REVISIT YOUR CAPITAL AGENDA WITH EY STRATEGY AND TRANSACTIONS

Q: How do you view the events leading up to the economic crisis and the impact of the International Monetary Fund programme?

A: Sri Lanka’s economy underwent turbulence in 2022 on account of external shocks and the effects of the development strategy pursued by the country over the years. This resulted in a twin deficit economy characterised by both current account and budget deficits.

Furthermore, borrowings to bridge the deficit led to an accumulation of external debt. Meanwhile, debt repayments, external shocks and Sri Lanka’s exchange policy depleted reserves.

The context warranted securing a sizeable amount of foreign financing in the immediate future and thereafter.

Entering the IMF programme is expected to provide Sri Lanka with access to additional financing and boost the confidence of potential foreign investors, including multilateral and bilateral counterparts.

This coupled with the implementation of a macroeconomic policy package in keeping with the IMF agenda is expected to stabilise the overall macro economy, which will further promote foreign direct investment (FDI).

However, the current reforms are not without weaknesses. The sustainability of certain policy measures – for instance, the current tax strategy – may have to be strategically realigned as we progress.

It should be noted that implementing these reforms requires both political commitment and capital. And in the past, Sri Lanka has unfortunately failed to deliver on these accounts.

There is beauty in the process of falling for it allows us to rebuild ourselves. How deep Sri Lanka fell made it clear that the country needs new strong policies.

Q: In your opinion, what has been the impact of the current policy measures on the investment climate of Sri Lanka?

A: Sri Lanka is already showing some speculative signs of improvement with inflation moderating, the exchange rate stabilising and the Central Bank of Sri Lanka (CBSL) rebuilding reserve buffers.

Several favourable policies currently in the works are expected to further support the economy in reaching its full capacity over the medium term. The gradual easing of monetary policy is anticipated to reduce its contractionary impact on the economy by stimulating investment, increasing consumer spending and ultimately driving up aggregate demand.

CBSL commenced its relaxation policy in mid-2023 and as such, the impact is yet to be seen.

Moreover, the implementation of important structural reforms and the anticipated increased efficiency of the public sector, driven by the fiscal institutional reforms currently in progress, are also expected to support economic growth over the medium term.

Furthermore, the domestic debt optimisation framework (DDO) and new CBSL Act are movements that are supportive of reducing the default or country risk premium for Sri Lanka and easing rates.

This will have a domino effect on the capital agenda of sectors such as banking and finance, tourism, retail and consumer goods, and manufacturing.

Q: How does EY facilitate clients in unlocking opportunities in the prevailing investment climate?

A: We believe the current investment climate has prompted our clients to revisit their capital agenda.

EY has a proprietary capital agenda framework that offers deep insights to answer questions such as ‘how do I know I have the right asset mix’; ‘how do I know I’m funding the right projects’; ‘how do I predict my future financial performance’; ‘how can my investment and tax strategy help future proof my business’; ‘how do I best fund my capital investment decisions’; ‘and how can I increase investor confidence?’

Our firm also offers access to our powerful alliances and broader global ecosystem. We have focussed teams across 150 countries catering to a diversified portfolio of industries, ready

to complement existing skill sets, and collaborate with boards, business leaders and teams to help realise our clients’ organisational goals.

EY has more than 30,000 Strategy and Transactions focussed professionals globally. Beyond that, EY’s 365,000-plus professionals worldwide can pull in a broader range of capabilities to help foster longer term value and help build a better working world.

This includes specialist capabilities such as mergers and acquisitions (M&As), tax and cybersecurity, to cover all the broader business, operational and financial implications.

The EY culture of teaming helps support clients on their entire journey – from strategy that works in the real world through to transformations that realise value and get the job done.

– Compiled by Yamini Sequeira
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