Macro Analysis /
Sri Lanka

Sri Lanka Monthly Macro Roundup

    Lakshini Fernando
    Asia Securities
    2 May 2019
    Published by

    April saw Sri Lanka return to a state of emergency following the Easter Sunday attacks, just a decade since it was lifted along with the end of the 26-year civil war. This comes on top of an already delicate political situation which has pushed investors to take a wait-and-see approach on Sri Lanka. Heightened security measures have brought the threat under control. 

    However, the hit to tourism will remain significant and slow to recover, in our view. We expect arrivals to decline ~30.0% YoY and tourism earnings to decline to USD 3.2bn in 2019 (USD 4.4bn in 2018). Tourism accounts for ~5.0% of GDP. As such, we have revised our CY19E GDP forecasts to 3.2% YoY (prev. 3.5% YoY). However, we still believe that the rural consumer-led growth story is intact given the agri recovery and funds injected towards rural development.

    We also note that the LKR/USD has remained rather stable despite recent security concerns. Moreover, CB confirmed that only USD 1.3bn in external financing obligations remain for 2019. As such, we revise our LKR/USD to LKR 185.00 (prev. LKR 189.00). We still expect a depreciation of 2.6% YoY as we expect the lift in import restrictions in March to challenge the currency in 2H CY19E.