KUALA LUMPUR: The financial disaster in Sri Lanka may have little or no influence on Malaysia, as bilateral commerce between the international locations just isn’t enormous within the bigger context, say economists.
On Tuesday, a international information company reported that crisis-stricken Sri Lanka had defaulted on its US$51bil (RM215.8bil) exterior debt, calling the transfer a “final resort” after working out of international alternate to import desperately wanted items.
The island nation is grappling with its worst financial downturn since independence, with common blackouts and acute shortages of meals and gas.
Based mostly on the Malaysia Exterior Commerce Growth Corp or Matrade’s newest knowledge, Malaysian exports to Sri Lanka had been valued at RM3.02bil, whereas imports had been at RM321.84mil in 2021.
To place that into perspective, based mostly on the Statistics Division’s preliminary knowledge, when it comes to world commerce, Malaysia’s gross exports in 2021 totaled RM1.24 trillion whereas gross imports got here to RM987bil.
Heart for Market Training chief govt officer Carmelo Ferlito instructed StarBiz, “We have now to place this in perspective. Whereas the enterprise between the international locations grew at an essential tempo up to now many years, on the macro stage, Sri Lanka just isn’t one of many prime buying and selling companions for Malaysia.
“Some fallout will be perceived by particular person companies, which has developed ties with Sri Lanka, however I don’t anticipate main repercussions.”
Based mostly on the Excessive Fee of Sri Lanka’s web site, complete commerce between Sri Lanka and Malaysia had grown from US$547mil (RM2.3bil) in 2015 to US$941mil (RM3.98bil) in 2019.
In 2019, 51% of Malaysian exports to Sri Lanka had been petroleum oils whereas Malaysia’s imports included attire (24%), cereals and merchandise (11%), and edible fish (10%).
Financial institution Islam Malaysia Bhd chief economist Mohd Afzanizam Abdul Rashid instructed StarBiz: “Judging from the commerce numbers, it appears like Sri Lanka’s financial disaster is predicted to have minimal influence on Malaysia.”
Mohd Afzanizam stated: “What’s extra essential is the lesson that we will be taught from its disaster. Clearly, financial mismanagement precipitated by corruption is a recipe for catastrophe. Whether it is left unchecked, it might burst and grow to be a self-inflicting disaster.
“I feel all of us can agree that assets are restricted, and due to this fact, the politicians, authorities equipment and companies would wish to make sure each resolution is finished with transparency, including worth and honest for all. It is a reminder for us truly every time there’s a disaster,” he added.
In the meantime, knowledge analytics and consulting firm GlobalData, which is headquartered in London, identified that triggered by an acute scarcity of international forex, ill-timed tax cuts, losses to tourism, a fall in international employee remittances, shortages of meals and gas and Excessive international debt, Sri Lanka is at present battling the worst financial disaster since its independence.
In a current report, GlobalData building analyst Pooja Dayanand stated contemplating this present turmoil, he forecasts the Sri Lankan building business to contract by 4.6% in actual phrases in 2022 towards the earlier projection of a 9.2% progress.
The weak point in Sri Lanka’s tourism sector – which is the third-largest supply of international alternate – can be anticipated to proceed over the approaching months, as a result of ongoing Russia-Ukraine disaster, on condition that Russia is among the largest tourism markets for Sri Lanka Lanka.
“The depleting international forex reserves, mounting debt and the persevering with weak point in Sri Lanka’s tourism sector are anticipated to restrict public spending on infrastructural initiatives this yr.
“Moreover the financial disaster, the nation can be witnessing a troubled political atmosphere. That is anticipated to additional weigh on investor confidence, thereby additional affecting the Sri Lankan building business’s output this yr,” stated Dayanand.
The Sri Lankan building business, which is among the greatest financial contributors and employment mills within the nation, can be going through important headwinds as a result of scarcity of cement.
The extreme international alternate disaster has prompted the federal government to impose strict import management measures. This has led to the scarcity of uncooked supplies required to provide uncooked supplies domestically.
Dayanand stated: “The Sri Lankan authorities’s resolution to default on all its excellent international debt might forestall an extra deterioration of the nation’s monetary place.
“Though it had sought debt reduction from India and China, each international locations supplied extra credit score traces to purchase commodities. Nevertheless, the federal government’s plan to hunt monetary help from the Worldwide Financial Fund (IMF) and the World Financial institution might present financial assist to bounce again.”
In the meantime, S&P International Rankings has lowered its long-term international forex sovereign score on Sri Lanka to CC from CCC. It additionally lowered its long-term native forex sovereign score to CCC- from CCC.
“The outlook on the long-term rankings is detrimental,” stated the credit standing company, including that this mirrored the excessive threat to industrial debt compensation within the context of Sri Lanka’s financial, exterior and financial pressures.
S&P International Rankings identified that though the central financial institution might technically create Sri Lankan rupees to satisfy upcoming obligations, doing so might have important inflationary implications, with client costs already rising at a speedy 17.5% year-on-year in February.
“Sri Lanka’s native forex debt additionally constitutes a substantial proportion of its total indebtedness, and thus, its very excessive curiosity burden relative to revenues,” stated the credit standing company.
S&P International Rankings additionally famous that Sri Lanka’s debt restructuring course of was more likely to be sophisticated and should take months to finish. “Failure to determine a sustainable authorities might additional complicate and hinder progress in discussions with the IMF.”