Export markets for spices, ceramics and
other items have also suffered badly due
to the global credit crunch and unless
the local banking sector comes forward
to rescue these industries the export
companies would certainly collapse,
President National Chamber of Exporters
(NCE) Rohan Fernando told The Sunday
According to Fernando the present
situation has come about purely due to
the global credit crunch.
"We do not receive our dues on time and
in some instances the demand for our
export products has shrunk as a result
of the global financial crisis. If this
situation continues the export
industry would collapse," Fernando
added. He however said that this is the
time for the banking sector to come
forward to help the industry, as it was
the export sector that gave vigour to
the banking sector.
"If not for the export sector the
banking sector too would have suffered
and the time has now come for the banks
to help us as a goodwill gesture by way
of cutting down interest rates," claimed
Fernando further said that the NCE
representatives were planning to meet
the Central Bank and Treasury officials
together with the bankers in the near
future to obtain relief for the export
Exporters say that the new year will be
a challenging year as far as the entire
export industry is concerned.
According to the National Chamber of
Exporters, 2009 is expected to be a
decisive year for the export industry
due to the effects of the global
President, NCE, Rohan Fernando told The
Sunday Leader that unnecessary expenses
should be cut down by the industry and
the money invested.
"The year 2009 is going to be a decisive
year as far as the export industry is
concerned. The industry needs to invest
more by cutting down on unwanted
expenses," he said.
The three issues that need to be
considered at this juncture, according
to Fernando, are movement of currency,
the rate of exchange and bank interest.
With the global financial recession,
there has been very little movement of
currency, as countries such as the USA
and the UK had stopped buying from other
"These three issues are the most
important. The Central Bank's
intervention is also needed. The rupee
has been allowed to float, which is a
good thing. But, this will definitely be
a testing and a challenging time,"
Following a special cabinet meeting last
Tuesday, December 30, the government
announced a series of measures to
certain export sectors including the
Fernando said that the proposals put
forward by the government were not
adequate to address the current crisis
and had been made to appease certain
Speaking further, Fernando said that the
relief measures offered were not enough
and that the government was targeting
only a section of the export industry,
namely the estate sector.
Both these sectors were badly hit due to
the global crisis.
"These are all populist measures. The
government has not addressed the
problems of the export industry as a
whole. It has only spoken about a few
industries that have been severely
affected. Instead the government should
look at industry as a whole. These are
done probably for political gain," he
Meanwhile Fernando told The Sunday
Leader that the NCE met the Central Bank
Governor on Friday to review the
progress in exports during 2008 and
also consider the economic outlook for
2009 as it was noted that the year ahead
would be crucial for the export sector
in terms of sustainability.
"With the global financial recession and
lack of demand for consumer goods the
year ahead would be a crucial year for
the industry," added Fernando.
However according to Fernando although
the year ahead would be crucial, the
first three quarters of 2008 had
recorded a good growth rate compared to
the last quarter of 2008. "The prices of
commodities came down and fuel prices
were also slashed and overall a 6% GDP
growth was recorded in 2008. While
unemployment has reduced to 5% by end
2008, inflation too has come down to
14.5%. It is hoped that inflation will
come down to a single digit by June
2009," added Fernando.
Many economists note that 2008 has been
a 'bad one,' and that from the look of
things, year 2009 is going to be worse.
They have based their findings on the
fact that the cost of living has been
soaring sky high during 2008 and that
the rate of inflation has been steadily
rising to reach the 30% levels till the
Central Bank manipulated it with a new
cost of living index to bring it down to
The trickle down effect of the global
financial crisis hit Sri Lanka about
three months before the end of 2008. The
official stance however has been that
the global economic crisis would not
have an impact on Sri Lanka.
But addressing a seminar on 'Current
global financial crisis and its
implications to Sri Lanka' around
November last year, the Governor of the
Central Bank had said that skilful
partnership and planned management would
definitely prove effective in gaining
immunity for Sri Lanka from the
prevailing global crisis.
This stance however had been countered
by a government minister who had said
that Sri Lanka would be affected by the
global financial crisis for at least
another two to three years while another
government minister maintained that
there had been large job cuts in the US
and India running into several millions
and that Sri Lanka was sure to be
affected by the global crunch. The
minister had also noted that banks such
as AIG and Citi Bank, which were global
giants, had failed as a result of the
Many economists and analysts had pointed
out with concern that the economy of the
country was nose-diving, a fact that the
Central Bank Governor had either
consistently refuted or ignored.
