Tensions in ME could hurt Lanka’s economic growth-Economist | Daily News


Tensions in ME could hurt Lanka’s economic growth-Economist

The heightened tensions in the Middle East spurred by the latest attacks by Iran on US military bases in Iraq will have immediate and long term ramifications on the global economy and in particular smaller economies such as Sri Lanka which depends on foreign exchange through exports of tea and a sizeable expenditure on crude oil imports, an economist said.

Professor of Economics and Chairman Institute of Policy Studies Sirimal Abeyratne said the escalation of tensions between Washington and Teheran will have a direct bearing on Sri Lanka’s trade account due to the negative implications on tea exports and export earnings to Iran and the Middle East which are major markets for the popular beverage.

“On imports of oil, the single largest expenditure item in the import bill of Sri Lanka prices are bound to surge with the aggravation of the situation in the region,” he said.

Experts also said the world market depends on how the US supply responds to the developments in the region as the current market is different to what it was in the past especially because the US has increased its capacity to produce and supply oil. The US does not depend on the Middle East crisis because there are new players in the crude business.

However, there is likely to be an increase in world oil prices in the immediate future.

World oil prices reached the US$ 70 mark per barrel on Wednesday following renewed tensions in the Middle East.

“As a result of these factors the trade deficit of Sri Lanka will widen bringing pressure on the exchange rate.

So the exchange rate management will be a challenging issue much more than in the past,” Prof. Abeyratne said adding that there is no clue which direction the crisis in the Middle East would take in the next couple of days.

However, he said that Sri Lanka’s foreign policy strategy should be to play a neutral role as we cannot go on without the support of major economies such as the US, Iran, Japan, India, China and the EU region.

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