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කොළඔ කොටස් වෙළඳපොළේ වංශකථාව
කොළඔ කොටස් වෙළඳපොළේ ලැයිස්තුගත සමාගම් කොටස් ගැන තොරතුරු¸විශ්ලේෂණ¸සාකච්ඡා¸ කටකතා¸රසකතා යන සියල්ල අපේම සිංහලෙන් කතා කළ හැකි ‘කතා මණ්ඩපය’

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FINANCIAL CHRONICLE™ » FINANCIAL CHRONICLE™ » Real reason for presnt level of stock market in Sri Lanka

Real reason for presnt level of stock market in Sri Lanka

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D.G.Dayaratne


Senior Vice President - Equity Analytics
Senior Vice President - Equity Analytics
We give various hypothetical reasons for present level of SL Stock market

I think real reasons given in Dr  Sadaratne's Analysis in Sunday Times to day


On an unsustainable economic growth path View(s): 44
Real reason for presnt level of stock market in Sri Lanka Econ-Logo Despite the high economic growth achieved in the last few years, it is becoming increasingly evident that the growth strategy adopted is unsustainable. Economic growth is declining and fundamental macroeconomic problems are emerging. The declining trend in growth from 8.4 per cent in 2010 to 6.4 per cent last year raises serious doubts about the sustainability of this high economic growth trajectory as exports have declined, trade deficits have been massive at over US$ 9 billion, government revenue is declining as a percentage of GDP, the public debt is rising and foreign debt obligations are increasing.
Real reason for presnt level of stock market in Sri Lanka Ecocartoon Economic performance
The economy grew at a rapid pace in the last three years. It is expected to grow by 6.5 to 7.5 per cent this year: the latter being the estimate of the Central Bank, while the lower estimate is of the IMF. However the declining growth trend accompanied by fundamental macroeconomic problems raises doubts about the sustainability of the growth momentum.Fiscal and trade deficits are high. Exports have declined and imports are nearly twice as much as exports. Consequently trade deficits have been massive at over US$ 9 billion.
Government revenue is declining as a percentage of GDP and fiscal deficits continue to be high. Growth is leading to fundamental economic problems that would retard economic development.
Sources of growth
The paradox of growth leading to fundamental problems can be explained by analysing the nature and sources of growth, the types of investment and the sources of financing the investment. Economic growth has been achieved mainly by increases in construction, increases in some services such as expenditure on government salaries, trade related services and communications. It is these increases that have boosted growth rather than increases in agriculture and manufacturing. Furthermore this growth has been financed by debt, both local and foreign that is now a severe strain on the country’s capacity to invest.
Construction not industry
In the threefold classification of national accounts, construction is a component of industrial production. Increases in construction have brought about a growth in industry. Much of this increased construction has been government construction, though there have also been private construction of housing, hotels and business houses.
The huge investments in construction of roads and bridges, an international airport, a harbour and the development of economic infrastructure, have a long gestation period and does not add to increases in output of goods and services in the short term. At best, such returns are indirect and come after decades. They do not increase production of tradable goods right away that would help to service foreign debt both by increasing exports or increasing efficient import substitution. Furthermore, returns on some high cost investments are uncertain at present.
Investment in large infrastructure projects with low returns, long gestation periods and high import expenditure resulted in an increase in imports of construction materials and machinery that were partly responsible for large trade deficits in recent years.
Foreign debt
The Government has borrowed heavily from foreign sources to finance such investments. Foreign debt has risen sharply from US$ 15.1 billion in 2008 to US$ 28.4 billion at the end of 2012. Total foreign debt and liabilities have nearly doubled from US$ 17.8 billion in 2008 to US$ 33.7 billion and was 56.7 per cent of GDP at the end of 2012.
Government and banks have been borrowing at increasingly high interest rates and concessional borrowing has declined sharply, thereby increasing debt servicing costs
.
Services
The services sector has expanded much recently and contributed nearly 60 per cent of GDP (58.5 per cent in 2012). Whether much of the services contribution to GDP is healthy is debatable.
The increase in salaries of public servants is an increase in output in national accounts. When numbers employed in the public services are increased and their salaries enhanced, the increase in expenditure on salaries becomes GDP growth. This has been a significant source of growth in GDP in 2011 and 2012. While expenditure on salaries of public servants could be justified as an important and essential service, the excessive recruitment into public services is a drag on the economy.
Trading services
Reduced import duties on motor vehicles and electronic goods in 2011 increased imports and resulted in an increase in trade related services in GDP. This increase in trade related services enhanced the growth statistic at the expense of the trade balance. Increased import taxes contributed to fiscal revenue and reduced the fiscal deficit to GDP ratio, but increasing imports widened the trade deficit.
Financing growth
The massive trade deficits were partly financed by workers’ remittances from abroad and foreign borrowing. Workers’ remittances have financed nearly 60 per cent of the trade deficits in the last two years, and are likely to finance about 70 per cent of the trade deficit this year. Foreign borrowing and workers’ remittances have made possible an unhealthy and unsustainable growth path.
Sustainable growth
Economic growth can be achieved in many ways. Some are sustainable healthy increases such as increases in agricultural and manufacturing output and tradable goods that improves the trade balance and external finances.
Increases in construction, salaries and defence expenditure and much of the increases in telecommunications do not directly contribute either to increase export earnings or savings in import expenditure. Hence we have a situation when commodity imports are about twice the value of exports.
Verite Research, the Colombo-based think tank, in a recent analysis of the economy, pointed out that: “Increasing GDP growth in a sustainable manner requires serious administrative and policy reforms involving the public sector, in education, in regulation, through technology improvements and by solving efficiency blocks in economic interactions. Shortcuts are short-lived. The trade-deficit based short-cut has expired, and the fiscal-deficit based short-cut could run a little longer”.
There is a need to change this unsustainable strategy of economic growth to ensure that the economy does not drift into an economic crisis.

