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Monday April 22nd, 2024

Business Impact on Sri Lanka from COVID-19

The outbreak of the Novel Coronavirus (COVID-19) is having its toll on the global economy with many economists now expecting a larger impact than the SARS outbreak in 2002-03.

The outbreak is lowering China’s GDP growth expectations in the first quarter to 4.5%, a marked slowdown from the 6% recorded in the last quarter of 2019.

The slowdown in growth is also weighing in on global oil demand given China is the second largest oil consumer.

The International Energy Agency is forecasting a decline in the first quarter, making it the first quarterly fall in global oil demand in over a decade.

The implications for Sri Lanka are also important to understand given the trade and tourism exposure to the Chinese economy and the overall disruption to global supply chains.

In 2019, China emerged as the leading import partner for Sri Lanka accounting for 21% of total imports.

Chinese tourists were the 3rd highest source market for tourism arrivals in 2019. In this backdrop, the Ceylon Chamber of Commerce ran a poll amongst its member to understand the business impact so far from COVID-19.

49% of the firms that participated in the survey stated that their businesses had been impacted by COVID-19 (Refer Chart 1).

60% of the members expressed that their sales had not been impacted due to the outbreak in the last three weeks compared to the same period in 2019 (January 24th -February 14th period).

However, 40% of the survey responders stated that they had a sales decline (ranging between 0-20%, 20-40%, 40-60% and over 60%) due to the impact of COVID-19 in the same period (Refer Chart 2).

Chart 1

Chart 2

The disruption to supply chains and travel is the key concern that policymakers are trying to tackle.

In this regard, 43% of the survey respondents expressed that there was a slowdown in imports from China while 27% felt that there was no impact yet but are expecting supply disruptions in the next few weeks (Refer Chart 3).

65% of the members stated that their organization’s overseas travel for business purposes had been limited due to COVID-19 (Refer Chart 4).

In this regard, members expressed that there were cancellations of prospective meetings and events in the Asian region. The overall impact on inbound and outbound travel was a key concern amongst the survey respondents.

Chart 3

Chart 4

The impact from the delay in shipments of certain raw material imports from the region was a key insight from the survey.

Despite this, certain respondents stated that inventories were stocked up in preparation for the Chinese New Year which could mitigate the slowdown in shipment delays.

However, the impact for the months of March and April will need to be carefully monitored in terms of time delays and costs. Survey respondents were also concerned with regards to the business impact of misinformation related to COVID-19 developments.

Despite the uncertainty, there is also an opportunity for countries like Sri Lanka to benefit with trade and supply chain realignment.

In this regard, survey respondents highlighted the need for policymakers to provide that conducive environment for export growth.

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IMF official: Sri Lanka’s road ahead is challenging, critical to keep up with reform momentum

ECONOMYNEXT –International Monetary Fund’s First Deputy Managing Director Gita Gopinath said Sri Lanka’s future with many reforms are challenging, but it is critical to keep up with the reform momentum.

Gopinath stated this after meeting the island nation’s State Finance Minister Shehan Semasinghe Central Bank Governor Nandalal Weerasinghe, and Treasury Secretary Mahinda Siriwardena on the sideline of the IMF/World Bank Spring Meetings in Washington.

“I commended them on hard-won economic gains in the past year. The road ahead is challenging and it’s critical to keep up with the reform momentum,” Gopinath wrote on her X platform.

Under IMF programme, President Ranil Wickremesinghe has implemented a raft of hard reforms including higher taxes.

Sri Lanka agreed to the IMF programme after it declared bankruptcy with sovereign debt default in April 2022.

Semasinghe after the meeting tanks Gopinath for acknowledging Sri Lanka’s economic progress.

“Our discussion was insightful and productive, and we appreciate the opportunity to delve into the challenges and opportunities ahead,” the State Finance minister said in his X platform.

“We remain steadfast in our commitment to our reform agenda and eagerly anticipate continued collaboration with the IMF to advance our shared goals.”

