Sri Lanka’s economy started to recover since January 2019, officials said, after being hit from a political and economic crisis triggered by President Maithripala Sirisena in October, just after the starting of peak tourism season.
The financial cost of the crisis has been computed to be around Rs.21 billion, state minister of finance Eran Wickremaratne said.
The peak winter season runs from December to around March/April and the country’s tourism gains momentum with tourism resorts outside were seeing occupancy of over 80 percent, and forward bookings are continuing strongly, several hoteliers said.
The UNF government has repaired the damage to the external sector and markets have regained confidence in the last 2 months. At present external borrowing costs have declined by over 200 basis points – assuming US$ 3 billion in fresh borrowings this year, that translates into a saving of over Rs. 10.8 billion.
Foreign capital is now flowing back into the economy with Rs. 8 billion inflows into government securities since January – and the rupee has also appreciated 2.3% year to date.
In the lead up to October 26th, the government had brought stability to an economy that had been adversely affected by successive years of drought that debilitated rural incomes and hurt consumption across the economy.
Global oil prices had doubled, and the US Federal reserve was ramping up interest rates, driving capital out of emerging/frontier markets.
However, from end October global oil prices began to decline sharply, the Federal Reserve signaled an easing of their stance, and the consumption began to recover in the fourth quarter.
Without any disruptions, Sri Lanka would have been able to enjoy a robust boost to the economy and the country would have seen a strong uplift in economic performance in 2019.
Unfortunately, Sri Lanka was deprived of the opportunity to benefit from these emerging tailwinds as the island nation got engulfed in a political crisis.
The 52 day government had got Sri Lanka downgraded. In 2018, the rupee depreciation against the US dollar was recorded by the Central Bank as 16.36% and of that 7.58% of the depreciation had occurred during the 52 day period.
Finance Ministry official said that US $133.6 million in Treasury Bonds had been withdrawn from the Colombo Stock Market in 2018 and of that $96.9 million (73%) had been withdrawn during the period of October, November and December.
Between January 1st 2019 and October 26ththe Sri Lankan rupee depreciated along with other currencies in similar emerging market economies. This was due to factors beyond the control of the Government of Sri Lanka and the Central Bank and was driven by global developments, particularly the policy changes of the US Federal Reserve.
From October however the global environment began to shift, and during this time all of the other emerging market economies saw a recovery and appreciation of their currencies. Unfortunately for Sri Lanka, the political coup of October 26th resulted in the Sri Lankan rupee depreciating rapidly at a time it could have appreciated and recovered, official sources said.