Protracted political stand-off seen as compounding Sri Lanka's financial woes


By Steve A. Morrell

Sri Lanka's financial outlook is far from stable. Limited foreign reserves are now down to 7.1 billion dollars, just sufficient for four months. Additionally, there was limited space to defend the currency outlook, which is getting worse. Political uncertainty is not helping the finances of the country; growth was under 4 percent. The debt position would grow, Dr. Dushni Weerakoon, Executive Director, Institute of Policy Studies, Colombo said.

Dr. Weerakoon was a principal speaker at the Merchant Bank of Sri Lanka & Finance PLC- convened a seminar titled ‘Currency Outlook and Forecast’ held last week. The forum was also addressed by CEO, founder, Frontline Research Amal Sandaratne, who focused attention on the current status of the economy and its repercussions on the country’s monetary status.

Weerakoon added: 'Pressure on the rupee and allied risks would influence investor confidence that would not result in salutary reasons for investment. The debt position could not be avoided in the short run. The debt position facing the country would continue till 2026. This position was determined by minimal export earnings.

'Focus on exports could not be avoided which is the only factor that could redeem the position and feature some respite to current financial vicissitudes that were unfolding on a daily basis. But there were no short term solutions that were available that could add some measure of relief to the declining economic position.'

Amal Sanderatne who presented the paper, ‘Rupee Outlook – a Long Term View’, posed the question where the rupee would be by 2021. 'The unavoidable impact of rising oil prices and its repercussions on treasury bills, are all factors that would force investors to pull out. Not least, the unfolding political position could also have debilitating repercussions on the economy. Such phenomena would place continuous pressure on the rupee, he said.

'In 2001, the rupee was Rs. 96 to the dollar. Low exports at that time was not the only reason for continuous depreciation of the rupee. 2018, was the worst period for depreciation of the currency. Irrespective of such results, the current account deficit was improving but inflation would matter in the long run.

'Comparatively China was doing well and Korea’s inflation was as high as 16.9, which was reduced over the last few years. Singapore and Hong Kong had high growth rates, he said.

Sandaratne added: 'Overall, oil prices, tourism, Brexit, BOP pressures and the IMF not extending credit tranches, would all impact on the rupee depreciation which would be Rs. 202 to 216 to the dollar by 2021.

'Long term remedies would include liberalization of the economy. However, living standards had improved.

'Restrictions on growth, as seen economically, was the result of debilitating influences of red tape, which stifled exports. There was no simple solution to this problem but this has to be addressed if exports are to be encouraged.'

The panel discussants included, immediate past chairman Ceylon Chamber of Commerce, Import Section, Dinesh de Silva, Group Finance Director, Brandix Group Hasitha Premaratne, Executive Director Jetwing Hotels Limited Sanjeeva Anthony, besides Dr. Dushni Weerakoon and Amal Sanderatne.

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