Mar 08, 2020

COVID-19 hits SL economy; outflows of Rs. 19.6b in 2 weeks

With the coronavirus (COVID-19) slowing down the global economy, foreigners have rushed to encash Treasury Bonds and Bills held by them in Sri Lanka, resulting in an outflow of Rs 19.6 billion in two weeks, the Central Bank said.

According to Central Bank statistics, Rs 8.23 billion of foreign outflow was recorded this week by Friday while last week Rs 11.42 billion government securities were encashed.

Monthly Monetary Policy Review issued by the Central Bank of Sri Lanka (CBSL) said this week that the escalation of the coronavirus (COVID-19) outbreak to a ‘global health emergency’ was likely to affect Sri Lanka’s economic performance.

“Sri Lanka’s economic links with China could be directly affected as significant volumes of consumer goods, intermediate goods and investment goods are imported from China. The likely slowdown of the global economy and disruptions to the supply chain could affect Sri Lanka’s merchandise and service exports as well as related logistics,” the CBSL Policy Review said while stressing that the slowdown in global tourist movements would affect Sri Lanka’s tourism sector, in addition to the direct impact of lower arrivals from China.

The CBSL Policy Review also warned that the spread of the virus to countries with a significant number of Sri Lankan migrant workers could affect remittance inflows also.

Development Banking and Loan Schemes State Minister Shehan Semasinghe told the Sunday Times that even though the current slowing down of the global economy due to the coronavirus would have an impact on small nations such as Sri Lanka, the government had taken adequate measures to ensure a stabilized economy.

“With the government setting paddy buying price at Rs 50, it will have a positive impact on agrarian based rural economy in addition to money circulation among the people.

We believe this would reflect in the other sectors of the country’s overall economy, he said.

In a new study this week, the Asian Development Bank (ADB) said Sri Lanka could experience a negative growth of (-0.18%) on the Gross Domestic Product (GDP) this year considering the significant economic impact of COVID19 on Asia through numerous channels, including sharp declines in domestic consumption, lower tourism and business travel, trade and production linkages, supply disruptions, and health.

A Colombo-based firm’s market analyst said if the foreign outflow was to increase in future, it would cause further depreciation of the rupee against the US dollar. According to CBSL data, during the period up to March 6 this year, the Sri Lanka rupee depreciated against the US dollar by 0.2 percent.

Ceylon Chamber of Commerce Chief Economist Shiran Fernando said,” The outflows are not Sri Lanka specific as we are seeing similar outflows in other emerging and frontier market countries with foreign portfolio investors returning to safe haven assets like gold and US Treasury Bills. “It is yet to apply a significant depreciating pressure on the currency but will need to be monitored.”

(sundaytimes.lk)

(Except for the headline, this story, originally published by sundaytimes.lk has not been edited by SLM staff)

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