Sri Lanka was compelled to go for IMF after the unprecedented economic crisis which was followed by a political crisis that ousted former president Gotabaya Rajapaksa and his government who were legitimately elected.

The IMF programme has included reforms in state-owned enterprises, fiscal sector and financial sectors to ensure debt sustainability.

The global lender also has pledged its support to speed up the island nation’s lingering debt restructuring process with private creditors including sovereign bond holders. (Colombo/April 22/2021)

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Sri Lanka motor racing crash claims 7 lives, 4 critical

ECONOMYNEXT – A deadly accident at motor Race Sri Lanka’s hill country town of Diyathalawa has claimed at least 7 lives police said, after a racing vehicle, in the seasonal Fox Hill Super Cross ploughed in to spectators after running off the track.

Another 21 spectators were injured Sunday, and hospitalized and at least four were critical, police said.

Thousands of people come to watch the Fox Hill Super Cross race, which is usually held in April, as large numbers of people head to the cooler climes in the hills.

According to footage taken by spectators one car overturned on the side of the track.

Sri Lanka’s Newsfirst television said Marshalls were waving flags to caution other vehicles, when another car went off the track and crashed into spectators. (Colombo/April21/2024)

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Widespread support for Sri Lanka debt workout, reform progress at IMF/WB meet: Minister

ECONOMYNEXT – There was widespread support for Sri Lanka’s debt restructuring and acknowledgement of progress made under an International Monetary Fund program, at meeting of the fund and World Bank, State Minister for Finance Shehan Semasinghe said.

“The strides made in our economic recovery and financial stability have been acknowledged as significant advancements towards our country’s prosperity by our stakeholders and international partners,” Minister Semasinghe said in an x.com (twitter) post after attending the meetings.

“Further, it was heartening to note the widespread appreciation and support for Sri Lanka’s debt restructuring process.

“We remain steadfast in our commitment to reaching the restructuring targets and confident of smooth progress in the continued good-faith engagements for a speedy debt resolution that will ensure debt sustainability and comparability of debt treatment.”

Sri Lanka ended a first round of talks with sovereign bondholders in March without striking a deal but some agreement on the basis for a deal.

An initial deal with bilateral creditors have been reached, but they may be awaiting a deal with private creditors to sign formal agreements.

International partners have appreciated reforms made under President Ranil Wickremesinghe, Minister Semasinghe said.

“It was great to engage in productive bilateral discussions with all of whom appreciated the recent economic developments, progress in debt restructuring, strengthening of tax administration, and ongoing governance reforms,” he said.

Sri Lanka’s rupee has been allowed to re-appreciate by the central bank amid deflationary monetary policy, bringing tangible benefits to people in the form of lower energy and food prices, unlike in past IMF programs.

Electricity prices were cut as a strengthening currency helped reduce the cost of coal imports.

Related Sri Lanka central bank mainly responsible for electricity price cut

The currency appreciation has also allowed losses to the Employment Provident Fund imposed to be partially recouped, helping old workers near retirement, as well as raising disposable incomes of current wage earners on fixed salaries.

Related Sri Lanka EPF gets US$1.85bn in value back as central bank strengthens rupee

The IMF, which was set up after World War II to end devaluations seen in the 1930s after the Fed’s policy rate infected other key central banks, started to actively encourage depreciation after a change to its founding articles in 1978 (the Second Amendment).

The usefulness of money as a store of value, or a denominator of current and future values then decline, leading to loss of real savings, real wages and increases in social unrest.

Before that, members who devalued more than 10 percent after printing money for growth or any other reason, faced the threat of suspension from the organization as punishment.

Sri Lanka’s rupee has appreciated to around 300 to the US dollar now from 370 after a surrender rule was lifted in March 2023.

But there is no transparency on the basis that economic bureaucrats are allowing the currency to gain against the US dollar (the intervention currency of the central bank).

The rupee is currently under pressure, despite broadly prudent monetary policy, due to an ‘oversold position’ in the market after recent appreciation made importers and banks to run negative open positions as the usefulness of the currency as a denominator of future value declined with sudden strenghtening. (Colombo/Apr21/2024)

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