable is our growth momentum? EmptyThu Mar 30, 2023 9:25 am by HaeroMaero

» The Korean Way !
How sustainable is our growth momentum? EmptyWed Mar 29, 2023 7:09 am by කිත්සිරි ද සිල්වා

» In the Meantime Within Our Shores!
How sustainable is our growth momentum? EmptyMon Mar 27, 2023 5:51 pm by කිත්සිරි ද සිල්වා

» What is Known as Dementia?
How sustainable is our growth momentum? EmptyFri Mar 24, 2023 10:09 am by කිත්සිරි ද සිල්වා

» SRI LANKA TELECOM PLC (SLTL.N0000)
How sustainable is our growth momentum? EmptyMon Mar 20, 2023 5:18 pm by කිත්සිරි ද සිල්වා

» THE LANKA HOSPITALS CORPORATION PLC (LHCL.N0000)
How sustainable is our growth momentum? EmptyMon Mar 20, 2023 5:10 pm by කිත්සිරි ද සිල්වා

» Equinox ( වසන්ත විෂුවය ) !
How sustainable is our growth momentum? EmptyMon Mar 20, 2023 4:28 pm by කිත්සිරි ද සිල්වා

» COMB.N0000 (Commercial Bank of Ceylon PLC)
How sustainable is our growth momentum? EmptySun Mar 19, 2023 4:11 pm by කිත්සිරි ද සිල්වා

» REXP.N0000 (Richard Pieris Exports PLC)
How sustainable is our growth momentum? EmptySun Mar 19, 2023 4:02 pm by කිත්සිරි ද සිල්වා

» RICH.N0000 (Richard Pieris and Company PLC)
How sustainable is our growth momentum? EmptySun Mar 19, 2023 3:53 pm by කිත්සිරි ද සිල්වා

» Do You Have Computer Vision Syndrome?
How sustainable is our growth momentum? EmptySat Mar 18, 2023 7:36 am by කිත්සිරි ද සිල්වා

» LAXAPANA BATTERIES PLC (LITE.N0000)
How sustainable is our growth momentum? EmptyThu Mar 16, 2023 11:23 am by කිත්සිරි ද සිල්වා

» What a Bank Run ?
How sustainable is our growth momentum? EmptyWed Mar 15, 2023 5:33 pm by කිත්සිරි ද සිල්වා

» 104 Technical trading experiments by HUNTER
How sustainable is our growth momentum? EmptyWed Mar 15, 2023 4:27 pm by katesmith1304

» GLAS.N0000 (Piramal Glass Ceylon PLC)
How sustainable is our growth momentum? EmptyWed Mar 15, 2023 7:45 am by කිත්සිරි ද සිල්වා

» Cboe Volatility Index
How sustainable is our growth momentum? EmptyTue Mar 14, 2023 5:32 pm by කිත්සිරි ද සිල්වා

» AHPL.N0000
How sustainable is our growth momentum? EmptySun Mar 12, 2023 4:46 pm by කිත්සිරි ද සිල්වා

» TJL.N0000 (Tee Jey Lanka PLC.)
How sustainable is our growth momentum? EmptySun Mar 12, 2023 4:43 pm by කිත්සිරි ද සිල්වා

» CTBL.N0000 ( CEYLON TEA BROKERS PLC)
How sustainable is our growth momentum? EmptySun Mar 12, 2023 4:41 pm by කිත්සිරි ද සිල්වා

» COMMERCIAL DEVELOPMENT COMPANY PLC (COMD. N.0000))
How sustainable is our growth momentum? EmptyFri Mar 10, 2023 4:43 pm by yellow knife

» Bitcoin and Cryptocurrency
How sustainable is our growth momentum? EmptyFri Mar 10, 2023 1:47 pm by කිත්සිරි ද සිල්වා

» CSD.N0000 (Seylan Developments PLC)
How sustainable is our growth momentum? EmptyFri Mar 10, 2023 10:38 am by yellow knife

