Defaulting on a sovereign debt has very serious ramifications to a country’s future stability. So when the Central Bank decided to default on a paltry $78 million USD purely to satisfy an argument that we need the money to import oil and food. The shortsighted decision has caused mayhem in international markets for Sri Lanka. Even companies with strong balance sheets are struggling to raise capital even with premiums. The current Governor is technocrat who has no exposure to markets on banking. Perhaps the reason for taking such a short sighted decision. The Governor must not be influenced by opposition parliamentarians or government parliamentarians. Or go with the flow. The institution must take informed and professional decisions.

Today the credibility of the country is lost for a very long time , and “A” and “B” rated investors will stay from Sri Lanka . The banking system which is struggling will come under severe pressure and will face several challenges when opening letters of credit and doing forex transactions. Forex loans and investments that were previously in the pipeline for local banks would be stopped or postponed. International Banks will recall their credit lines.

Most forex-funded infrastructure projects will stop. Attracting Foreign Direct Investment will be a humongous challenge . Small and medium sized import businesses will be badly affected. Srilanka needs to put together a high level strategy to deal with these challenges when external debt is defaulted. Failure to do so may lead to a serious economic crisis . Those who advised the government to default, must now work on the exit strategy to regain our international credibility .

They must take responsibility for this economic mayhem. The sovereign default is having serious repercussions, it will be the people that will have to face the economic consequences. A default is a serious matter that should have received the formal approval of the Cabinet of Ministers with the advice of the Attorney General as well. Parliament is the approving authority and the final responsibility for finances, did they give the authority to default? The new CBSL Governor must stop giving ultimatums to the government and focus on undoing the crisis they created with the default. He should stop making a circus of the Central Bank .

Adolf

Sri Lanka’s Business Activities wil badly affected for the next three months further i due to prolonged power outages, supply shortages and sharp increases in prices of fuel, gas and other inputs, increase in borrowing costs, subdued demand for non-essentials and economic, political and social instability in the country, Central Bank analysys predicted.

The country’s manufacturing and service sectors suffered a set back significantly in April 2022, following the seasonal pattern and indicating a contraction in manufacturing activities on a month-on-month basis.

Accordingly, manufacturing recorded a decline in Production, New Orders, Stock of Purchases, and Employment subindices compared to the seasonal peak in month of March.

The decline in Production, particularly observed in the manufacture of food & beverage and textiles & apparel sectors, was due to fewer working days during the month owing to new year holidays, and supply-side constraints including ongoing power outages/energy shortage.

Decrease in New Orders, especially witness in the manufacture of food & beverage sector, was due to end of the festive season demand. Employment also dropped on a month-on-month basis with the increase of absentees following the new year holidays.

Further, Stock of Purchases declined mainly due to the unavailability of required quantities in the domestic market and difficulties in opening letters of credit for importing materials.

Many respondents in the manufacturing sector highlighted that they had to slow down production due to the unavailability of required raw materials, The Central Bank analytical report revealed.

Meanwhile, Suppliers’ Delivery Time lengthened at a higher pace in April 2022, mainly on account of international logistical issues, clearance delays due to forex payment issues, and diesel shortage.

As the manufacturers are concerned about the growing uncertainties from multiple fronts, the overall expectations for manufacturing activities for the next three months deteriorated further in April 2022.

Services sector performance was not up to the expectations in April 2022 indicating a deterioration across the sector amid the prevailing economic, social and political instability in the country.

New Businesses declined in April 2022 for the first time since August 2021, particularly with the deteriorations observed in accommodation, food and beverage, insurance, real estate and transportation sub-sectors.

Business Activities also declined in April 2022 due to the continuous disturbances to business operations mainly attributable to prolonged power outages and difficulties in sourcing inputs including fuel and gas.

Further, the subdued demand amid reduction in purchasing power, drop in tourist arrivals and uncertainties in the country also affected the business activities of some sub-sectors negatively. Accordingly, accommodation, food and beverage, professional services, education, insurance and real estate sub-sectors recorded major contractions during the month.

Nevertheless, several companies, mainly in wholesale and retail trade and other personal activities sub-sectors, saw progresses supported by the festive demand.

Employment recorded a marginal decline in April 2022 due to contract expirations, retirements and resignations. Meanwhile, Backlogs of Work increased for the first time since September 2021 due to power outages, shortages of supplies and transportation difficulties.