Day after day, week after week, the global crisis appears to be hitting Sri Lanka faster than one could expect.
Exports are slowly being affected, the foreign exchange markets have been ruffled, made worse by the turn of events over the oil hedging deals which have created payment problems for banks.
Tea, garments and migrant worker remittances – the main earners and collection of foreign exchange – have been adversely affected. Exporters and migrant worker industry officials say a further depreciation of the rupee is paramount if the country is to compete effectively in world markets or improve on remittances.
In recent weeks, the Central Bank (CB) has been pumping in dollars into the money markets due to a shortage faced by banks essentially to service some large petroleum bills and, to some extent from a withdrawal of CB bonds by foreigners. Some bankers said the CB has been injecting between $10-$15 million per day to head off any crisis.
But that is putting pressure on the CB’s own reserves. Exporters from tea and garment sectors, among others, have been having regular meetings with the CB in an effort to depreciate the rupee further in line with other markets.
While the CB was active in the weeks after US banks collapsed forcing the US government to come up with a bailout package, the process has been slow thereafter and calls for action from other actors too – Treasury and other government agencies.
Exporters in particular say they are in danger of losing markets because of pricing complications since key competitors like India and China are depreciating currencies and providing additional benefits to exporters to weather the storm.
‘We could get outpriced in the market if our authorities don’t wake up,” one exporter said. The ceremics industry also drew attention to the crisis last week during a seminar to discus the uncertainty over the global economic climate.
The impact on the developing economies like Sri Lanka is also drawing the attention of the Asian Development Bank (ADB) which says it’s looking at the issues relating to exports and migrant worker remittances and working with governments to tackle these problems.
Exporters have often complained about an ‘over-valued’ rupee and this is clearly showing now with a marginal float some weeks back by the CB not taking root. The dollar has been hovering between Rs 107 and Rs 110 for several weeks now with calls for it to be at least pegged at Rs 120. (However there is some indication that the dollar may appreciate next week).
Countering arguments that a depreciation of the rupee will hurt imports like fuel and food, exporters argue that these two commodities – oil in particular – have hit rock bottom prices and a gaining dollar wouldn’t have a major impact on the cost of imported goods. On the other hand, like what Managing Director, Samson Rajarata Tiles, Dr Bandula Perera says, Sri Lanka needs foreign exchange to defend the rupee. And if the dollars aren’t coming in, what do you do then? Valid point.
The pains, strains and the stresses are showing across the world, signals the government’s economic advisors and financial authorities need to take seriously. For instance a report released last week by the ADB says economic growth in Asia will slow to 5.8% in 2009, down from a likely 6.9% this year and 9% in 2007. This would definitely impact on the prices of export goods of Sri Lanka’s competitors. If Sri Lanka doesn’t fall in line with the competition, that will be a costly mistake.
Some breathing relief has come vis-à-vis the latest EU announcement on GSP+ where Sri Lanka has been listed with others as beneficiaries for the new term (from January 2009) but subject to the EU investigation. If the probe concludes that Sri Lanka has not fulfilled the conditions set out it will lose these benefits. However the benefits will continue till the probe is on and that would be till around October 2009.
The Media Minister appears to have made a mess of the EU anouncement telling reporters at the post-cabinet press briefing that Sri Lanka has won the concessions for another three years – when it clearly stated that this is subject to the investigation. Ministers shouldn’t tread on unfamiliar territory and made misleading statements like this.
Reports from West Asia indicated that the construction industry has collapsed and the real estate market is down. Foreign employment agents say job orders are drying up and the government must seriously take note of a crisis that would hit remittances and also employment opportunities.
There is a need for a proper assessment of the impact of the global financial crisis (on all aspects) on Sri Lanka. We urge the government to appoint a committee representing key government officials (involved in export policy) and the chambers of commerce and other connected industries to review the situation and prepare a forward plan to handle the crisis. |
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