Current global state poses significant risk to Lankan economy - First Capital | Daily News

Current global state poses significant risk to Lankan economy - First Capital

Predictions of the effect of Corona-virus to Sri Lanka
Predictions of the effect of Corona-virus to Sri Lanka

The current global situation poses a significant risk to Sri Lankan economy with the inability to raise funds in the international market amidst the current volatility and the lack of interest in emerging and frontier market bonds, says First Capital in their report.

“Thereby, Sri Lanka may have to focus on bilateral loans, similar to the recent Chinese loan. In addition with the budget deficit estimated to touch 9-10% in 2020, rupee borrowing requirement is likely to significantly increase towards the 3Q and 4Q of 2020.”

With the lack of lending in the system and the subsequent impact from COVID-19, we expect credit growth to remain significantly lower resulting in a dip in a further in AWPR.

The exponential spread of coronavirus and the complete shutdown of most businesses are expected have a major adverse impact on all companies listed in the Bourse. It is likely to significantly delay the process towards any recovery of consumption depending on the scenarios explained in Slide 31.

Despite the tax cuts and the lower interest rate regime, the fear created among the public relating to the coronavirus may only result in a slow growth of consumption in the system and that too more towards 4Q2020. With earnings outlook negative with the closure of most businesses and the imposition of curfew, normalcy in business is only likely to return once the coronavirus spread is brought under control.

Tourism earnings is likely to have the biggest impact as even though COVID-19 spread slowdown in Sri Lanka the major decline in global travel with spread of the virus across the world may take at least 6-8 months to normalize.

Earnings of most companies are likely to be negative during the 2Q & 3Q2020 resulting in ASPI target for 2020 being cut to a mere 5,000 for June 2020 while a possible recovery in 4Q 2020 may push the index towards 6,000 by December 2020.

The Central Bank (CBSL) also loosened Monetary Policy in line with the global trend and CBSL was also quick to put in place additional measures to support currency.”

These included, suspending facilitating importation of all types’ motor vehicles: importation of non-essential goods, purchase of international sovereign bonds by licensed banks.

Sri Lanka also managed to negotiate a couple of important loans from China which may support its reserves and/or support spending in this period of lower tax collection.

Another that favours Sri Lanka is that, Q2 is usually Lanka’s worst quarter in any given year due to the April New Year holidays.

Reports also say that Sri Lanka and Myanmar have gone beyond a lockdown action into a complete shutdown by means of curfew with only a few selected essential services working at an early stage of the spread.

“This has proved to be successful so far.”


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