Sri Lanka Economic Crisis – How bad it is and effects of Russian War

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A global economic recovery from the pandemic has been made more difficult by the Russian-Ukrainian crisis, as stockpiling and rising inflation have added to the existing troubles. Over the weekend, the West agreed to cut off Russia’s SWIFT access, a global financial telecommunications network that facilitates seamless and rapid cross-border money transfers. Learn about the Sri Lanka economic crisis by reading the article.

Sri Lanka Economic Crisis

Global stock markets fell following Russia’s invasion of Ukraine, while Sri Lanka’s shares ended 5% lower on Thursday. The CSE All-Share index (.CSE) finished down 5% to 10,657.05 points on sharp IT and energy stocks losses. Monday was the worst day for the benchmark index in over a year, closing at its lowest level in three months.

Sri Lanka Economic Crisis

Sri Lanka’s Central Bank announced Thursday that the country had not sought external help to restructure its debt. Due to a worsening economic crisis, foreign exchange has been in short supply in the country. According to the bank governor, discussions with bankers and financiers have only focused on the possibility of new financing. Expolanka Holdings Plc and Lanka Orix Leasing Company Plc were the index’s top drags, ending 10.7% and 9.5% lower.

Impact on Sri Lanka

The Bureau of Economic Analysis predicts that Sri Lanka will import 2% from Russia and export 2.2% from Ukraine in 2020. Although they imported wheat from each other and exported black tea from Sri Lanka, both countries are important trading partners. Sri Lanka exports fermented black tea (over 3 kg) to Russia and Ukraine for about 18% of its total exports. In the end, Russia and Ukraine provide 45% of Sri Lanka’s wheat imports. Additionally, Sri Lanka imports more than half of its soybean, sunflower, and pea oil from Ukraine. In addition to asbestos, steel, copper (cathodes), and potassium chloride for fertilizers, Russia and Ukraine import large quantities of these products.

Fuel and commodity prices could rise further if the Ukraine crisis is not resolved immediately. Because of high energy prices and supply chain bottlenecks in the Western world, there may be inflationary pressure in the Western markets, lowering consumers’ purchasing power lowering demand for Sri Lankan goods. In addition to readymade garments, teas, spices, and seafood.

Effect of Russian War on Sri Lanka

Rather than merely focusing on food and raw materials, Sri Lanka needs to ensure access to them. Countries worldwide are stockpiling grain and exploring alternative business dealings with Russia to deal with the crisis. The deteriorating food security and raw materials access situation in Sri Lanka leaves the country with few options to mitigate the effects. Because wheat and rice are substitutes, high wheat prices may influence rice demand.

A shortage of inputs, such as fertilizer, must be eliminated to ensure adequate domestic production. As a result of the current foreign exchange crisis, Sri Lanka cannot cope effectively with shocks. Until the foreign exchange crisis is resolved, markets will not trade crisis promptly. The best way for Sri Lanka to dispose of its debt may be to secure dollar inflows from multilateral institutions. It is also possible to negotiate predetermined prices for food with friendly countries and enter into forwarding contracts for raw materials and fuel.



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