Despite the Central Bank Governor's
rebuttal of the facts brought out by
economists, the government had issued a
circular to ministries, departments and
provincial councils to stop all
The JVP that was a part of the
government and had parted ways around a
year ago had charged that the Central
Bank was about to announce a bailout
package by releasing funds from its
foreign reserves to counter the
With the dawn of the New Year The Sunday
Leader spoke to some experts in the
banking sector to obtain their views on
what's in store;
Secretary General, Sri Lanka
Banks Association (Guarantee) Ltd.,
Upali de Silva speaking to The Sunday
Leader said that the year 2008 was not
altogether bad for the banking sector
except the third quarter. He said, "Year
2008 has not been bad for the banking
sector except the third quarter. But
year 2009 certainly seems gloomy.
"The Central Bank has said that
inflation is coming down and if that is
the situation we should be happy about
it, as inflation affects all businesses
in the country. If the cost of living
can be curtailed during 2009, I can say
that year 2009 is not going to be bad
for the banking sector."
Asked to comment on the economic outlook
for 2009, a source at the Central Bank
said the high inflation rate had
declined to 14.4% by end 2008 and that
as expected it would further decline,
possibly reaching a single digit in mid
The source further said that the growth
rate of the economy in 2008 was 6% and
in 2009 a growth rate of 5.6% to 6 %
could be expected. The source
attributed this downward trend in growth
in 2009 to the global financial crisis.
The global financial crisis had impacted
on the developed countries as well as on
the developing countries placing a heavy
strain on their collective economies. In
the impact of the global financial
crisis, the sources said, had pushed
commodity prices down and consequently
our tea, rubber and garments were
experiencing low prices.
The source further said that the
economic outlook for 2009 would not be
that gloomy and maintained that the
spending on imports would be lower with
the export prices too being lower.
Tea small holders allege that the
government's relief proposals were not
adequate to restore the industry adding
that the government was not serious
about solving the issues.
Chairman, Joint Federation of Tea Small
Holders (JFTSH), Chandrasena Wijesinghe
said that the government's intervention
to resolve the crisis in the tea
industry had come too late.
Speaking to The Sunday Leader,
Wijesinghe said that the proposals put
forward by the government following last
week's special cabinet meeting were not
adequate to rescue the industry.
He added that the tea industry was
facing a crisis during the past three
months and the government had only got
involved after the industry had faced
"The government has intervened three
months after the industry had virtually
collapsed. Most of the tea lands have
become forest lands now," he said.
Wijesinghe added that the government's
proposal of buying tea leaves at Rs. 45
was not enough. "It has to be bought at
least for Rs. 50," he said.
He also said that the federation had put
forward many proposals to the government
to take into consideration when coming
up with solutions.
"The government however chose to ignore
our proposals. The government did not
come up with any proposals of its own
for the last three months when the
industry was collapsing. The proposals
that the government came up with last
week are not at all adequate to save
the industry," Wijesinghe said.
"The government's attitude towards this
whole issue was evident when one of its
spokespersons said that the crisis was
only like a mild cold, and that it
needed very little treatment," he said.
Former Enterprise Development and
Investment Promotion Minister Dr. Sarath
Amunugama has stated that the government
would take all possible measures to
maintain GDP growth at 6%.
Addressing the media Dr. Amunugama said
that in the last four years GDP growth
was over 6%. "At a time when the US
growth rate was diminishing to a
and India were reversing their growth
figures. During the third quarter of
2008 Sri Lanka recorded a growth of
6.3%. There has been a rapid growth in
the agriculture sector and inflation
has come down from 30% in June 2008 to
13% in December 2008. We are confident
that the inflation rate will come down
further," Dr Amunugama explained.
He went on to say that the government
had a 6.5% budget deficit and that
efforts were being made to keep it at
that level. "People have a right to
complain when they are facing difficult
situations and it is up to the
government to address these issues and
introduce relief measures to ease their
burden. This is why the government has
taken steps such as bringing down the
prices of fuel, gas, cutting down on
expenditure of government officials and
writing off long overdue debts.
"The government has provided debt relief
and a reduction on electricity surcharge
to tourist hotels, a fertiliser subsidy
for the agriculture sector, offered
relief to the industrial and
manufacturing sectors, the tea and
rubber sectors and concessions to boost
cinnamon production. Tea will be
purchased by the state trading
institutions. A suspension of export
cess on the rubber industry will also be
implemented," Dr. Amunugama said.
