Is Sri Lanka an Emerging Economy for Investors to Watch?

Few know much about Sri Lanka beyond its prominent location on the map off the southeast coast of India. However, it may be time for more investors to take notice of this small, developing nation. In the first quarter of 2015, the Sri Lankan economy grew by 6.4 percent.  This matches Q4 2014.  Sector by sector, the economy has a few notable standouts, as well, with manufacturing up 6.5 percent and services up by 7.5 percent.

Few know much about Sri Lanka beyond its prominent location on the map off the southeast coast of India. However, it may be time for more investors to take notice of this small, developing nation. In the first quarter of 2015, the Sri Lankan economy grew by 6.4 percent.  This matches Q4 2014.  Sector by sector, the economy has a few notable standouts, as well, with manufacturing up 6.5 percent and services up by 7.5 percent. While agriculture has grown become flat in recent years, the overall picture for the Sri Lankan economy appears quite positive and should be good news for investors.

On the other hand, there has been some recent concern about possible political instability and corruption. A number of large construction projects abruptly halted in early 2015 amid concerns about corruption. Similarly, a turnover of power that occurred in January has left many concerned about political stability.

President Maithripala Sirisena ousted long-time president Mahinda Rajapaksa in general elections in January. The newly elected president has not had the support of a majority party in parliament, making it difficult for him to pass many of the reforms that formed the basis of his electoral platform. Moreover, Prime Minister Ranil Wickremesinghe faces a no confidence vote, which, if successful, would mean another round of immediate legislative elections.

This political uncertainty has taken its toll, making both outside and domestic investors nervous about the nation’s future stability. Nevertheless, in a recent interview with CNBC, Sri Lankan Finance Minister Ravi Karunanayake offered his take on the no confidence vote. When asked whether Karunanayake considered the no confidence vote an indication that the population was tired of the stagnant economy, he replied, “Considering the fact that the economy we inherited is public debt driven, corrupted and without a focus, it is the incumbent president and the prime minister who have given Sri Lanka a new lease of life.”

Many political observers believe the former president may be behind the no confidence vote. As a result, many believe the vote will fail allowing the new government to get back to the business of improving economic growth. With a nominal GDP of just $80.591 billion in 2013, Sri Lanka is still a relatively tiny economy with a lot of room to grow. Given its close proximity to India, another rapidly expanding economy (albeit, one that is much more developed), Sri Lanka will likely experience an overflow effect and continue to grow proportionately.