GLOBAL FINANCIAL CRISIS TO HIT SRILANKAN ECONOMY!!!

Global crisis to hit Sri Lankan economy - expert

By Sunimalee Dias
The global crisis that has hit leading nations is in comparison unlikely to affect the Sri Lankan economy “significantly”, a capital market expert stated.

Head of Corporate Finance at Brandix Hasitha Premaratne delivering a presentation on the ‘Impact of the Global Economic Turmoil on the CSE and the Way Forward’ on Tuesday observed that it was not right to say that Sri Lanka will remain “resilient” since the country is part of the world and therefore it is apt to be affected although comparatively not as badly as most other countries in Europe or the US.

He noted that the economic impact was a result of the repercussions of the financial impact that is expected to trickle down to the world economy; however, the size of the impact is yet to be seen.

Some of the key areas that would suffer are the lack of funds and an appetite for investments; a slowdown in consumer demand; the bankruptcy of corporates; and state-sponsored bailout packages. Premaratne noted that with the economic slowdown in the US and Europe it would “naturally affect demand for Sri Lanka’s exports.”

In 2007 exports to the US was 25% of total exports and therefore the impact of a global economic slowdown is expected to affect the country’s economic growth, and thereby widen its trade deficit while adding pressure on the rupee. This could also increase unemployment rates with more corporates set to go for more layoffs.

Despite the Sri Lankan government recently asserting that it is tipped to go on a “borrowing spree” in the wake of the newly released budget now being debated in Parliament, it was pointed out by Premaratne that dollar-based funds may become difficult for both the government as well as corporates and therefore it is expected to be affected.

An increase in the cost of funds is tipped to the “hurt profitability of businesses” as Sri Lanka is already in a state of high inflation and high interest rate regime.The impact of such consequences is expected to reduce expansions of businesses and hurt economic growth, slowdown in the progress of existing projects and reduction in the potential of employment opportunities.
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