Gloomy Prospects for the Sri Lankan Economy

Colombo, Sri Lankan government is increasing taxes on mobile phones and vehicles according to the minister Jayraj Fernadopulle.“Taxes on mobiles and vehicles are for the benefaction of Sri Lanka, the Government need to regain the amount they lose at providing the tax releases in Essential good, to carry on the development process,” he said.

Speaking on the financial status of Sri Lanka, Joel Kim, Fund manager said, Sri Lanka may delay its first overseas debt offering as global credit markets slump and a conflict between government forces and Tamil rebels escalates. The under-estimation of enemy power and the over emphasis of government forces warfare tactics have created a doubtful situation in Sri Lanka says an observer in Colombo.

Gloomy Inflation Picture

“Sri Lanka might delay the $500 million bond-sale to seek cheaper funding for building roads and ports, to revive an economy that expanded at the slowest pace in two years in the first quarter and there is going to be gloomy prospects for the Sri Lankan economy”, says another financial analyst in Colombo.

Sri Lanka’s bank raised the benchmark interest rate seven times in the past two years to 10.5 percent from 8.25 percent in order to curb inflation, pushing up the cost of domestic financing.

Sri Lanka's share market also continue to tumbles to new lows as small investors are selling their holdings as the interest rates rose to 17 percent for the fixed deposits as the small investors are leaving the share market as they are the people who keep the share market alive and they find it difficult to borrow from the banks for their trading according to a small investor in Colombo.

"Higher rates on borrowing have driven away more than 50 per cent of retail investors, who kept the market active, as their portfolio value continued to drop during the past four months," said an analyst in Colombo.

The inflation of the country reached to 17.3 percent in August, value of the rupee depreciated significantly against all major world currencies, and the looming bigger and bloodier war threats all are causing great worries to the common man. High inflation is not good for Sri Lanka and its share market in total shambles very bad news for Sri Lankan economy, another observer said.

"If there is a military buildup and sharp increase in weapons imports and a deterioration of the rupee, it will have a spiraling effect on inflation," said an analyst in Colombo.

The rupee sank to new low of 113.20,   "Importer demand (for dollars) was very high, and there is pressure on the rupee, Sri Lankan rupee to weaken to as much as 118-120 per dollar by the end of the year.” said one currency dealer.

There is gloomy prospects for the Sri Lankan economy and Sri Lanka’s common man’s life is in total shambles due to the high inflation rate, depreciating rupee, share prices falling down, repeatedly rising fuel prices, the high interest rates, wide range of corruptions in the government, mismanagement of the public funds, heavy tax increases on goods, the escalation of the violence and more importantly threat of looming war are all causing great impacts on the economy of the war ravaged nation of Sri Lanka, a analyst in Colombo said.