» PLC.N0000 (People's Leasing and Finance PLC)
How sustainable is our growth momentum? EmptyThu Mar 09, 2023 8:02 am by කිත්සිරි ද සිල්වා

» Bakery Products ?
How sustainable is our growth momentum? EmptyWed Mar 08, 2023 5:30 pm by කිත්සිරි ද සිල්වා

» NTB.N0000 (Nations Trust Bank PLC)
How sustainable is our growth momentum? EmptySun Mar 05, 2023 7:24 am by කිත්සිරි ද සිල්වා

» Going South
How sustainable is our growth momentum? EmptySat Mar 04, 2023 10:47 am by කිත්සිරි ද සිල්වා

» When Seagulls Follow the Trawler
How sustainable is our growth momentum? EmptyThu Mar 02, 2023 10:22 am by කිත්සිරි ද සිල්වා

» Re-activating
How sustainable is our growth momentum? EmptySat Feb 25, 2023 5:12 pm by කිත්සිරි ද සිල්වා

» අපි තමයි හොඳටම කරේ !
How sustainable is our growth momentum? EmptyTue Feb 14, 2023 3:54 pm by ruwan326

» මේ අර් බුධය කිසිසේත්ම මා විසින් නිර්මාණය කල එකක් නොවේ
How sustainable is our growth momentum? EmptyTue Jan 03, 2023 6:43 pm by ruwan326

» SAMP.N0000 (Sampath Bank PLC)
How sustainable is our growth momentum? EmptyWed Nov 30, 2022 8:24 am by කිත්සිරි ද සිල්වා

» APLA.N0000 (ACL Plastics PLC)
How sustainable is our growth momentum? EmptyFri Nov 18, 2022 7:49 am by කිත්සිරි ද සිල්වා

» AVOID FALLING INTO ALLURING WEEKEND FAMILY PACKAGES.
How sustainable is our growth momentum? EmptyWed Nov 16, 2022 9:28 pm by කිත්සිරි ද සිල්වා

» Banks, Finance & Insurance Sector Chart
How sustainable is our growth momentum? EmptyTue Nov 15, 2022 5:26 pm by කිත්සිරි ද සිල්වා

» VPEL.N0000 (Vallibel Power Erathna PLC)
How sustainable is our growth momentum? EmptySun Nov 13, 2022 12:15 pm by කිත්සිරි ද සිල්වා

» DEADLY COCKTAIL OF ISLAND MENTALITY AND PARANOID PERSONALITY DISORDER MIX.
How sustainable is our growth momentum? EmptyMon Nov 07, 2022 6:36 pm by කිත්සිරි ද සිල්වා

» WATA - Watawala
How sustainable is our growth momentum? EmptySat Nov 05, 2022 8:44 am by කිත්සිරි ද සිල්වා

» KFP.N0000(Keels Food Products PLC)
How sustainable is our growth momentum? EmptySat Nov 05, 2022 8:42 am by කිත්සිරි ද සිල්වා

» Capital Trust Broker in difficulty?
How sustainable is our growth momentum? EmptyFri Oct 21, 2022 5:25 pm by කිත්සිරි ද සිල්වා

» IS PIRATING INTELLECTUAL PROPERTY A BOON OR BANE?
How sustainable is our growth momentum? EmptyThu Oct 20, 2022 10:13 am by කිත්සිරි ද සිල්වා

» What Industry Would You Choose to Focus?
How sustainable is our growth momentum? EmptyTue Oct 11, 2022 6:39 pm by කිත්සිරි ද සිල්වා

» Should I Stick Around, or Should I Follow Others' Lead?
How sustainable is our growth momentum? EmptyTue Oct 11, 2022 9:07 am by කිත්සිරි ද සිල්වා

» DV-2024 Program: Online Registration
How sustainable is our growth momentum? EmptyThu Oct 06, 2022 11:26 am by කිත්සිරි ද සිල්වා

Disclaimer


Information posted in this forum are entirely of the respective members' personal views. The views posted on this open online forum of contributors do not constitute a recommendation buy or sell. The site nor the connected parties will be responsible for the posts posted on the forum and will take best possible action to remove any unlawful or inappropriate posts.
All rights to articles of value authored by members posted on the forum belong to the respective authors. Re-using without the consent of the authors is prohibited. Due credit with links to original source should be given when quoting content from the forum.
This is an educational portal and not one that gives recommendations. Please obtain investment advises from a Registered Investment Advisor through a stock broker

    How sustainable is our growth momentum?