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lakshanraj

lakshanraj
Stock Analytic
Stock Analytic
Is he a relative of Amal Sandaratne?

D.G.Dayaratne


Senior Vice President - Equity Analytics
Senior Vice President - Equity Analytics
I do not know personal relationship

pl read the article and give your independent comments

Specially if Dr Sandaratne is not correct

bullrun

bullrun
Assistant Vice President - Equity Analytics
Assistant Vice President - Equity Analytics
Luckily foreigners are not reading all these shits. That is why they continuously buy.

Please do not isolate Sri Lanka and come to your own classification like Amdan who always talk about "Mekka".

One day JR had to sing a song in front of the President of USA among other world leaders. He has started,

" Akuru meki ne, kola gelawee ne, bondawee ne sithuwam, Issara wage mata thama mathakai Andukorama viyawasthawe mata uwamano korana Padam..... etc.

Just like JR, DG too find something he please from somewhere. You can see only the bad things. But this time at least you got a cover from someone else. Good keep on posting but thawalama will move.

worthiness


Senior Vice President - Equity Analytics
Senior Vice President - Equity Analytics
Both Dr.PB & CBSL chief must have read this article attentively with tight lipped jotted down the serious points Dr.S has presented. In the recent past, focal points highlighted by local economists (regardless of political differences) are, the decreasing of exports income, increasing of imports, high debt servicing cost & the long pay back period of high value investments.
Has anyone seen any article published before or challenging response on the above points, from economic advisers who support the present macro economic policy of the government. If any please let us know the source.

Chinwi

Chinwi
Associate Director - Equity Analytics
Associate Director - Equity Analytics
@bullrun wrote:Luckily foreigners are not reading all these shits. That is why they continuously buy. 
වයසට යනකොට සමහර අය ෆ්‍රේම් එක ඇතුලෙ එහෙම නැත්නම් 'පෙට්ටිය'  ඇතුලේ ඇකිලෙනවා.

 නිර්මාණය කරගත් පෙට්ටියට පිටින් පේන්නෙ නැතුව යනව​. 
මේ 'පෙට්ටිය' නිමැවෙන්නෙ  තමන් ගේ තරුණ කාලෙ ගත කරන ජීවිතය​, ආකල්ප​, අත් දැකීම් හා ලබා ගත් දැනුම අනුව​. 

ඉතින් වයසත් එක්ක එහෙම ඇකිලෙන එකට​ කරන්න දෙයක් නැහැ.

bullrun

bullrun
Assistant Vice President - Equity Analytics
Assistant Vice President - Equity Analytics
@Chinwi wrote:
@bullrun wrote:Luckily foreigners are not reading all these shits. That is why they continuously buy. 
වයසට යනකොට සමහර අය ෆ්‍රේම් එක ඇතුලෙ එහෙම නැත්නම් 'පෙට්ටිය'  ඇතුලේ ඇකිලෙනවා.

 නිර්මාණය කරගත් පෙට්ටියට පිටින් පේන්නෙ නැතුව යනව​. 
මේ 'පෙට්ටිය' නිමැවෙන්නෙ  තමන් ගේ තරුණ කාලෙ ගත කරන ජීවිතය​, ආකල්ප​, අත් දැකීම් හා ලබා ගත් දැනුම අනුව​. 

