EU REFERENDUM:SL MUST BE PREPARED TO FACE POSSIBLE ECONOMIC SHOCKS

On coming Thursday, the UK will vote in a referendum on whether the UK should remain in the EU. The decision of the majority of the UK citizens at the referendum will be vital in the context of international politics as well as the global economy.
With the heat of the referendum starting to be felt, Sri Lanka’s Prime Minister Ranil Wickremesinghe too, expressed his ideas over the matter and said that Sri Lanka is very concerned about the probable impact of the referendum.
The concerns of the Sri Lankan Premier appeared to be legit as the country has strong economic ties, not only with the UK, but also with the EU. According to the Central Bank Annual Report, 10% of the total exports from Sri Lanka goes to the UK while another 19% goes to the countries in the EU. That means almost one third of Sri Lankan exports go to the EU including UK. In that context, one can argue that possible fallout of UK or EU can adversely affect the external trade of Sri Lanka. However, it can also be argued that EU and UK will continue to trade with Sri Lanka, in spite of UK leaving the EU.
There are many people in the UK who support pulling out of the EU, while there is a huge segment of the community who insists that UK should remain in the EU. Even Premier David Cameron, who calls the referendum, now, desperately attempts to secure the place of the Britain in the EU. The referendum was called subsequent to the promise made by Cameron to call the referendum to remain in EU or leave EU due to the pressure from Eurosceptic backbenchers within his own party.
Those who support the option of leaving the EU emphasize that it would result in an immediate cost saving, as the country would no longer contribute to the EU budget. Last year, Britain paid in £13bn, but it also received £4.5billion worth of spending, says Full Fact “so the UK’s net contribution was £8.5billion”. However, it does not appear to be a huge amount of government expenditure. As it was estimated, due to leaving EU, the UK would save only about 7 per cent of what the government spends on the NHS each year.
A more concerning factor for EU would be the external trade. The EU is a free trade area. According to Sky News, more than 50 per cent of UK exports go to EU countries and most importantly the membership of the EU allows Britain to have a say regarding trade regulations.
Britain also benefits from trade deals between the EU and other world powers. “The EU is currently negotiating with the US to create the world’s biggest free trade area,” says the BBC, “Something that will be highly beneficial to British business.” In that context, Britain is at a risk of losing its power over economic decisions in the EU which is the largest trading partner of the UK. However, those who support the option of breaking from the EU proposed adopting a Canada-style trade arrangement. However, the suggestion was dismissed by the Premier who claimed that it will result in negotiation for years and the trade deal would be worse.
Yet, the pro-exit campaigners argue that it would be in the interests of other European countries to re-establish free trade, but their opponents suggest that the EU will want to make life hard for Britain in order to discourage further breakaways.
However, the most important concern is that Britain leaving EU is something that the globe had not experienced before. For that very reason, outcomes are pretty unpredictable. Such unpredictable results can cause economic imbalance, even though it may be short term. Sri Lanka, being a country of which major export destination is the EU, will have to be cautious of the results of the referendum and take measures to face possible external economic shocks.