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Tuesday February 27th, 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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Sri Lanka president appoints Supreme Court-faulted official as police chief after CC clearance

ECONOMYNEXT – Sri Lanka President Ranil Wickremesinghe appointed Deshbandu Tennakoon as the 36th Inspector General of Police (IGP) of the country after the Constitutional Council (CC) cleared the official who along with three other police officers were asked by the Supreme Court to compensate 2 million rupees in a fundamental rights case last year.

“President Ranil Wickremesinghe has appointed Deshbandu Tennakoon as the IGP in accordance with the provisions of the Constitution,” the President’s Media Division (PMD) said.

The island nation’s Supreme Court on December 14 ordered Tennakoon when he was the Acting IGP and three other officials to pay a compensation of 500,000 rupees each for the violation of the fundamental rights of an individual.

The Supreme Court also instructed the Police Commission to take disciplinary action against the said Police officers after it considered the petition filed by W. Ranjith Sumangala who had accused the Police officers of violating his fundamental rights during his detention at Mirihana Police Station in 2011.

The Supreme Court held that the four police officers violated the fundamental rights of the petitioner by his illegal arrest, detention and subjection to torture at the Mirihana Police Station, which was under the supervision of Tennakoon at the time of the arrest.

President’s Secretary Saman Ekanayake presented the official appointment letter to Tennakoon on Monday (26) at the Presidential Secretariat.

When Tennakoon was asked over if the Supreme Court decision would have an impact on his appointment as the IGP last week, he declined to comment, saying that it was a Supreme Court matter and he does not want to say anything about it.

Tennakoon was also criticized by Colombo Archbishop Cardinal Malcolm Ranjith when he was appointed as the Acting IGP citing allegations against him related to security lapses leading up to the Easter Sunday attacks which killed at least 269 in April 2019.

However, Tennakoon rejected the allegations. (Colombo/Feb 26/2024)

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No water tariff hike in Sri Lanka this year: Minister

Millennium Challenge Corporation Photo.

ECONOMYNEXT – Sri Lanka’s planned water tariff formula is ready, and the government will implement it this year only if the formula’s tariff is lower than the current price, Water Supply Minister Jeevan Thondaman said.

President Ranil Wickremesinghe’s government has been implementing IMF-led pricing policies on utilities and the Water Supply Ministry has already come up with a formula.

“There is a water tariff formula in place right now and we are waiting for it to be drafted and seek approval from the cabinet,” Thondaman told reporters at a media briefing in Colombo on Monday.

“Once this water tariff formula is in place, there will be an annual revision with an option of biannual review.

The formula has been developed with the help of the Asian Development Bank. The formula includes electricity and exchange rate among many others as components like the fuel formula.

The National Water Supply and Drainage Board (NWS&DB) increased the water tariff in August 2023, claiming that the operating cost had been increased owing to high interest payment for bank loans and increased electricity prices.

The last year revision saw the consumers paying 30-50 percent increase from the existing water bill.

Minister Thondaman said he will implement the new formula this year only if there is a reduction.

TARIFF CUT WILL BE IMPLEMENTED 

“We will have to wait to see what the formula is. If the formula shows us there needs to be a reduction in the water tariff, we can implement it. But if there is an increase, why should we burden the people when we are on a road to recovery?” he said.

He said a group of experts including University Professors are working on the formula and the numbers.

“Once they come with the number, we will have to take a decision on whether we are going to impose on the people or not,” he said.

“We have already spoken to the Asian Development Bank and informed them we have established the formula. But according to the ADB requirement of this policy-based loan, the implementation period is only in 2025.”

“But right now, you want to take the approval for the formula for sustainability.”

The Energy Ministry is considering a drastic slash in electricity tariff soon. Thondaman said the exact numbers will be decided on after the finalized electricity tariff.

However, he said that as per the formula, there has to be a up to 10 percent increase in the water tariff as of now.

“Given the current formula set up, there must be around a 9-10 percent increase. It was actually at 14 percent. What we have done is since it is at 14 percent, we also did a calculation to see how we can do a cost cutting,” he said.

“So, despite our cost cutting measures, there will be an increase of 9 or 10 percent. But we will not be imposing it as of now because this year is meant to be policy sector reforms. Next year is meant to be the implementation.”

“As per August 2023 water tariff hike, we are able to come close to sustainable. So right now, there is no issue in the water sector. But a formula eventually needs to be established.” (Colombo/Feb 26/2024)

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Sri Lanka rupee closes at 310.80/311.00 to the US dollar

ECONOMYNEXT – Sri Lanka’s rupee closed at 310.80/311.00 to the US dollar Monday, from 310.95/311.05 on Thursday, dealers said.

Bond yields were down.

A bond maturing on 01.02.2026 closed stable at 10.60/80 percent.

A bond maturing on 15.09.2027 closed at 11.80/90 percent down from 11.90/12.05 percent.

A bond maturing on 15.03.2028 closed at 12.00/12.15 percent down from 12.10/25 percent.

A bond maturing on 15.07.2029 closed at 12.20/70 percent from 12.20/95 percent.

A bond maturing on 15.05.2030 closed at 12.30/70 percent down from 12.40/95 percent.

A bond maturing on 15.05.2031 closed at 12.60/80 percent from 12.45/13.00 percent.

A bond maturing on 01.07.2032 closed at 12.50/90 percent from 12.50/13.30 percent. (Colombo/Feb26/2024)

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