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Sri Lanka’s construction industry faces a threat of collapse

Triggered by acute shortage of foreign currency, ill-timed tax cuts, losses to tourism, fall in foreign workers’ remittances, shortages of food and fuel, and high foreign debt, Sri Lanka is currently battling the worst economic crisis since its independence. 

The current economic crisis situation has negatively impacted the employment of about 1.2 million of those who are working in the construction industry and if this situation prevails, the entire industry faces the threat of collapse, industry sources said. 

Considering this current turmoil, GlobalData, a leading data and analytics company, forecasts Sri Lankan construction industry to contract by 4.6% in real terms in 2022 against the previous projection of 9.2% growth.

The outbreak of the COVID-19 pandemic exacerbated weakness in the tourism sector of Sri Lanka that had already been battered by the ‘Easter Sunday bombings’ in April 2019. 

The weakness in the sector – which is the third-largest source of foreign exchange – is expected to continue over the coming months, due to the ongoing Russia-Ukraine crisis, given that Russia is one of the largest tourism markets for Sri Lanka.

Pooja Dayanand, Analyst at GlobalData, comments: “The depleting foreign currency reserves, mounting debt, and the continuing weakness in Sri Lanka’s tourism sector are expected to limit the public spending on infrastructural projects this year. 

Besides the economic catastrophe, the country is also witnessing a troubled political environment.  This is expected to further weigh on investor confidence, thereby further affecting the Sri Lankan construction industry’s output this year.”

The Sri Lankan construction industry, which is one of the biggest GDP contributors and employment generators in the country, is also facing significant headwinds due to the shortage of cement. 

The severe foreign exchange crisis has prompted the government to impose strict import control measures. This has led to the shortage of raw materials required to produce raw materials domestically.

Dayanand concludes: “The Sri Lankan government’s decision to default on all its outstanding foreign debt could prevent a further deterioration of the country’s financial position. 

Although it had sought debt relief from India and China, both countries offered more credit lines to buy commodities. However, the government’s plan to seek financial assistance from the IMF and the World Bank, could provide economic aid to bounce back.

Around 75% of construction work in the country has come to a standstill owing to the increase in the cost of building materials together with the spike in fuel prices, says the National Construction Association of Sri Lanka.

Its Vice President, M.D. Paul stated that the price of a cube of sand has increased by over Rs. 8,000, to almost Rs.22,000, after the fuel price hikes.

However, since the fuel price hikes also increases all transport costs, a cube of sand now costs Rs.30,000, he added. .

Moreover, metals, ABC and all other building material costs have increased by 60 to 70%, the National Construction Association mentioned

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