    Sriranga
    Sriranga
    Veteran
    Veteran


    Posts : 3226
    Join date : 2014-02-23
    Location : Colombo

    How sustainable is our growth momentum? Empty How sustainable is our growth momentum?

    Post by Sriranga Sat Nov 29, 2014 7:33 pm

    by R.M.B Senanayake

    We have been having good growth rates over 8% in 2010 and 2011. But as the economy overheated the authorities took corrective action and the growth rate came down in 2012 to 6.3% but recovered to 7.3% in 2013. The Government is predicting 8% growth in the future as well.

    What drives this growth?

    It is government expenditure, private consumption which is 85% of Gross National Expenditure and the foreign remittances from our migrant workers abroad. Private household consumption has weakened as the real incomes of the people have been eroded by higher prices with static nominal incomes. There was a significant improvement in the Terms of Trade in 2013 from a negative of 1.5% in 2012 to a positive 6.7% in 2013, which improved the Current Account balance in the balance of payments from negative of $3,982 million in 2012 to a negative of $2,607 in 2013. The expected fall in world oil prices should help further. But as against this improvement the debt profile has worsened. The Debt Service ratio as a percentage of total current receipts has worsened from 13.6% in 2012 to 17.6% in 2013. But total external debt and foreign liabilities as a percentage of the GDP improved   from 62.5% to 59.2%. It is not clear whether this includes the private sector foreign debt. Of course this debt ratio is no guarantee that we can service the foreign debt since Russia defaulted on its foreign debt in 1998 when its debt ratio was 50%. Our Gross Foreign Reserves have increased but they still do not cover the short term foreign debt and short term foreign liabilities of the banking system.

    Investment

    It would be an over-simplification to regard economic development as a matter of capital accumulation although it does play a key role in development. Capital accumulation requires that people should first save from their income. Since their incomes are low people cannot save much. Yet countries such as India and China save about 30-50% of their GDP whereas we save only about 20% of our GDP excluding the remittances received from our migrant employees abroad which go largely for consumption. This is not adequate to maintain a high rate of economic growth. How much investment do we need to have high growth rates? Economists use the concept of a Capital/Output ratio to determine how much investment there should be in an economy to produce a given rate of economic growth. If it is 4.5 then it takes 4.5 units of capital to produce one unit of extra GDP. If the rate of economic growth is to be 8% then the capital investment in the economy must be 8 x 4.5=36%. But our private sector investment which was 23.7 % in 2012 fell to 22.7% in 2013. Government Investment has remained unchanged at 6.9%, but the total of 29.6% fell from 30.6% in 2012. This amount of investment is not adequate to maintain 8% growth.

    Dependence on Foreign Finance

    The Government investment was funded largely by foreign finance.  We must therefore obtain foreign funds to carry out even the present level of public investment. Foreign funds could be by way of equity in companies or as loans to the government and business. The former would mean direct foreign investment into the private sector. Its advantage is that the foreign investor will not repatriate his capital in the short run. He may have invested the money in land to put up factory buildings or to install machinery and equipment for production. Such direct foreign investments don’t require repayment like loan capital. Of course, the foreigner can sell his investment and repatriate his money plus profits. It is different with regard to foreign loans whether obtained by the government or the private sector. Whoever borrows in foreign currency must also repay such loans in foreign currency.

