Easter Sunday terror:
Besides the loss of 253 lives and injuries to over 500 people along with emotional trauma among affected family members and others, the Easter Sunday terror attack is set to lead Sri Lanka towards a deep economic abyss.
These suicide bomb attacks on three churches and luxury hotels in Colombo and the outstations would deal a severe blow to the island nation’s economy and financial markets, several senior government officials predicted.
While it was premature to quantify the economic loss and revenue slippage due to the impact of these attacks, provisional estimates and forecasts relating to economic impact on strategically important sectors state that the loss would be around US$3 to 4 billion including a projected $1.5 billion (loss) in tourism earnings this year.
As demand grew for terrorism insurance cover and the stock market took a beating and foreign investment sentiment was dampened, both Finance Minister Mangala Samaraweera and Central Bank (CB) Governor Dr. Indrajit Coomaraswamy were quoted as saying that the macro-economic fundamentals were strong and a quick recovery was hoped. While the Finance Minister issued a statement on the crisis, the CB is yet to do so.
Earnings from tourism increased by 11.6 per cent to $4.4 billion in 2018, up from $4 billion in 2017and is the fastest-growing economic sector. Tea prices fell last year while new sanctions on Iran, a top tea buyer, will affect prices in Sri Lanka. Worker remittances dropped marginally to $7 billion in 2018 from 2017 and would be further aggravated by the latest Sri Lankan crisis.
Tourism was the worst hit with hundreds of cancellations (see connected story) while the business community condemned the attacks and hoped for a faster recovery to business and the economy (see connected story inside). Reports from overseas revealed that several visitors planning Sri Lanka vacations, particularly from India, were now looking at other, visa-on-arrival locations like the Maldives and Bali (Indonesia) as a holiday option. Business in the city was severely affected this week as searches across the city triggered panic among workers and residents. Most city hotels reported fewer customers.
Other officials said a fall in tourism returns is bound to weaken the rupee further. The CB is likely to raise interest rates as it cannot defend the currency through interventions during the crisis period, they said.
This, in turn, would affect lending, hurting consumers and the investment plans of local businesses, while also making it more costly for the government to seek funding from foreign investors via bond markets.
The partial government shutdown will cost the economy an additional sum of money in reduced output in 2019.
Foreign Direct Investment (FDI) and portfolio investment will be curtailed in the short term while net foreign outflows from the stock market are likely to increase with foreigners resorting to selling of their stocks amounting to billons of rupees in the short run, market analysts said.
The associated rise in security costs and loss in productivity of the workforce — through damage to labour and capital — are likely to reduce national income significantly, a senior Treasury official claimed.
A supplementary estimate should be passed in Parliament for more defence expenditure in addition to 2019 budget allocation for the Defence Ministry to purchase necessary high tech equipment and logistics to detect explosives under the present security situation, he revealed.
At least $1 billion is needed for the procurement of highly sophisticated security equipment.
Re-orientation and development of national security and defence sectors; and review, reorientation and development of the public security and law-enforcement sector will also cost a massive sum of taxpayer’s money.
In effect, the cost of terrorism includes the property destroyed and the number of cancellations. It also includes indirect costs which may be linked to the diversion of foreign investment, tourism, international trade, consumption, savings, unemployment and short term capital flows among others.
“This sense of vulnerability is particularly damaging to trade or FDI because foreign nations always have a choice of conducting business with less-terror-prone nations,” he said.
Terror attack also raises the costs of doing business with increases in the prices of products, which in turn tends to reduce exports and imports, he said
The massive cost for repairs of damaged church and hotel buildings as well as property in bomb attacks along with payment of compensations to affected families will also exert an impact on the economy.
Estimating the costs is extremely challenging given the direct and indirect costs, both short and long term, associated to those terror attacks, other Treasury sources said.