ADB’s preliminary take on impact of new US tariffs on Sri Lanka

Thursday, 10 April 2025 00:16 - - {{hitsCtrl.values.hits}}

The Asian Development Bank’s (ADB) Colombo-based experts yesterday confirmed that Sri Lanka will be impacted by the high 44% reciprocal tariff imposed by the US Government, but a proper assessment will only be known in a few months.

“We assume the actual impact will be felt next year,” ADB Senior Country Economist Lilia Aleksanyan told journalists yesterday during the release of the Asian Development Outlook April 2025, which will be updated in July.

She noted that developing Asian economies are among the hardest tariffs seen. Of the top 10 highest tariffs globally, five are in developing Asia. That’s Cambodia (49%), Lao PDR (48%), Vietnam (46%), Myanmar (44%), and Sri Lanka with 44% as well.

The ADB has made a preliminary estimation of the impact of the new US tariff and noted the move will result in substantially lower growth for the global economy, for the US, for China, and for other economies. “So across the board, the impact on GDP will be negative,” said Aleksanyan.

The ADB’s scenario includes imposition of proposed tariff in full; or there could be exemptions, rates could be negotiated, as well as retaliatory measures.

As it is, the ADB expects the US move will erode cost competitiveness for Sri Lankan exports, leading to possible order cancellations, profit losses for exporters due to thin margins, spillovers to non-exporters/services, and shift of production, as well as lower tariffs for competitors.

If new US tariffs are (fully) implemented, the ADB said it will downgrade GDP growth forecasts due to a sharp decline in growth in goods exports, slowdown in the export-oriented manufacturing sector, worsening investor confidence, lower Foreign Direct Investment (FDI) and domestic capital expansion, rising unemployment, declining wage growth, lower private consumption, and fiscal pressures with higher unemployment and lower tax revenues.

It noted that possible structural changes for closer regional cooperation and diversification of markets and partners can help Sri Lanka in terms of expanding to other Asian markets and niche markets within the EU and entry on electronic products and high value-added products.

ADB Senior Economics Officer Lakshini Fernando said more actions will be required by Sri Lanka in order to face ongoing and future challenges. Deep fiscal reforms, securing of new external financing including with concessionary terms, rebuilding of reserves through non-debt inflows, supporting trade and investment flows, and private sector-led growth through better governance and transparency were some of the recommendations shared by Fernando at the media briefing, which also included a presentation by ADB Senior Economics Assistant Dinuk de Silva.

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