ඉතින් වයසත් එක්ක එහෙම ඇකිලෙන එකට​ කරන්න දෙයක් නැහැ.
During young age, at government office he may have used to say, Yes sir, ow sir, definitely sir, sure sir, I will do sir, that is the best idea sir etc. etc. Now he is going to get revenge. (he himself admitted that he backed MR.)

Mata penenne den kelin karganna handanwa wage!

PS

He has realized it today !

We give various hypothetical reasons for present level of SL Stock market

I think real reasons given in Dr Sadaratne's Analysis in Sunday Times to day

hariesha


Vice President - Equity Analytics
Vice President - Equity Analytics
@Chinwi wrote:
@bullrun wrote:Luckily foreigners are not reading all these shits. That is why they continuously buy. 
වයසට යනකොට සමහර අය ෆ්‍රේම් එක ඇතුලෙ එහෙම නැත්නම් 'පෙට්ටිය'  ඇතුලේ ඇකිලෙනවා.

 නිර්මාණය කරගත් පෙට්ටියට පිටින් පේන්නෙ නැතුව යනව​. 
මේ 'පෙට්ටිය' නිමැවෙන්නෙ  තමන් ගේ තරුණ කාලෙ ගත කරන ජීවිතය​, ආකල්ප​, අත් දැකීම් හා ලබා ගත් දැනුම අනුව​. 

ඉතින් වයසත් එක්ක එහෙම ඇකිලෙන එකට​ කරන්න දෙයක් නැහැ.
Nice remark!

salt

salt
Vice President - Equity Analytics
Vice President - Equity Analytics
@Lakshanraj,
He is father of Amal, but the content is not new, all what we knew... Including PBJ. There is no shortcut to prosperity...though this doesn't necessarily hold true for SL politician.

D.G.Dayaratne


Senior Vice President - Equity Analytics
Senior Vice President - Equity Analytics
I agree with worthiness

We can explain what we think

But can't give intelligence or thinking power

That dependents on learning process ( Family ,School, Higher Education level Friends etc )
Some comments show the level of learning process of writers

Chinwi

Chinwi
Associate Director - Equity Analytics
Associate Director - Equity Analytics
මා ඉහත අදහස දැක්වූයේ ලෝක ආර්ථිකය හා කිසිදු ගැ ලපිමක් නොමැතිව පත්තරවල   ලංකාව ගැන ලියන අය පිලිබඳව මිස වෙන කිසිවකු ගැන නොවන බව සලකන්න​.

Kithsiri

Kithsiri
Senior Vice President - Equity Analytics
Senior Vice President - Equity Analytics
Lack of Accountability and most importantly the ever deteriorating Law & Order issues impede the process of progress. Very Happy 
Borrow money (at high Interests) and (what was left after siphoning off a big chunk) spending them on beautification processes will not take us anywhere except further down.

D.G.Dayaratne


Senior Vice President - Equity Analytics
Senior Vice President - Equity Analytics
I wanted to get independent views of forum members about Dr Sadaratne's article

So far no one was able to  give acceptable counter augment.

Mud slinging means nothing  to say anything acceptable

as in case of some politicians

Rajitha

Rajitha
Assistant Vice President - Equity Analytics
Assistant Vice President - Equity Analytics
You seriously think the people here want to hear(mostly prominent members  moderators) the truth or alternative view Dayaratne ? If you want their view post an article about how market will shoot up for a bull run or the wonder that is sri Lanka with a bright future!
Why ??
People are stupid; given proper motivation, almost anyone will believe almost anything. Because people are stupid, they will believe a lie because they want to believe it’s true, or because they are afraid it might be true. People’s heads are full of knowledge, facts, and beliefs, and most of it is false, yet they think it true. People are stupid; they can only rarely tell the difference between a lie and the truth, and yet they are confident they can, and so are all the easier to fool. – Terry Goodkind

I also realized some time back there is no point trying to explain stuff to promoters with their own personal agendas! Best thing is give it a rest and enjoy the show!

smallville

smallville
Associate Director - Equity Analytics
Associate Director - Equity Analytics
D.G, u've hit the nail it seems.. Now someone has come from the dust and tried to tune his trumpet but the tone is still muddy..

People are no more fools as this noble Gent explained. That era is long gone, it is a pity that a scholar had to tell u that. May be that was in his genes that he gets hot tempered and illustrates the greater fool of himself by calling others fools.

