• A CBSL survey points to decline in optimism, driven by geopolitical tensions, global econ. uncertainty

Sri Lanka’s medium-term confidence in the financial system experienced a slight decline, owing to global macroeconomic risks and geopolitical tensions, the Central Bank Sri Lanka (CBSL) Systemic Risk Survey (SRS) conducted for the second half of the year (H2) shows.

“Respondents’ confidence in the financial system improved in the short term compared to the previous survey, whereas confidence in the medium term experienced a slight decline,” the report said, referring to the same period in 2024.

“‘Global macroeconomic risks’ increased significantly amid rising geopolitical tensions and the challenging global economic outlook.”

Between 9 April and 10 July, Sri Lanka anticipated to be levelled a 44% tariff on all goods exported to the United States, as announced by Washington

Though the tariffs had been called off on 9 April, a minimum 10% tariff on almost all US imports took effect on 5 April.

The island-nation’s $ 2.9 billion export market in the US, absorbing approximately 25% of Sri Lanka’s merchandise exports such as apparel, rubber products, coffee, tea, and spices was at risk.

However, on 10 July, Washington had reworked its tariffs on a host of nations, bringing Sri Lanka’s tariff down to 20%. The SRS survey was conducted between 27 June and 20 July.

The country-specific “reciprocal” tariffs, which were expected to come into effect on 8 July were postponed twice over, before taking effect on 7 August.

US President Donald Trump further announced an increase to the universal baseline tariff to 15-20% on 10 July, followed by the suspension of de minimis exemptions on 31 July, sending South East Asian electronics exporters and markets into panic.

This change could lead to increased costs for e-commerce businesses and consumers, potentially impacting the profitability of small and medium-sized enterprises (SMEs) in the ASEAN region.

“Among respondents, the perceived probability of materialisation of a high impact negative event declined in the short term but slightly increased in the medium term,” the SRS report said.

The Central Bank of Sri Lanka uses SRS to monitor perception of market participants on risks to, and their confidence in, the Sri Lankan financial system.

The survey sample included risk officers of licensed banks, licensed finance companies (FCs), a specialised leasing company (SLC), insurance companies, unit-trust managing companies, margin providers and underwriters, stock brokerage firms, licensed microfinance companies and rating agencies.

The United Nations Trade and Development (UNCTAD)  Global Trade Update for September said that the United States’ recent policy shifts illustrate how policy changes in one country can send shockwaves across the globe, disrupting suppliers, manufacturers and markets.

“As the world’s largest importer, even modest changes reshape supply chains and alter global trade flows,” its released report said.

It continued: “For decades, multilateral and regional agreements discouraged abrupt shifts and stabilised flows, with uncertainty mostly limited to episodes like Brexit, Covid-19 or US-China trade tensions. But in 2025, with weakened rules and fierce competition for critical raw materials, uncertainty has soared to record levels.”

Fitch Ratings, the international credit ratings agency, however, raised its world growth forecasts for 2025 moderately since the June Global Economic Outlook (GEO), released by the Organisation for Economic Co-operation and Development (OECD), showed better-than-expected incoming data for 2Q25.

However, US job data and other economic indicators signal a slowdown in growth in the world’s largest importer.