Kanishke Mannakkara, Chairman of Capital Alliance Investments Limited (CAL), shares insights into the evolving economic recovery and emerging investment opportunities unprecedented in scale.
“We believe that the recent crisis has resulted in significant turbulence,” Mannakkara says in this interview. However, he adds, “We believe challenging times can lead to sound policies, and this unprecedented crisis presents an opportunity for Sri Lanka to change course. We have already seen some positive developments in this regard”.
Mannakkara begins by explaining the critical assumptions about the economic outlook and CAL’s strategy for the immediate future:
Over the past two years, we have witnessed how a shift towards more orthodox economic policies can bring about a sea change in the local macroeconomic environment. Building on this, we anticipate a period of moderate to high growth in the coming quarters. Our forecasts are more optimistic than those of the IMF or World Bank. We expect the economy to grow this year starting from the second quarter. Assuming the government continues the ongoing reforms, we believe Sri Lanka can sustain 3-5% economic growth over the next four to six years.
We anticipate that inflation will moderate quickly, possibly over the next three months, due to base effects and a slowdown in price rises. We also foresee a sharp decrease in interest rates, they have already dropped by 600 to 700 basis points since the start of the year, and we expect this trend to continue. In addition, there have been interesting structural changes in the balance of payments. We observe a recurring balance of payments surplus of $200 to $300 million per month, which is significant for the domestic economy. This surplus arises from reduced demand for imports and the resumption of tourism. While there has been a brain drain with negative implications, remittances from overseas Sri Lankans will likely increase, further contributing to the surplus. This could lead to stable exchange rates and give the government the cushion it needs to implement other, sometimes unpopular, reforms. Considering the opportunities that may arise from this situation, the IMF and other institutions have highlighted the importance of freer markets and state deregulation as crucial reforms. We support these measures and believe they will create numerous opportunities for businesses and investors, including our clients. As these reforms unfold, we anticipate that CAL, as an investment bank, will also benefit indirectly across multiple verticals.
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