Columns

The peace achieved in West Asia could benefit our economy in several ways. The economic threats posed by the Israel–Palestine war that have been discussed in earlier columns have been averted, and there are prospects of increased remittances from Israel and other West Asian countries. Tea exports and trade with the region could expand. Tourist earnings could also increase.

Setbacks averted

Most significantly, the much-feared threats to our sources of foreign earnings have been averted. Hopefully, our trade and balance of payments will improve in the months ahead. The economy could have been adversely affected by the escalation of the conflict in West Asia and the Russia-Ukraine war. The end of the West Asia war and peaceful conditions could improve our foreign earnings.

Other war

The continuation of the Russia-Ukraine war, however, poses threats to the economy as the US imposes tariffs on countries that trade with Russia. We must now hope that this war too will be brought to an end soon.

Gains

The gains in stabilising the economy, the momentum of economic growth and the build-up of foreign reserves could have been set back had the West Asian war continued or escalated. Now that there is a prospect of a durable peace in West Asia, the economic environment would be more conducive for the Sri Lankan economy, especially the external finances.

Remittances and export earnings could increase. We must hope for an early end to the Ukraine war, too.

Impact

An end to the Russia-Ukraine war is significant for Sri Lanka owing to President Trump’s use of secondary tariffs on countries that trade with Russia. The likely escalation of the Russia-Ukraine war may lead to the US increasing tariffs on countries that trade with Russia, as President Trump’s strategy to end this war is to weaken the Russian economy by economic sanctions in the form of high tariffs on countries that trade with Russia.

This US strategy of imposing high tariffs on countries that trade with Russia and associate with BRICS members threatens our economy.

Danger

An imminent danger to Sri Lanka would be the US imposing additional or supplementary tariffs on countries that trade with Russia and BRICS countries. As we trade with Russia, China and India—all BRICS members—the threat of high US tariffs remains. Hopefully, Sri Lankan trade with these countries would be considered insignificant.

Complacency

Despite these gains, we cannot, in the current context, be complacent about the need to enhance reserves for our foreign debt repayment of US$ 13 billion in 2028. Although foreign reserves have increased to US$ 6.1 billion at the end of September owing to increased merchandise exports, remittances and earnings from tourism, imports have, however, increased to widen the trade deficit.

We repeat for emphasis that we can’t be complacent, as we have a foreign debt repayment of US$ 13 billion in 2028.

Recapitulation

The peace in West Asia could be of benefit for our economy, especially our foreign earnings. Remittances, in particular, could increase. Conversely, had the security conditions deteriorated in West Asia, it could have impacted adversely on the foreign earnings in several ways. Several economic threats that were posed by the Israel–Palestine war have been averted by the ceasefire accord, and there are prospects of increased remittances from West Asia. Tourist earnings too could increase. Tea and other exports to the region could expand.

Significantly, the serious threats to our sources of foreign earnings that may have jeopardised the economy have been averted. Let’s hope that our trade and balance of payments will improve in the months ahead.

Conclusion

The best outcome for the Sri Lankan economy as well as the rest of the world would be a settlement of the conflicts and a durable peace. The continuation of the two wars, their escalation and trade restrictions could have serious consequences for the global economy, as well as the Sri Lankan economy.

Prices of essential imports, reduction of exports, decreased remittances from West Asian countries and decline in tourists from Western countries could undermine the country’s external finances.

While we must hope for an early end to the Russia-Ukraine war, tariff wars and trade wars, it is vital for us to find ways of increasing exports to new markets and enhancing our production of exportable goods.