Financial woes already at monumental levels are now morphed to exacerbate debilitation and causing further chaos in financial circles locally, said Dr. Dushny Weerakoon.

She was addressing the press and professionals at the launch of the ‘UN Economic and Social Survey of Asia and the Pacific 2009’ last week.

She said inflation recorded 15.8 percent in 2007 but that figure was now obsolete and levels in 2008 were at staggering scales of approximately 22.6 percent.

Surging global prices for fuel and staple foods, milk and wheat flour, have forced higher inflation and rising trends may not be curtailed in the short run.

Although mid 2008 recorded some semblance of economic recovery all hopes were dashed when the global financial crisis inevitably hit financial circles locally. Intensity of that fallout although in real terms has not as yet hit the main financial artery on the country, it would nevertheless account for further weakening of the rupee presently held at artificial levels against the dollar, she noted.

Present at the briefing was National Information Officer, United Nations Information Center, Mohan Samaranayake, who chaired the proceedings, and Dr.Sirimal Abeyratne of the Department of Economics, University of Colombo. Deputy Director Institute for Policy Studies Dr. Dushny Weerakoon presented the keynote address.

Dr. Abeyratne confirming the outlook that Sri Lanka is subject to said the economic and financial crisis affecting in large part the western financial strong points, forced depletion of foreign resources. He, however, said the agricultural sector is performing well and had a stabilizing effect on the economy or else the global dow turn could have been worse. World economic growth would slow down to about 3 % in global terms. Repercussions of that phenomenon and negative applications locally would ultimately result in growth less than 1 percent.

He also made the point that the downturn in world GDP affecting the US, Japan and other first world countries would rebound locally to minus returns.

Persistent trade deficit which did not show any signs of recovery over the past 30 years would grow to more alarming levels, he wanred.

Tourism is at its lowest potential. Not so in countries like Vietnam, and Malaysia, for instance where tourism has improved in leaps and bounds.

Foreign investments are at reduced scales forcing borrowings from the International Monetary Fund (IMF). He also said the budget deficit at around 10 percent is high. Expenditure is due to rise because of the North-East conflict. Balance of Payments (BOP) to see real impact would need policy flexibility to cope with downfall of the tsunami, and the military perspective, on expenditure.

Dr. Weerakoon said Sri Lanka’s gross official reserves are 2.6 billion by end December 2008 down from 3.1 billion December 2007. This is sufficient to finance just two months imports.

Reverting to the UN Economic and Social Commission for Asia and the Pacific (ESCAP) Report, Dr. Weerakoon said poverty and widespread inequalities remain major challenges.

"The global outlook for 2009 has darkened considerably with new crisis layers looming large in the region".

The equation being fourth quarter 2008 trade, the region’s engine of growth moved from double digit growth to double digit declines with fresh evidence mounting that the worst is yet to come.

This combined with fuel and food price shocks and climate change would bring compounding effects that feed on each other and result in policy stresses.

However, not all was gloom the report said. Crisis presents an opportunity to move from resilience to resistance. The proviso being that such is recognized in and by the region. That too quickly.

There are two issues of importance. That the region’s past prudent macroeconomic management enabled implementation of expansionary fiscal packages that will see ESCAP’s developing countries emerge as primary sources of global stability.

The other being an opportunity to shift perspectives on development and the role of government.