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Attacks in Sri Lanka: what consequences for the country's economy

Sri Lanka was hit by a series of attacks during Easter Masses and in hotels on Sunday, April 21, 2019. At least 290 dead and 500 wounded. Beyond the terrible human toll, these attacks could have negative consequences for the country's economy.

The Prime Minister himself worried yesterday, in remarks reported by Bloomberg.

Consequences to be expected in particular on the tourism targeted by these attacks ... Among the targets of these attacks are four hotels, including three luxury hotels ... A bomb was found also near the airport and several dozens of foreigners were killed. Tourism contributes 11% of Sri Lanka's gross domestic product, and after nearly three decades of civil war, the sector is booming. Since 2016, more than two million foreigners have visited the country each year. In 2009, the year of the end of the conflict, fewer than 500,000 had set foot on the island.

Insecurity and tourism mismatch

Insecurity may well stop the momentum that has been taken or at least slow it down. This strong growth is one of the country's assets. It constitutes a substantial contribution of external wealth. A good point while the trade balance of Colombo is still unbalanced ... Sri Lanka exports certainly textile and tea but imports particular hydrocarbons and still has efforts to provide. In January, the deficit was close to $ 600 million.

Attacks could also have an impact on foreign investment

Insecurity and uncertainty could make investors think twice and reverse the rather positive dynamics of recent years.

Like tourism, foreign direct investment is growing ... they even doubled between 2015 and 2017 according to the UN. It must be said that Sri Lanka was leaving far. Less than $ 300 million in 2005, last month investments of $ 3.8 billion from the Sultanate of Oman and an Indian-owned company were unveiled for the construction of a refinery.

This is the largest foreign contribution recorded on the island that attracts Indian and Chinese investors.

Colombo relies on these funds to advance its economy. The Inland Revenue Act, a tax reform that came into effect last year, includes a component to attract foreign financing through tax benefits. Efforts that could be jeopardized by this series of attacks.

Events that occur in a context already at risk for the country's economy

Late last year, Sri Lanka experienced political turmoil. President Sirisena fires the Prime Minister before having to reconsider his decision. The political crisis led the rating agencies Moody's, Fitch and Standard and Poors to degrade the Sri Lankan debt rating dropping the rupee, the currency. It will also monitor the evolution of the currency after the attacks.

And Coface recently warned of political uncertainties ahead of elections scheduled for next year. Already blamed as one of the main sectors at risk, in this study: tourism ... and also construction ... In November, the United States and Japan have suspended funding for projects infrastructure. However, the lack of infrastructure is precisely one of the weak points of the Sri Lankan economy ...

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