Final report : capital market development project

The project was successful enough to warrant an extension of the original contract to include a regional conference in Colombo on emerging markets of South and South East Asia. The success of the project was the principal factor in A.I.D."s decision to commit additional resources to a follow-on, the Financial Markets Project. Share market indicators indicate a remarkable rate of development. However, given a stable political base and the continuation of liberal economic policies, substantial further development can be expected. For example, if the turnover ratio (a basic measure of market liquidity which relates total trading activity to the market"s total capitalization), were to rise to a more desirable level of 20%-25% from its current 7.4%, this would imply an increase in the level of stock market activity (transactions) of 170%-240%. In turn, if market capitalization as a percentage of GDP -- the basic measure of stock market penetration -- were to rise to a level of 35%-40%, consistent with Sri Lanka"s transformation from a public sector to a private sector led economy, this would imply an increase in the level of stock market activity (principally from new offerings and privatization) of some 90%-120%. Taken together, total stock market activity could rise 3-5 times as a result of achieving desirable levels of liquidity and penetration. The Capital Market Development Project helped build the base for managing such growth. Although the rate of development in the future is likely to be less than the 1989-1992 period, the absolute numbers are likely to be much larger. The emphasis on training and strengthening the human and physical resources is well placed in the follow-on Financial Markets Project. (Author abstract)