The Central Bank has highlighted the economic impact of the coronavirus epidemic in terms of the direct impact from China and the impact from the Global Economic Slowdown.
“There will be a direct impact due to the conditions in China, as China is a key source for Sri Lanka’s consumer and investment goods imports. Although China accounts for only two per cent of Sri Lanka’s exports, supply chain disruptions would affect the country’s overall export performance, Central Bank Director of Economic Research Dr. Chandranath Amarasekera said yesterday.
“Chinese tourist arrivals are around 9 per cent of total arrivals. Already, we have seen arrivals from China dropping by 92.5 per cent in February. Non-return of Chinese workers would affect infrastructure projects which depend on the Chinese workforce,”he said.
“The slowdown of the global economy will affect Sri Lanka’s economy. Merchandise exports, tourism and other services exports and related value chains will also be affected. There could be a slowdown in remittance inflows too. We have also seen the flight of capital from emerging market economies to safe havens. However, there could be marginal benefits accruing from lower petroleum prices and lower global interest rates.
Overall, based on the current information, we expect Sri Lanka’s real GDP growth in 2020 to be around 3.5-4.0 per cent with the impact of the outbreak, compared to the previously expected range of 3.7-4.5 per cent.
However, the exact impact would depend on the extent of the spread and how long it would persist.
Meanwhile, Central Bank Governor Prof. WD Lakshman said, “We have decided to maintain the current accommodative monetary policy stance of the Central Bank. As such, the policy interest rates that were reduced by 50 basis points in January 2020 will be maintained at reduced levels. We call upon commercial banks to pass on the benefit of our policy rate reduction in January to the borrowers without any further delay.
At the same time, we have assured the market that adequate liquidity in domestic financial markets will be maintained to meet any impact arising from global developments, particularly due to the spread of the coronavirus.