SL must strengthen trade ties with East-Asia, improve external finance management
While the Gulf war has made tremendous impacts on the global economic landscape, countries like Sri Lanka are highly vulnerable due to its weak internal immunity. Weak export base and diversification, heavy reliance on non-tradable sectors, foreign-funded infrastructure, concentrated export markets and commodities, and large exposure to oil/gas price shocks which feed into food and fertiliser costs have been identified as main structural problems.
Sri Lanka must build stronger domestic buffers through export growth, export diversification and improved external finance resilience, says Dr. Sirimal Abeyratne, Economist and Executive Director, Centre for Poverty Analysis (CEPA).
STBC President Chaturanga Perera (right) handing over a painting of an ancient Sri Lanka battle, to Shangri-La Colombo General Manager Andreas Streiber, as a mark of appreciation for the hotel’s partnership with the club over the past two years. Pic by M.A. Pushpa Kumara.
Last Tuesday the Sunday Times Business Club (STBC) organised a discussion on ‘Impact of the Gulf War’ where Shangri-La Colombo was the host hotel of the club and NDB Bank sponsored the discussion. Dr. Abeyratne and Mr. Anil Ignatius Panagoda, an expert on international trade, logistics, and supply chain management were the two panellists.
Dr. Abeyratne stated, “Sri Lanka after years of trade liberalisation, despite decades of reforms, exports remain low (US$ 13 to 14 billion per year) compared with regional peers. Heavy public borrowing for large non-tradable infrastructure such as highways, ports and airports increased external debt without generating sufficient foreign exchange. Export market concentration, roughly 45–50 per cent of exports is destined to Western markets (Europe/US) while the East Asian market links remain underdeveloped. Oil and gas price increases raise fuel costs directly and also push up food and fertiliser prices, hitting the poor the hardest.”
External shocks are inevitable; the goal is to strengthen internal immunity so shocks do not produce systemic crises. Building export capacity is essential to generate reliable foreign exchange. Reducing export destination and commodity concentration lowers transmission risk from regional conflicts. Public investment financed by external commercial borrowing in non-tradables can create debt without foreign exchange returns – a dangerous pattern. Energy price spikes have cascading effects, so energy exposure management is critical, stressed Dr. Abeyratne.
Mr. Panagoda in his remarks framed the current crisis as a strategic opportunity for Sri Lanka to fix domestic logistics weaknesses rather than rely only on incoming FDI.
“80–90 per cent of goods move by sea. Containerised trade carries roughly 60 per cent of merchandise cargo and runs on schedules. Current crisis has disrupted regular vessel schedules, arrival times are now unpredictable, creating downstream pressure on supply chains. Sri Lanka relies heavily on road freight for inland movement where only approximately one per cent of cargo moves by rail. Sri Lanka must develop a multimodal transport system, integrating rail, road, and sea to cope with shocks and improve efficiency. Without multimodal connectivity, investments in ports and airports alone will not realize their full economic benefit,” stated Mr. Panagoda.
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