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The country’s premier private sector lobby, the Ceylon Chamber of Commerce, yesterday declared that Britain’s exit from the European Union poses several risks for the Sri Lankan economy.
The Ceylon Chamber yesterday issued a brief statement outlining possible risks and impacts following the outcome of EU referendum on Thursday in Britain in which people voted to exit from the EU with 51.9% to leave and 48.1% to remain.
Following is the Ceylon Chamber’s statement.
Impact from the financial markets channel: The effect of Britain’s EU referendum results on international financial markets would be a key channel of impact for Sri Lanka, as the external commercial borrowing environment becomes more volatile.
The immediate volatility and uncertainty in currency and equity markets across Britain, Europe and Asia are at levels not seen since the 2008 financial crisis. At that time too, Sri Lanka was caught in the global storm and despite no direct impacts, had substantial indirect impacts. Sri Lanka now is much more exposed to international markets than at that time and therefore would face impacts through this channel.
In an already volatile external environment, this poses substantial risks. Generally, in times of volatility, investors would tend to stay away from frontier and emerging markets like Sri Lanka and go to safer assets. This would include the USD, and any appreciate of the USD would also affect Sri Lanka.
The IMF funding package is timely, then, as the country’s external reserves are provided some cushioning.
Impact from the trade channel: According to the latest data, Sri Lanka exports 10% of our exports to the UK (around $ 1 billion) and 28.8% of our exports to the EU (around $ 3 billion).
If the estimates from various expert groups on the impact of Britain’s exit on the British economy are correct, the impact on the health and dynamism of the British economy will be substantial and that will no doubt have impacts on Sri Lanka’s trade with Britain.
In the medium-term, the impact on economic activity and dynamism in Britain and Europe would impact on the markets for our exports there. Britain is a substantial market for other EU countries, and any reduction in their export earnings and overall incomes would affect their demand for imports.
The negotiations around the terms of Britain’s new engagement with Europe are likely to take a couple of years, and so the full impact on international trade is yet to be seen. We need to see what sort of a new trading arrangement Britain would have with the rest of the EU, in order to calibrate its own new trading arrangement with Britain, as the GSP Plus scheme will no longer include Britain.
Moving forward: All this further reiterates the need for Sri Lanka to aggressively pursue diversification of export markets (including through new trade agreements), create a conducive environment for our businesses to thrive and be agile in a volatile environment, and take measures to boost the competitiveness of our exports.
Following the vote given by the British people to leave the European Union at Thursday’s BREXIT, the Sri Lankan government will take measures to sign a trade pact with Britain as soon as possible, Deputy Minister of Foreign Affairs Dr. Harsha De Silva said in parliament yesterday.
Speaking during the debate on the Right to Information Bill, Deputy FM Dr. de Silva said 40 % of agreements between Sri Lanka and the European Union are with the UK.
He said Sri Lanka will stand to lose 40 % of the tax concessions that will be gained from winning back the European Union’s Generalised System of Preferences (GSP+) trade facility when the UK leaves European Union since almost 40 % of Sri Lanka’s exports to the EU is to the UK.
Hence, Sri Lanka should enter in to a trade agreement with the UK if the government hopes to minimise consequences of Britain’s exit from the EU, the Deputy Minister said.
The Deputy Minister pointed out that Sri Lanka will also be affected by the global economic downturn which had begun after the Thursday’s vote.
Responding to a statement made by Joint Opposition MP Dinesh Gunawardena, Dr. de Silva said they campaigned with the UK government to convince the British people to vote in favor of UK to remain in the EU since UK’s exit will certainly have a significant negative impact on Sri Lankan exports to the EU.
Deputy Minister de Silva last week met with the Sri Lankan- British community leaders in London to enlighten them on the impact of Britain’s vote on the Brexit referendum on 23 June on Sri Lanka.
Prime Minister Ranil Wickremesinghe also expressed his view in an article to the UK’s iNews, that Sri Lanka is “very concerned” about the probable impact of a British exit from the EU - on the global economy, on Sri Lanka, and on the UK.
“We in Sri Lanka - as well as many other Asian countries - cannot afford further financial turbulence and another global economic downturn. So we are very concerned about the probable impact of a British exit from the EU - on the global economy, on Sri Lanka, and on the UK,” the Prime Minister said.
The Deputy Minister said Prime Minister Ranil Wickremesinghe would inform Parliament the details of the proposed pact.