    If the borrower is in a business which is earning foreign exchange it can be reasonably sure of repaying the loans in foreign currency. But the government or the banks which have borrowed in foreign currency have to depend on the foreign currency earnings of the country to repay foreign loans in foreign currency. So the question of how prudent it is to borrow in foreign currency arises. Will there be sufficient Foreign Exchange Reserves to repay the foreign loans of the government and the banks? Foreign Exchange Reserves may be earned by way of exports or from remittances of migrant workers or they may be borrowed. But any borrowed foreign exchange reserves have to be repaid unlike earned foreign reserves.

    The Central Bank buys from the market the foreign exchange received by way of exports or foreign remittances and adds to its Official Foreign Reserve.   The adequacy of the Foreign Reserve will have an impact on the ability of the government to borrow in the future. So far the foreigners have lent money to the government on its Sovereign guarantee. But the government will need to borrow every year to repay the foreign borrowings falling due for repayment each year. It is a vulnerable situation for the country. Since the cross-over of Minister Maitripala Sirisena the stock market has fallen and may stabilize lower or continue to fall. If the foreign investors in the stock market sell out their shares and repatriate their funds there may be a drain on the Official Foreign Reserve.

    Dependent on foreign borrowing for ever more

    We cannot give up foreign borrowings for the foreseeable future. This is partly to repay debts falling due for repayment. But to continue public investment at the same level we also need to borrow afresh. This is because our domestic savings is inadequate to maintain the level of investment required to maintain the growth required. So whether we can have sustainable growth and repay debt depends on our capacity to borrow from foreigners into the future. How much foreign capital inflows can we expect? In developed countries such capital inflows are around 60-70% of GDP. Both China and India receive substantial amounts of direct foreign investment. But we have failed to attract foreign capital to any significant extent.

    Whatever foreign capital inflows we get are from foreign governments like China and from international lending institutions by way of loan capital. An important factor we are overlooking is the need for domestic savings. Economic growth at 4% over two years requires that a country withholds from personal consumption about a quarter of national output or GDP. Our personal consumption is 80%. so only 20% is available for investment. 12% of national output is needed to provide an adequate framework of public service. But the government must also spend about 3% of GDP on education (not the 6% demanded by the University Lecturers); 2% on public health; 3% on economic services such as agriculture and 4% on General Administration. All this costs another 12%.  These are as much necessary for development as investment to increase production. So the current 20% excess over consumption is not enough for our development demands on the budget. We need another 5% at least which requires a reduction of consumption by the same amount.

    The crucial question is what amount of net National Output may be set apart for investment to be made in the economy. It is based on the Incremental   Capital Output ratio as referred to above. There is also the question of the gestation period for an investment to produce results or returns. The gestation period may be one year or several years. Our infrastructure investments have so far failed to produce results.

    Investment yields also differ depending on the industries in which they are made. What is the practical maximum rate of investment? Economists refer to the absorptive capacity of investment which depends on the availability of local resources such labor supply, the level of technical and managerial skills in the economy.  It also depends on the efficiency of the Public Administration and the "technical mindedness" of the people. These capacities limit the amount of efficient investment physically possible. We are short of both technical engineering capacity as well as managerial capacity. In fact after 1956 we have lost the managerial capacity we had earlier. This loss is due to the interference of politicians in the operational activities of the government departments and organizations. We today lament the loss of good governance. But the conditions for good governance no longer exist. The Common Opposition candidate seems to have realized where the problem lies and wants to restore the 17th Amendment. Yes, unless that is done we cannot have good governance for unlimited power inevitably leads to abuse.

    How sustainable is our foreign funded growth rate?

    As the Economist magazine says "when economies are on an unsustainable course, international finance often acts as a fast forward button, pushing countries over the edge more quickly than politicians or investors expect" (Economist November 22nd page 11)

    It has been suggested many times by economists that governments need to have two separate budgets: a standard one that reflects annual running costs which is to be paid out of taxation and an investment budget where debt is paid back from longer term returns on infrastructure, education, industrial policy and so on. So projects are included in our budget without adequate consideration of their costs and returns, which are often to be evaluated by a Ministry of Planning. So projects are included for political expediency rather than for the cost/benefits.
    www.island.lk

      Current date/time is Sat Jun 22, 2024 7:49 am