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West’s Crisis To Hit SL

Sep 24, 2011 3:26:43 PM - thesundayleader.lk

Due to the crisis in the West (Sri Lanka’s (SL’s) largest export market), the island might find it difficult to keep its export growth momentum, an economist warned.

Ms. Gayathri Gunaruwan, Chief Economist, Ceylon Chamber of Commerce, speaking at a pre-budget seminar in Colombo on Wednesday said that those economies are going to consume less, they are going to buy less from SL.
And competition is going to be severe with 40-50% of exports from entire Asia going to the West, she added.
Gunaruwan said that there is little intra-regional trade in the East.
She therefore said that short and long term strategies would be needed to strengthen exports, with export diversification being in the long term plan.
Gunaruwan pointed out that over the years SL’s share of exports as a percentage of GDP had fallen from 35% to 16%.  The story was the same in regard to imports, she added.
Gunaruwan also said that investments are slow due to unclear policies. With public investments stagnating at 6% of GDP, if overall investments were to grow upto 32% of GDP as targeted then private sector investments will have to grow by 3-4% in GDP terms, said Gunaruwan.
For that, private sector seeks clarity, especially in regard to infrastructure investments, she said.
Gunaruwan faulted the recent restructuring of the BoI which has left it toothless from being an investor facilitator.
“Access to land is a huge issue, there is no developed land for investment projects, so it’s unlikely that the investment target of 32% of GDP would be met”, she said.
The silver lining is that with demand slackening in the West that may result in oil prices contracting, on the other hand a drought will affect food production, said Gunaruwan.
She also warned that short term debt is equivalent to 37% of total reserves. “So if short term reserves are pulled out due to the crisis that will cause other problems, despite the fact that the situation is not as severe as in 2008 when the island had reserves sufficient to meet only three months of imports, whereas now, the reserves coverage has improved to six months of imports.
The seminar was organized by the Organisation of Professional Associations