He added that the government would also
give a 5% incentive to the apparel,
ceramic, tyre and tube producing
companies if they continue to maintain
the same production levels as in 2008.
"Many concessions and relief measures
have been provided by the government to
the public in order to address the
global economic crisis. We have given
the public very healthy concessions for
2009," Dr Amunugama said.
Convenor, Joint Association of Rubber
Manufacturers (JARM), Gamini Ratnayake
said that the government needed to come
up with a proper pricing formula rather
than granting subsidised fertiliser.
He said that the rubber sector employees
were facing problems due to the drop in
"There is no point in giving subsidised
fertiliser now as they have started to
tap rubber. They do not need fertiliser
now," Ratnayake said.
"What we want the government to do is to
come up with a proper pricing formula
that will help the people who depend on
rubber manufacturing to survive."
He said the price of rubber had dropped
drastically in recent times, affecting
the manufacturers and employees alike.
According to Ratnayake, the price of a
kilo of sheet rubber dropped from Rs.
400 to Rs.100 while a kilo of crepe
rubber, which was sold at Rs. 350 is now
sold at Rs. 90 a kilo.
"This is a drastic fall in prices.
Therefore, the government has to come up
with viable solution by presenting a
proper pricing formula - a formula that
will help the industry workers to
survive," he said.
Ratnayake said that the government
needed to concentrate on rubber
manufacturing as well, as some factories
had closed down.
"The government has to look into the
rubber factories. Some of the factories
have closed down. It is the government's
duty to get them going again," said
Secretary General, Joint Apparel
Association Forum (JAAF), Rohan
Masakorale said that the apparel
industry will be facing a challenging
year due to the global economic crisis
and also the GSP+ issue.
The apparel industry, unlike the tea
industry has been facing problems even
before the global recession set in,
according to Masakorale.
The US is the largest market for Sri
Lanka's apparel industry. According to
Masakorale in recent times however the
US has reduced buying from the country
largely due to the global financial
"The crisis in the tea industry was an
immediate after-effect of the global
economic crisis. However, the apparel
industry was facing problems even before
the economic crisis started."
He said that the buyers, mainly from the
US and the seller (Sri Lanka) were
likely to go for consolidation. "The
retailers have been heavily challenged.
Therefore, there is a likelihood that
the buyer and the seller will go for a
consolidation," Masakorale said.
He said that while 10 to 15 garment
factories had closed down recently, many
of them were trying to consolidate.
"There were around 350 to 380 factories
operating as of 2007. There are around
260 to 295 factories operational at the
moment. Some are trying to join. Some
have closed down."
According to Masakorale, there are
orders for January and February.
However, he said that the situation was
uncertain as some of the countries had
delayed their orders.
"There is a lot of uncertainty," said
Speaking to The Sunday Leader Deputy
Director General - Investment Promotion,
BOI, A.M.C. Kulasekera said it was hard
to say what the impact of the global
economic crisis on Sri Lanka would be
as it was still in the early stages.
"The economic crisis has just started
and it is too soon to say how Sri Lanka
would be affected by this situation. We
have to wait for at least three to six
months before we can assess how badly
the country is affected by this global
economic crisis. At present
is not that badly affected by the global
crisis as our foreign exports are
relatively limited, Kulasekera said.
He added that companies have only just
started reducing staff and cutting down
on overheads to address the present
economic crisis. When questioned on the
number of garment factories closing down
in the country Kulasekera said that
small garment factories that survive
hand to mouth were the ones closing
"There are around 800 to 900 garment
factories in the country. Out of this
number 50% come under the BOI. Most
garment factories will try not to close
down for as long as they can, which is
why they are cutting down on overheads
"The big garment factories can survive
for more than a year by cutting down on
expenses. However the small garment
factories that depend on small scale
orders cannot survive that long. These
small garment factories are the ones
that have closed down," Kulasekera
He went on to say that
is not the only country that is facing
this global economic crisis. "China had
recently made a large export order of
apparels for USA. But due to the global
economic crisis the
cancelled this order. China had no
option but to sell their export order in
the local market.
"Sri Lanka's apparel export orders are
mainly to Europe and USA. However the
danger of these exports getting affected
has not yet been felt in Sri Lanka,"
He went on to say that due to the global
economic crisis people around the world
are cutting down their expenditure.
"Foreign buyers who used to wear a
garment once and then discard it and buy
another, are today washing that garment
and wearing it again. Similarly the tea
industry is affected in Sri Lanka.
