‘Sri Lanka can face the GSP+ risk’

Ramani KANGARAARACHCHI

With proper focus and preparation Sri Lanka can face the GSP+ risk and the Government has already taken necessary steps to manage this risk, Central Bank Governor Ajith Nivard Cabraal said at a media briefing on “ GSP+ Scheme and Sri Lanka from a risk management perspective” at the Central Bank yesterday.

He said that it is certainly good if the GSP+ is continued, but like with the abolition of MFA, the country is prepared to move ahead even without GSP+. On the other hand, non reciprocal concessions always carry a significant risk of withdrawal and the GSP+ benefits should also be viewed as another such risk the country has to face, he said.

In economic management and in industry the country has to undertake risk management constantly and deal with risks so there is ample reason to believe that the present risk could be dealt with and there is enough evidence to indicate that it could be met successfully, Cabraal said.

Referring to the recent developments on the critical issues that Sri Lanka has to consider he said that Sri Lankan exporters’ competitiveness of exports to EU has increased sharply since November 2008 to January 2009 , due to the SL Rupee depreciation. Therefore the potential loss of the preferential duty margin by around seven percent if the GSP+facility is withdrawn will be well within the rupee depreciation range and hence will not be a crippling blow to the country’s exports, he said. The inflation also has declined sharply from 14.4 at the end of 2008 to below one percent by end September 2009 and is expected to be around an average of 3.5 percent for the year 2009. It is expected to remain low in 2010 as well.

As a result, there has been a significant reduction of pressure on input costs, he said.

The interest cost on borrowings also dropped drastically in all market segments and the State banks’ new interest reduction measures introduced on 28 October will lead to further reductions of interest.

Sri Lanka’s improved rating outlook will also facilitate external borrowing at low costs. With the dramatic improvement of the reserve position of the country, industries can also borrow from offshore banking units at lower foreign currency interest rates, he said. Improved investor confidence with the dawn of peace has reduced uncertainty and exchange rates have stabilized.

Sri Lanka will continue to diversify and to improve quality, upgrade technology and facilities and focus on fast track productivity improvements which will help mitigating the impact of a possible withdrawal of GSP+, he said. However, the Government of Sri Lanka has appointed a committee consisting of several Cabinet Ministers to examine the possibility of getting the facility extended, Cabraal said.