Sri Lanka exports may be affected by US, EU slow down: report

Nov 09, 2011 (LBO) - Stagnation in the United States and European Union might slow demand for Sri Lanka's exports and a shift away from such reliance to new markets would help to cushion growth prospects, a new rating report said. "However, gradual normalisation may take place on the back of better economic conditions, to ensure a more sustainable pace of growth over the longer term," it said.

Inflation is also expected to chart a similar pattern as movements in global commodity prices due to Sri Lanka’s substantial import exposure to primary commodities.

Food and energy constituted a third of the total value of the country’s imports in 2010.

"Our base-case scenario assumes mild fluctuations in commodity prices, with foreign capital flowing in at a sustainable pace," RAM Ratings said.

"Under this scenario, Sri Lanka’s inflation is projected to range around 6.5-7.0 percent in 2012.

"While the CBSL is expected to continue controlling the level of the rupee against the US dollar in 2012, there is some room for gradual appreciation in the near term," the report said.

"This is largely to give the CBSL additional monetary leeway to manage domestic inflation, particularly in an environment of risin