Though Sri Lanka has recovered from its crisis through strong policy and partnership, global uncertainties may pose concern to its long-term recovery, Central Bank of Sri Lanka (CBSL) Governor Dr. Nandalal Weerasinghe said yesterday (16).
“Sri Lanka has proven that recovery is possible through strong policies and strong partnership, and broad based commitments. But still we also have to take note of any unexpected external events like we see recently, and going forward we never know the circumstances coming our way,” Weerasinghe said.
These comments were made during the CBSL’s Road to Recovery: Debt and Governance conference held yesterday (16), amidst the ongoing war between Iran and Israel, which has seen global crude oil prices inching up marginally on Sunday (15), as markets brace for the threat of a full blown conflict unravelling.
International Monetary Fund (IMF) First Deputy Managing Director Gita Gopinath said: “This conference comes not only at the mid-point of Sri Lanka’s IMF-supported economic reform programme, but also at a moment when the global economy is facing powerful cross-currents, slowing growth, rising tariffs and rapidly changing global economic order alongside profound economic uncertainty.”
On Friday (13) the State of Israel targeted more than 100 sites in Iran. Tensions escalated further when the Defence Ministry and two oil depots in Tehran had been targeted on the following day.
Global trade and shipping of crude oil is tentatively expected to be affected as shipments are likely to increasingly avoid passing through the Stait of Hormuz, located between Oman and Iran, due to the conflict.
The Economic Times of India reports that 21% of global petroleum liquids consumption passes through the Strait, with only the UAE and Saudi Arabia having pipelines that can circumvent it.
“None of this will be easy, in addition to the domestic challenges, the global environment is difficult with tariffs, geopolitical conflicts and economic fragmentation, posing major risks for small economies like Sri Lanka’s,” Gopinath said.
Owing to the United States government’s tariffs launched in April, the World Trade Organisation revised its outlook for growth by three percentage points on 14 April.
Gopinath noted that countries were faced with navigating ongoing developments, which have been increasingly complex.
“Countries are being tested by shocks that are more frequent and more complex. The challenge for a lot of us is to build resilience in a world that demands it. We have stability, but we need to now focus on inclusive growth and resilience, especially given the global environment.”
Commenting on Sri Lanka’s stabilisation efforts, Weerasinghe noted that in sticking to the reform agenda, Sri Lanka must brave the changes.
“Stabilisation is not the end but a foundation for what’s next- a renewed focus on growth, resilience and inclusion, while emerging risks continue to surface both domestically and globally.”
“The road ahead will demand a steadfast focus on sustaining the reform agenda; the empowerment of the private sector, protection of the most vulnerable communities and above all, policy consistency in the same direction.”