Twin crises hit Sri Lankan Economy

Global economic and financial crisis and the home grown crisis have hit the Sri Lankan economy. To get the advantages of the post crisis recovery, Sri Lanka should be able to improve its balance of payment and budgetary position, make a competitive and investment friendly climate and a rapid phase of export promotion towards diversified markets, said Dr. Sirimal Abeyratne.

Dr. Abeyratne a senior lecturer of the Department of Economics in the University of Colombo was addressing the launch of Economic and Social Survey of Asia and the Pacific 2009 survey report in Colombo last week.

We have faced a twin crisis global and domestic. Global financial and economic crises have hit our financial sector and the real sector. Since our financial sector is not much integrated to the world the impacts of the financial crisis is less. We feel the indirect impacts of the global financial crisis. Our capital account is not open and FDI is not significantly high. The government borrowing is affected as it is open for foreign investors. As a result foreign reserves have declined.

However, the real sector has been directly hit by the global recession. As our real sector is integrated to the world, we experience serious crisis. Our exports have dropped drastically because the 60 per cent of our exports go to the most affected regions US and Europe. Our agricultural sector is little integrated and is less affected and the domestic food consumption too has not been affected. Locally we face the crisis of fiscal deficit and balance of payment problems seriously. The global economic outlook forecasts 0.9 per cent global GDP growth, 0.3 per cent contraction in high income countries and East Asia and the Pacific a 6.5 per cent growth. Commodity prices including oil have drastically decreased last year and still the prices are falling. Inflation has dropped from over 20 per cent to 7 per cent and still the domestic prices of commodities are increasing at a lower phase while they are decreasing in the international market.