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Brexit hit on Sri Lanka trade minimal: ADB

ECONOMYNEXT – Sri Lanka will not be greatly affected by Brexit, and trade redirection to increase agricultural and industrial exports could offset hits to the economy, the Asian Development Bank (ADB) said.

"The economy-wide effects of Brexit through trade channels are small even for Sri Lanka, which has strong trade ties with the UK and risks losing a preferential trade arrangement if the UK leaves the EU," ADB said in its Asian Development Outlook 2019.

The British and Sri Lankan government have discussed a implementing potential trade agreement similar to the existing GSP Plus program following Brexit.

The latest Brexit deadline is April 12, and the British parliament has voted against a Brexit deal on three occassions.

The ADB said that there are two possible scenarios.

"The first scenario is no-deal Brexit, which assumes that trade between the UK and the EU will be reduced by higher tariffs post-Brexit," the bank said.

"The second scenario is tariff escalation between Sri Lanka and the UK, which extends the analysis to explore potential impacts if Sri Lanka’s exports to the UK become subject to a tariff when the UK is no longer party to the GSP Plus."

ADB said that there are no direct effects on Sri Lanka if the EU and UK increase tariffs between their borders, although indirect effects through global supply chains will reduce 0.06 percent off Sri Lanka’s gross domestic product (GDP).

The indirect hit could be offset by a potential gain of 0.08 percent of GDP if Sri Lanka provides more agricultural and industrial exports to both economies.

"If these gains from trade redirection materialized—and it should be stressed that they are neither automatic nor assured—the net impact would be small but positive at 0.01 percent," ADB said.

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If the UK imposes higher tariffs on Sri Lanka following Brexit, the direct effects on trade would reduce Sri Lankan exports to the UK by 3.1 percent, and total exports by 0.4 percent, it said.

Sri Lanka’s GDP would fall by 0.11 percent, ADB said.

Trade redirection could offset 0.07 percent of the loss, it said.

"Under both scenarios, industry appears to be the sector most affected, with certain segments like textiles and garments suffering significant losses."

Garment exports to the UK would fall by 7.7 percent, and its contribution to Sri Lanka’s GDP would fall by 0.85 percent, the ADB estimated.

"The combined effects of higher tariffs and disrupted supply links could hit industry gross value added by as much as 0.08-0.28 percent, though this could be offset by trade redirection."

"The effects on agriculture and services are smaller." (Colombo/Apr07/2019-SB)

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