Page 54 - Management Digest Udyama Vol 1 Isuue 2

First Capital upgrades its GDP 2.7Mn tourists. Thereby, it can be identified that the tourism industry’s
forecasts amidst the stronger recovery would be a more gradual one, with tourism earnings expected
than anticipated 1 quarter of to rise to over USD 2.0Mn by 2022E and to near USD 3.5Mn by
st
2021: 2023E. Therefore, though the current account deficit increases this year
to USD 2.3Bn due to the expansion in the trade deficit, in 2022E with
SL recorded GDP growth of 4.3% supported by the recovery in tourism earnings, it is expected to narrow
during 1Q2021 well above our down to USD 1.5Bn.
target of 2.4%. However, it needs
to be noted that 3Q2021 may
have an adverse impact due to Chart: Tourism Earnings reaching nearly USD 5Bn by 2024E
the 4th wave while the previous
comparative quarter in 2020 was
an extremely strong quarter just
after the 1st lockdown. Thereby,
we upgrade GDP forecast for
2021E to 4.0% as against a
previous forecast of 3.2% while
upgrading 2022E to 4.3% as
against the previous forecast of
3.8%.

Trade Deficit to widen:

This research expects import
growth to accelerate faster than
export growth resulting in the
trade deficit widening during
2021E and 2022E. The significant
increase in fuel prices and
the accelerated infrastructure
development programs are the
primary reasons for the sizable
growth in imports despite the
ongoing import restrictions. The Limited Borrowing options: 400Mn and receipts from forex
trade deficit for 2021E may reach purchases and inflows due to
USD 7.7Bn from USD 6.0Bn in The high debt to GDP ratio ownership of International
2020 while further expanding to coupled with the current Covid-19 Sovereign Bonds by local banks
USD 9.3Bn by 2022E. environment where most amounting an estimate of USD
governments are going through 500Mn.
Current Account to be supported quantitative easing programs, it
by Tourism: has become an extremely difficult FDIs also a struggle:
environment for the Government
Despite the widening of the of Sri Lanka to borrow. The FDI options in Sri Lanka are
trade deficit, the comfort factor country is grappled with limited limited in the current pandemic
would be the recovery in tourism. funding options. Sri Lanka in environment falling to a lowest
However, tourist arrivals for August 2021 received a couple of level of USD 687Mn in 2020.
2021E are likely to be at a funding options that were targeted However, we believe 2021E
minimal level, with less than from IMF (Rapid funding facility FDI expectations are likely to be
65,000 tourists. The recovery is of USD 787Mn) and a SWAP lower and First Capital Research
likely to take place from next year from Bangladesh (USD 150Mn). estimates stands at USD 550Mn.
2022E, reaching 740,000 tourists In addition, there are plans to It is important to also note that Sri
and recovering at a rapid rate work on sale of underutilized Lanka’s unique Port City project
thereon with having forecast to assts amounting to USD 400Mn, is of interest to some of the global
reach 1.6Mn in 2023E and fully loan from China Development and local investors believing in
recovering above the peak level of Bank of USD 300Mn, potential a financial hub concept for Sri
2018, only by 2024E by reaching SWAPs from India of USD Lanka within the port city.

52 September 2021