
SL has set a “powerful platform” for sustainable economic growth for next 3-5 years: Ruchir Desai
Last Updated on January 21, 2025 6:24 am
Sri Lanka has now set a powerful platform for sustainable economic growth not only in 2025 but also with a three-to-five-year view, a top fund manager said.
The current year is expected to be a good one for earnings growth, on the back of the ongoing economic momentum and rebound in tourism.
“The ongoing success of the International Monetary Fund (IMF) programme and its related policy reforms, sovereign credit rating upgrades, which took place in December 2024, add to investor confidence and should attract more foreign investors.
Most importantly, a return of political strength after a prolonged period of instability will be a driving force for the economy and investor confidence,” said AFC Asia Frontier Fund Co-Fund Manager Ruchir Desai.
For the AFC Asia Frontier Fund, Sri Lanka has ticked all the right boxes. It acknowledges that economic recovery is well underway, with GDP growth in the first nine months of 2024 coming in much better than expected at 5.2 percent. This is backed by a strong rebound in tourism, worker remittance and domestic consumption.
The IMF passed the third review of Sri Lanka’s loan programme, bringing the country’s international sovereign bond restructuring to a close.
Desai acknowledged that the economic stability is now backed by political support in the form of President Anura Dissanayake’s coalition winning a super majority in the November 2024 parliamentary elections.
“This combination of economic and political positive momentum has been missing in Sri Lanka for the past five years and will provide a very strong platform for sustained momentum in the economy,” he said in his update.
“With a strong government in place, there is a high likelihood that policymaking will be more stable, while the reforms linked to the IMF programme will continue,” he said.
Desai went on to note that with all the important positive factors in the form of economics and politics coming together for Sri Lanka, the Colombo All Share Index has the potential to stage a strong rally in 2025, as valuation multiples rerate to their historical average and net profits for listed companies gather pace on the back of a growing economy and lower interest rates.
“We also expect infrastructure spending and the investment spending cycle to restart after a long lull,” he said.
Desai shared that the AFC Asia Frontier Fund is invested in large and well-established companies in the banking, consumer and construction-related industries, which are very well positioned to leverage their strong industry position to capture the ongoing economic growth.
The fund had been increasing its weight to Sri Lanka in 2023 and 2024, in anticipation of the ongoing economic and earnings recovery.
“We increased it even further in the fourth quarter of 2024, post the presidential and parliamentary elections when it became completely evident that the country would have the much-needed and significant political stability. Sri Lanka is now the second largest country weight in the AFC Asia Frontier Fund, just behind Pakistan,” he noted.