In more serious note, now-a-days, ppl think.. The best example is the Fonterra case. Ancho# has seen its market share coming down drastically while Highlan# got a face lift. If you visit nearest stores, any store, not only supermarkets, u can see how many Ancho# packets held up on shelves. This may have been a political drama or an attempt to uplift the SL milk market thru local participation, however, this showed the ppl's reaction to some devastating news.

Previously, this was not the case. These multinationals make silly mistakes, mix up things as in the guise of experiments in consumer items and still get away with an apology. Ppl also forget the drama in a month's time. And they consume the same products afterwards. Again another news come out, tosses up ppl's lives for a month then disappears an more and more important factors come into play. News leaves ppl's minds. This circular reactions continue for sometime, cuz ppl in SL WERE fools.

But with the latest turn of events, as it unfolded bitter truth, u tend to think that the trend has changed.
True enough, few months after Fonterra case, the sales might've picked up from the bottom but not yet hit the rapid recovery as in early days. There are ppl still trust the brand names more than the truth behind their byproducts. In addition, there are ppl who doubt whether the whole thing was a setup or a political drama. But overall, this means ppl need more solid assurance than a sticker pasted on the milk packets for them to believe in the product they consume as contrast to early days.

Then lets come to the final note. If someone tries to argue or reason-out with promoters, result will be non-productive as trying to explain to an adamant personal. If one cannot change his foolish attitudes, how they can think others will change? So this applies to the person himself to the greatest extent.

I dont think a person needs to visit overseas or become a scholar to realize what I highlighted in the last paragraph. These things, even a less than avg brain would do..
The irony is; U can have a big head but small brains though.. A person cant be so stupid all the time I guess.



Last edited by smallville on Wed Oct 30, 2013 1:31 pm; edited 1 time in total (Reason for editing : corrected Typos and few grammar errors while adding few more lines.)

Hawk Eye

Hawk Eye
Assistant Vice President - Equity Analytics
Assistant Vice President - Equity Analytics
Seeds sown is not for the betterment of country, but for individuals survival.
Policies will definitely conflict.

D.G.Dayaratne


Senior Vice President - Equity Analytics
Senior Vice President - Equity Analytics
Most of economist including top level official of present govt indicate that they are not happy with present situation Specially sustainability of preset growth in economic activities when they talk privately. ( This is first hand information)

Dr Sadaratne has summarized general thinking of most of economists.
in Sri lanka
  These things were discussed in detail at the annual secession (2013 )of Sri lanka economic association held at Central Bank Auditorium last week.
 
 People who love this govt should pointout these things to higher authorities like Hon Basil Rajapksa

Some people may think we are making anti-market statements.

I firmly believe most of people will realize  the truth very soon.

P.S
I am a strong supporter of Mahinda chinthanayaya from 2005.



Last edited by D.G.Dayaratne on Wed Oct 30, 2013 6:02 pm; edited 1 time in total (Reason for editing : typing error)

econ

econ
Global Moderator
poor economic policies by current government.

D.G.Dayaratne


Senior Vice President - Equity Analytics
Senior Vice President - Equity Analytics
Real reason for presnt level of stock market in Sri Lanka STM211


  • Pl read  the view of leading economist who love this country.Present level of stock market  indicate  the views of economist are correct
  • Can economist of CBSL or henchmen of this forum can challenge this
  •  Again i say that i am a strong supporter of STATED Mahinda Chithanaya from 2005 up to date
 


     

 

Columns
Economists concerned over perils to sustained growth
View(s):

