Brexit to hit Lanka hard

The country’s economists and exporters predicted that in the wake of Britain’s exit from the European Union {EU}, Sri Lanka would face negative consequences across the board in many areas.

On June 24, the British public in an epoch-making referendum voted in favour of moving out of the EU, prompting speculation fuelled by incumbent Conservative Prime Minister, David Cameron himself that he would step down, paving the way for a change of the guard as early as October this year.

Head of the Department of Economics of the Faculty of Arts of the University of Colombo, Prof. Ven. W. Wimalaratana said that the Brexit, which he deemed was a divorce of sorts, which would cause an initial shock in the markets in the short term (one year to one and a half years to a maximum of two years), would locally directly adversely impact the currency market, trade including exports (including textiles), economic growth performance, investments including foreign direct investments (FDIs), tourism, and international aid and other support received by the country, thereby causing mostly negative implications.

He highlighted that while there were a number of Sri Lankans working in Britain and the countries of the EU and some were permanently settled there, their remittances too would be affected.

While we are at present not receiving much in the way of FDIs, we may not be able to expect FDIs as much as we hoped we would, he remarked.

“Demand for our products including commodity exports (including traditional ones) will go down. A large percentage of inbound tourists come from these regions. The net benefit from this to Sri Lanka will be directly affected, especially because of currency fluctuations resulting from the Sterling Pound and the Euro depreciating in the initial stages, thus leading to their outbound tourism being affected,” he pointed out.

In addition, he said that when foreigners change their currency to Sri Lankan Rupees, the amount they receive would be less than what they formerly did. “Economies of scale are driven by psychological factors and therefore the unsettled environment will marginally affect both within and outside the region. In the long run, this transitional phase will lead to a new equilibrium being found between the United Kingdom (UK) and the European economies, all of which are not isolated economies but very much a part of the world economy,” he added.

“The world has come out of a financial crisis and the smooth patch being experienced at present will once again change until the new direction is found in the long run. There will be volatility. There will be gains and losses. It will take two years for things to settle down,” he explained.

Meanwhile, Secretary General of the Joint Apparel Association Forum (JAAF), Tully Cooray said that there would not be immediate changes but added that they were adopting a wait-and-watch approach. “We are also groping in the dark. But we feel that it would take at least one to two years for the changes to be in place,” he said.

He said that they would have to request the UK for a fresh preferential system in the event the country decides to deviate from the current customary practices. “We do not know how it is going to be. But we expect that these changes will take a long time to be in place,” he added.

Government Ministers Dr. Sarath Amunugama, Dr. Harsha de Silva and Eran Wickremaratne were not available for comment.