Sri Lanka facing economic risks amid political turmoil: Mangala

ECONOMYNEXT – Sri Lanka’s economy is facing stock and bond outflows, which can increase risks to the rupee and interest rates amid bond outflows, Mangala Samaraweera who was controversially sacked as Finance Minister has warned.

Samaraweera said there were 4.0 billion rupees of foreign outflows from the Colombo Stock Exchange in the four days to Thursday compared to 6.1 billion rupees for the entire year.

"Foreigners are selling out rapidly due to a sharp drop in confidence in Sri Lanka’s economic management," Samaraweera said in a statement.

"These outflows are putting major pressure on the Sri Lankan rupee in an already fragile global economy."

The yield on a sovereign bond maturing in January 2019 had risen to 9.9 from 5.6 percent, he said.

"This means Sri Lanka’s external borrowing costs will almost double," he said.

Samaraweera said if Sri Lanka cannot meet external obligations, the rupee could fall further. He said in Argentina which made a number of policy errors "interest rate just reached 74 percent, inflation is 22 percent, and the Peso depreciated 115 percent this year.

"As a result of the accelerated foreign sales of Sri Lankan debt and equity, there will be significant pressure on the value of the rupee and will cause domestic interest rates to spike," he claimed.

He said the rupee was being defended, at the moment which will result in a loss of reserves.

"Unfortunately, the blatantly undemocratic, unconstitutional measures by this illegal regime have put at risk our hard won access to the EU market through the GSP + scheme," he said.





"If we lose this market we will severely undermine our fishing & seafood sector and apparel sector, which were making strong inroads into the world’s largest single market."

"A return to inward looking, protectionist, regressive policies will put us back on the fast lane to economic crisis."

He said rating agencies have already given warnings. The recent tax cuts announced may further hurt state finances.

Samraweera claimed that a finance ministry claim that lost revenue will be recouped by rationalizing cabinet ministers and re-examining capital expenditure, is simply aimed at deceiving the public. (Colombo/Nov05/2018)

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