Sri Lanka’s economy is going through a severe crisis as key exports including garment and tea significantly drop with buyers staying away.
According to a recent survey in the past four years, many large international garment buyers moved their business out of Sri Lanka and into cheaper manufacturing destinations.
75 factories, in seven provinces have closed down in this period and out of this around 24 factories closed down over the past six months alone, according to the survey.
These factories were mainly located in the free trade zones in Katunayake, Biyagama, Koggala and Seethawaka Pura. Some factories were registered under the Board of Investment and some under the Textile Division of the Ministry of Industrial Development.
In addition to job losses and foreign exchange losses these garment factory closures have also hit other connected industries.
“Out of around 50 main international garment buyers registered with the Sri Lanka Garment Buying Offices Association, 12 shut down their offices in Sri Lanka within the last three years. These buying offices were shifted mainly to Singapore, India and Pakistan. Production was shifted mainly to India, Bangladesh and Vietnam,” Yarns and Fibres Exchange reported quoting Mr Dawson, a private consultant who conducted the survey.
The survey blamed the unstable security situation along with comparatively higher cost of production in Sri Lanka as reasons for foreign buyers leaving Sri Lanka.
The survey blamed the unstable security situation along with comparatively higher cost of production in Sri Lanka as reasons for foreign buyers leaving Sri Lanka.
Elaborating on the security concerns the survey stated buyers felt it was difficult to send technical staff to local factories for periodic factory inspections, because of security worries.
Island’s other big earner, tea, is also not faring well according to the Sri Lanka Tea Board, which announced a 30% drop in overseas sales in January.
Sales from tea shipments fell to 6.9 billion rupees (61.37 million dollars) in January, compared to 9.8 billion rupees in the same period a year earlier.
Volumes of tea exports also fell 25 percent to 17.76 million kilograms in January, over the same month in 2008, the board said.
"We are reeling from twin effects of lower rainfall and a deliberate effort to curtail our own production. This has hit our exports in terms of volumes and earnings," according to Tea Board chairman Lalith Hettiarachchi.
Russia and former Soviet republics are the largest markets for Sri Lankan tea, accounting for nearly a fifth of total exports, followed by the Middle East and North Africa.
With the onset of the global economic meltdown, prices have collapsed to an average of 2.65 dollars a kilo (1.20 dollars a pound) from record highs of 4.26 dollars a kilo between January and September last year.
The drop in export earnings combined with the spiralling cost of imports, especially due to increased military purchases to sustain the war, is impacting the dwindling foreign reserves, forcing the government to seek bailout from the International Monetary Fund (IMF).
Adding to the country’s financial woes, in February, Fitch Ratings downgraded Sri Lanka long-term foreign and local currency Issuer Default Ratings (IDRs), making it harder for Sri Lanka to borrow in the global markets.
Fitch cited ‘the increased vulnerability of sovereign creditworthiness to adverse shocks associated with rising inflation, persistently large fiscal deficits and worsened terms of trade due to soaring oil prices in the context of greater government recourse to commercial and market-based financing’ for the downgrade.
However, Sri Lanka’s Central Bank, which is now in discussion with the IMGF for a bailout, said the Fitch assessment was based on 'pessimistic views on the security situation, inflation and foreign currency borrowings’.