Economists are concerned that the current economic policies would be a serious constraint to sustained economic growth. The annual sessions of the Sri Lanka Economic Association (SLEA) on October 25 and 26 brought this out clearly. Delivering the presidential address on the theme “Way Forward for Sustained Growth”, Prof. A.D.V. de S. Indraratna, noted that Sri Lanka was able to reverse its low economic growth, not by investing domestic savings, but by borrowing from abroad to finance development. The higher rate of growth achieved by borrowing, he pointed out, boosts growth initially but causes the current account deficit to expand further, increases imports and the trade deficit.
Real reason for presnt level of stock market in Sri Lanka Econ-Logo
Growth achieved in this manner becomes unsustainable, as already demonstrated by the high economic growth of 8 per cent achieved in 2010 and 2011, falling to 6.4 per cent in 2012.
Indraratna’s prescription for sustainable growth was the cutting down of consumption expenditure by reducing “waste, corruption, and ostentation of the public sector” and “improvement in the management and the productive efficiency of the public sector institutions” and encouraging non-debt foreign direct investments.
Indraratna contends that peace is not sufficient to attract FDIs. There should be good governance, rule of law, right to information, efficient, honest and independent public sector institutions, enlightened free media and simple rules and procedures in customs and immigration. 
Perils to sustained growth
Dr. G. Usvatte-aratchi, a Cambridge economist, who served the United Nations, in his keynote address titled ‘Perils to Sustained Growth’, pointed out that the perils of economic growth were earlier known as business or trade cycles, but today they are called ‘economic crises’. 
Carmen Reinhart and Kenneth Rogoff’s 2011 book, ‘This Time is Different: Eight Centuries of Financial Folly’ have linked the merry borrowing and spending by governments and corporations to eventual debt default and economic crises. The crises begin when borrowers go on rolling over short-term debt without gaining capacity for repayment and lenders losing confidence in the borrowers. Accordingly, lenders disappear from the scene creating liquidity problems and the crisis hits the borrowing country. Thus, economic crises today are man-made rather than arising from economic systems, as presumed earlier.
Since the experience of borrowing that we have been indulging in Sri Lanka resembles this, we are on the road to an economic crisis. When governments and corporations borrow and spend, growth becomes less because the bubbles they create burst sooner or later to lead to economic crises, because cheap money available in plenty, as in the case of stimulus packages and central bank sponsored lending schemes, are spent on less important areas without rigorous screening and assessment processes. The outcome was loss of economic efficiency and creation of white elephants, as evidenced in many developing countries, including Sri Lanka.
Vital lessons for Sri Lanka
The disappearance of lenders, Usvatte-aratchi said happens at the speed of light as funds could be transferred electronically from one place to another even to gain a small advantage in interest rate differences. Countries with borrowed foreign reserves — borrowed from the short term money markets — should be careful about handling their economic matters.
Real reason for presnt level of stock market in Sri Lanka Econ-Cartoon
Usvatte-aratchi compared the case of India and Sri Lanka. India has a huge foreign exchange reserve of some US$ 285 billion, but when the Indian rupee came under pressure for depreciation, the Reserve Bank of India did not think it prudent to spend those foreign reserves to prevent the rupee from falling. 
In contrast, Sri Lanka has only a reserve of US$ 7 billion and even if only a fraction of that leaves the country in search of higher interest rates, the country will be in trouble due to the loss of foreign reserves. Therefore Sri Lanka should avoid relying on borrowed funds.
Prerequisites for attracting FDIs
Sri Lanka is notorious for spending more than it earns. This generates a gap in the combined trade, services and income accounts of the balance of payments and therefore incurs new foreign debt. That gap is partly closed through remittances and partly by borrowing abroad that increases the gap further because foreign exchange resources are needed to pay interest. 
Sri Lanka’s track record of attracting FDIs has not been encouraging due to three most important reasons: Poor law and order situation, faulty dispute settlement mechanisms and lack of quality manpower at middle levels. While the first two can be tackled within a short period, the third requires long-term attention.
Competitor country inflation
Usvatte-aratchi contended that due to the Government’s failure to keep inflation rate low in line with foreign inflation rates, (inflation rates in the US and EU have been at 1.5 per cent in August 2013), the Government has been depending on short term foreign funding to finance its expenditure, since foreign interest rates are lower than those in the domestic market. This is the reason for getting short-term foreign hot money for investment in Treasury bills and bonds.
Dr. Usvatte-aratchi urged not to make domestic economic policy a ransom to foreign investors as this strategy is fraught with serious risks. Even a slight increase in foreign interest rates could result in a massive outflow of foreign funds creating a serious situation within the domestic economy just like the recent experience of India. 
The need for urgent economic reforms
Usvatte-aratchi called for proper economic reforms to cover a wide range of areas to avoid such a situation, even though such reforms are unpopular. It is essential to raise revenue before increasing expenditure. The current policy has been to increase expenditure without looking at its adverse repercussions and then borrow from external commercial markets either directly or through government entities. 
These populist policies, Usvatte-aratchi says is what makes, “the long-term growth a hostage of short-term stability”. When governments borrow heavily from commercial markets and countries that lend on commercial terms like China, a ransom is paid to foreigners.
Step-motherly treatment of education
Usvattearatchi argued that there has been a marked shift of government expenditure away from education recently and “a woeful neglect of education at all levels, much of it reversible with far more money spent on them.” He has reservations on the quality of private sector educational institutions compared to public sector institutions which should set the benchmarks and standards which the private sector institutions should follow.
These perils to sustainable growth in Sri Lanka must be removed to ensure that the economy’s growth momentum is sustained and the quality and sources of growth enriched.
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Last edited by D.G.Dayaratne on Sun Nov 03, 2013 10:54 am; edited 2 times in total (Reason for editing : typing error)

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