"The global economic crisis is a chain
reaction. When tea exports come down tea
packaging companies are also affected.
Similarly when the Golden Key Credit
Card scam was exposed Seylan Bank got
affected. This is what is happening all
over the world. We cannot escape from
this chain reaction in the global arena.
However we can take preventive measures
to address the crisis," Kulasekera
He stressed that the BOI is not a donor
agency but an investment facilitation
company. "What we can do as an
investment facilitation company is to
not charge concessions from companies
that register with us. We can also
advice the government on what measures
it can take to address this situation.
As the BOI we can advice the government
to give affected companies and factories
concessions on taxes and funding from
banks among other facilities,"
The country's leisure industry, which
was once the fourth largest foreign
exchange earner for the country is to
face the worst ever crisis during 2009
due to the global financial crisis and
also as a result of the country's
security situation, the Tourist Hotels
Association of Sri Lanka (THASL) told
The Sunday Leader.
With the global financial crisis, the
leisure industry has hit rock bottom
with advanced bookings seeing a steep
decline in the past few months. The
situation is expected to worsen after
January 15 as hardly any new bookings
have been made beyond January 15
according to the THASL.
This would have serious consequences on
the industry and if precautionary
measures are not taken to protect the
industry and its dependents many resort
hotels would have to close down
partially or even completely to avert
further losses according to the THASL.
"This is the worst ever crisis the
country's tourism industry has had to
face. The industry that suffered a
setback following the tsunami and the
airport bombing was able to bounce back
with determination quicker than
"But the current global financial crisis
and the country's security situation
have forced the leisure industry to
suffer its biggest setback yet.
"The situation has affected the
industry, especially the hotels so much
so that owners have sought government
assistance just to keep afloat and avert
a possible mass scale closure,"
President, THASL, and Chief Executive
Officer/ Director, Serendib Leisure
Hotel Management, Srilal Miththapala
told The Sunday Leader.
According to Miththapala the surveys
carried out during the past few months
had clearly shown that the industry
would be in great trouble after January
and the extra staff engaged during the
season would have had to be retrenched
although this is the winter season - the
peak season for
"In December there were only a few
arrivals which was a huge decline
compared to the previous years. But the
situation after January would be
completely different as hardly any
bookings have been made," Miththapala
Miththapala further said that although
the THASL wanted to ask for financial
assistance from the government in order
to keep the industry afloat, they had to
put off the idea since the government
has assured some relief to the
Wait and see
"With the recent announcement by the
government providing relief to the
leisure industry in its 'economic
stimulus package' the THASL has decided
to wait and see what relief the
industry would receive from the
government. Although the government has
claimed that some relief was being
provided to the tourism industry we
have not been informed as to what we
"Anyhow we are happy that some relief
has been promised and we are hoping to
hear about the specifics at least by
tomorrow (Monday). When we met Tourism
Minister Milinda Moragoda on Thursday
January 1, he wanted the THASL to wait
and see as to what we could get from the
relief package," Miththapala stated.
Speaking further Miththapala said that
not only were those directly involved
in the industry suffering, but their
dependents were also suffering. He also
said that more than 40, 000 persons
indirectly involved with the industry
and their dependents had already lost
"Although the industry suffered
enormously in 2007 this year's loss
could be rated as the worst ever as it
is a 15% drop compared to 2007. Even the
World Tourism Organisation (WTO) in mid
2008 had projected a growth of 6.8% in
the tourism sector, but within a few
months they had to downgrade the growth
figure to a 3% decline, which clearly
shows how the crisis has impacted on the
tourism sector," Miththapala said.
According to Miththapala, Russian
charter flights that were to bring
leisure seekers to the country had been
cancelled and many more cancellations of
this nature were expected.
In addition the industry has started to
crumble following the security situation
in the country. If this situation
prevails further around 20 to 30 THASL
member hotels would be pushed to
closure. Forward bookings have dwindled
over the past few weeks with the
patronage of the Russian, German,
and French markets whittling down.
"There is very little to talk about the
German market as well as the other
tourism generating markets as tourists
from these countries are not travelling
to Sri Lanka probably due to the global
crisis. Although the present situation
is mainly due to the global crisis we
still could attract tourists in small
numbers if the government could agree
to some sort of a ceasefire which would
bring peace and stability even
temporarily. The 2002 ceasefire
agreement (CFA) helped the industry to
bounce back after many setbacks and
helped the industry to pick up within a
short period," added Miththapala.