Private sector records subdued performance in economic downturn
Sri Lanka’s private sector has been severely hit by the economic downturn in the country owing to the second COVID-19 wave although the state authorities projected a positive outlook in the 3rd quarter this year and even in the New Year 2021, economic experts disclosed.
Senior Economist Dr. Anil Jayantha of the Sri Jayawardenapura University told the Business Times that great instability in the country’s economy is reflected in the latest report of the Census and Statistics Department.
He said that the department has forecasted 1.5 percent economic growth in the 3rd quarter from negative 13.6 in the 2nd quarter this year.
This indefinite nature in the economic growth from massive contraction to expansion of the economy in a matter of time will distract investors and mislead the private sector, he explained adding that this type of window dressing will erode their confidence.
The country’s manufacturing and service activities indicated subdued performance in October 2020 with a significant decline in production, new orders, employment, and stock of purchases, during this period, statistics showed.
All surveyed enterprises reported challenges in terms of cash flow, reduced demand and supply, and disruption in the value chains.
Around 3.4 million private sector workers and more than 200,000 employers are feeling the severe pain of aftershocks of the pandemic in the new normal situation.
Economic revival, debt management and tackling of roll over risk are very important for the country in the short term to re-energise economic activities, Deshal De Mel (Research Director, Verite Research) revealed in webinar recently.
This was very essential for the private sector operating environment; he said adding that the other factor was the effects of economic contraction.
If the government fails to obtain IMF and private sector credit, gross reserves could fall to about US $3.7 billion by end of 2021 or $2.3 billion on a usable basis, the Citigroup Global Markets Inc financial analysis report recently revealed.
This will affect the foreign trade and private sector imports; the report disclosed predicting that if official loans are rolled over and China lends an additional $800 million to Sri Lanka, reserves will fall to $3.7 billion by end of 2021.
However State Minister of Finance Ajith Nivard Cabraal pointed out that private sector participation has been facilitated even in the COVID-19 environment by maintaining stable macroeconomic fundamentals.
Referring to debt management and the foreign reserves position, he revealed that $2.5 billion could be achieved as the latest investment for the Port City alone amounts to $1 billion.
The Hambantota tyre factory is expected to attract $300 million, with at least $175 million in 2021.
Investments in pharmaceuticals and education should be in the range of $200 million, he said adding that other investments are also flowing in, and realisation of these inflows would attract further investments.