The government will take every possible measure to bring back the economy to where it was before the Easter attack. The country was at a turning point when it faced the terrorist attack and it is a big blow to the economy in particular to the tourism industry, Minister of Finance Mangala Samaraweera told the media on Friday in Colombo.
“We assure that the country is in a position to meet all its debt obligations. We have no intention of seeking further funding from the IMF,” he said.
“We are confident that the tourism industry will make a comeback sooner than expected. All measures will be taken to bring the economy back on track. We projected that if the tourism industry has a 30 percent drop in the number of tourist arrivals, the industry will suffer a US $ 1.5 billion loss. However, we are optimistic that the industry will make a strong comeback within a couple of years according to world examples of similar happenings in the recent past,” he said.
The silver lining in this dark hour is the Millennium Challenge Corporation agreeing to invest US $ 480 million under the compact investment program in three mega projects for the improvement of infrastructure and transport facilities which are due to be completed within the next five years. We also expect the US $ 1 billion investment which was in the final stage at the time of the attack will materialise shortly, he said.
Sri Lanka’s economy was on a sound footing. The economic indicators were favourable and the country was moving towards a sustainable socio-economic development era when the attack hit the country.
The government had succeeded in stabilising the economy and thus creating a robust foundation that enables the economy to better withstand shocks of this nature, the Minister said.
Among the indicators that support the strong economic foundation are, inflation which was 2.9% in March, trade deficit in February was the lowest monthly deficit in over five years, the Rupee appreciated 4.5% thus far in 2019 – the third best performing currency globally this year, external reserves US$ 7.7 billion (over four months of import coverage), interest rates declined over 100 basis points this year (one-year Treasury Bill rate back under double digits and now at 9.9%), fiscal consolidation continues to address fundamental imbalances – primary budget surplus of 0.6% of GDP in 2018. A surplus of 1.5% projected for 2019, exports and FDI reached all-time highs in 2018.
While the macroeconomic indicators are sound, the economy has faced a liquidity deficit in the past few months, exacerbated by the delay in the Budget due to the political crisis of late 2018. The Government and Central Bank have taken pro-active measures to address this by injecting over Rs. 300 billion into the economy in the past few months by reducing Statutory Reserve Requirements twice (injecting Rs. 150 billion), the Treasury expedited outstanding payments to contractors – minimising dues over three months (Rs. 70 billion), Gamperaliya and Enterprise Sri Lanka have injected over Rs. 100 billion in new credit and cash into the rural economy.
With these stimulus measures amounting to around 2% of GDP, the liquidity constraints in the economy are being addressed.
The government is also engaging with stakeholders to help bring down market interest rates by a further 200 basis points in the near term and engaging with the Institute of Chartered Accountants to provide temporary flexibility in application of IFRS 9 in the banking sector. Considering the strong macroeconomic foundation and the proactive measures taken to provide liquidity to the system, Sri Lanka’s economy is on a stable footing to face the economic impacts of last Sunday’s attacks.
Terrorism has become a global phenomenon and there is a global terrorism index to measure the level of terrorist threats. The colour coding red, orange and green have been allocated according to the threat level and many western countries including Belgium, France, Turkey and Russia come under severe threat category – red.