SL firms brace for tough long overhaul
Sri Lankan businesses are bracing for a record number of failed businesses, shrinking margins and job losses amidst the economy contracting by 6 per cent.
Mahendra Jayasekara Managing Director Lanka Tiles told the Business Times that the company has witnessed a clear reduction in customer footfall. “It has fallen drastically by nearly 60 per cent. The ability to sell our products is tested in this current context which is impacting our margins. We will face a big disconnect between cost escalation and passing these increases to the customers.”
An economist said that the current interest rates are squeezing margins. Increasing revenue in companies with the economy contracting is extremely difficult, he added.
Murtaza Jafferjee, Chairman Advocata Institute, said that while there is a contraction predicted for this year, a smaller economic contraction is also forecasted for the next year. Many job losses in the formal sector are also predicted, he added noting that businesses are limited to do anything at all in this 25 per cent interest rate situation.
The situation is challenging for businesses and the very high interest rates will deter new investments, Krishan Balendra, Chairman John Keells Holdings PLC told the Business Times. “With the IMF discussions progressing well, we may see some stability that could lead to better macroeconomic conditions. Stability could also lead to higher tourist arrivals which will boost the economy and forex inflows. While the environment is tough, we are hopeful that the situation would gradually get better.”
Mr. Jayasekara pointed out that adding insult to injury companies are facing enormous pressure from unionised staff to increase remuneration. Companies will be compelled to address this because despite nominal income being intact, the real income has reduced drastically, he added.
Calls for the government to take a sharp look at policy decisions are getting stronger. The Central Bank should arrest inflation as a first priority, Mr. Jafferjee stressed. He added that there is an impending unmitigated human disaster with five million people in the country lacking food security according to the World Food Programme data.
W. A. Wijewardena, economist and former deputy governor of the Central Bank, said there will be hard times going forward and that everyone will need to make a revolutionary adjustment to the new economic normal.
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