Negative economic fallout predicted for Sri Lanka from Brexit vote

By Hiran H.Senewiratne

 "UK has voted to exit from the the world’s largest trading bloc, the European Union, which accounts for 15 per cent of the world’s trade in goods and services. Therefore, it is the export market for more than 80 countries, including Sri Lanka, a top exporter said.

"So, the economic consequences of the disruption that could be caused by the UK pulling out of the EU would be felt even in our part of the world. The reason being, under the GSP plus trade agreement, UK imports from Sri Lanka are the largest when compared to other countries in the region, Executive Director, TOS Lanka Company, Merrick Gooneratne said.

"With the exit of UK from the EU region, it would mainly affect apparel and other items that are being exported from Sri Lanka to the EU region, due to the GSP plus trade arrangement, Gooneratne told The Island Financial Review.

"The UK could enter into a series of free trade agreements with the EU, the US, Asian and Commonwealth countries, and thereby cushion the impact of losing access to the European single market, he said.

"In Sri Lanka, we suffered the consequences of losing the GSP+, a preferential trade deal with the EU, in the late 2000s. Going by our experience, the adverse impact of a UK pull-out would be far greater, Gooneratne added.

Lead Economist Frontier Reserch Shiran Fernando told The island Financial Review that the immediate impact would lie in the volatility in the global financial market, which could create some problems of issuing our sovereign bonds to international markets.

He also said that there would be some pressure on the Sri Lankan rupee with the exiting of UK from the EU region in the future.

Prime Minister Ranil Wickremesinghe said Sri Lanka is ‘very concerned’ about the probable impact of ‘Brexit’ on the global economy, Sri Lanka and the UK.

He said the impact of Brexit on Sri Lanka would be greater than that stemming from Lanka losing the EU’s GSP+ tariff concession.

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Fitch revises Siyapatha Finance's outlook to Negative; affirms at 'A(lka)'

Fitch Ratings Lanka has revised the rating Outlook on Siyapatha Finance PLC (Siyapatha) to Negative from Stable and affirmed its National LongTerm Rating at 'A(lka)'.

The agency has also affirmed the expected National LongTerm Rating on Siyapatha's proposed senior unsecured redeemable debentures at 'A(lka)(EXP)' and affirmed Siyapatha's outstanding subordinated debentures at 'BBB+(lka)'.

The rating action follows the revision of the Outlook on its parent, Sampath Bank PLC (Sampath), to Negative from Stable on 22 June 2016.

Fitch continues to believe that support for Siyapatha would be forthcoming from Sampath, if needed.

This view is based on Sampath's 100% ownership of Siyapatha and involvement in the strategic direction of Siyapatha through board representation.

Siyapatha is rated two notches below its parent because of Siyapatha's limited role in the group's core

business. Sampath's leasing book accounted for just 7% of group advances at end2015, of which Siyapatha provided 33%. Siyapatha's contribution to group profit also remains low. Siyapatha's proposed senior debentures are rated at the same level as Siyapatha's National Long Term Rating. The issue ranks equally with the claims of the company's other senior unsecured creditors.

Siyapatha's subordinated debentures are rated one notch below Siyapatha's National Long Term Rating to reflect their subordination to senior unsecured debt.

Siyapatha's rating could change if Sampath's rating changes or if Siyapatha's strategic importance to the bank changes. Narrower notching could result from higher importance to the group through greatersynergies, shared branding, and closer operational integration while the bank retains majority ownership. The senior debt rating will move in tandem with the Siyapatha's National Long Term Rating.

The best risk within a country is rated 'AAA' and other credits are rated only relative to this risk. National ratings are designed for use mainly by local investors in local markets and are signified by the addition of an identifier for the country concerned, such as 'AAA(lka)' for National ratings in Sri Lanka. Specific letter grades are not therefore internationally comparable.

Additional information is available at www.fitchratings.com.

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CB draws up action plan for govt. in view of Brexit

By Saman Indrajith

The Central Bank on Saturday submitted an action plan to the government detailing measures to be taken in view of Britain’s exit from the European Union.

The Action Plan handed over to President Maithripala Sirisena and Prime Minister Ranil Wickremesinghe had been prepared by the Financial Research Division of the Central Bank on the instructions from Governor Arjuna Mahendran, government sources said.

The nine-page Action Plan outlines the strategies and steps the Sri Lankan government should take in view of forthcoming unprecedented changes expected in Europe. The EU has been Sri Lanka's largest export destination absorbing 36% of its exports. Of Sri Lanka's export to the EU, around 40 percent is sent to the UK.

The UK voted to leave the EU by 52 to 48 per cent in Thursday’s referendum. The impact of the latest change on Sri Lanka had been analysed and the securing the GSP plus subsidy in the new context had been addressed in the Action Plan, sources said.

Action Plan has predicted that Sri Lanka may suffer blows in trade relations with the EU and the UK in areas including trade, tourism and investment. It also warns that there would be a global economic downturn in the aftermath of the UK's exit from the EU.

British Sterling Pound would lose its value drastically against the US dollar. Sterling dropped as much as 11% against the dollar after the vote, hitting 31-year low following the referendum results. With the release of Thursday's referendum results several leading stock markets crashed.

One of the main stock markets which suffered was the Japanese Stock Exchange. The Dow Jones Industrial Average dropped 3.4% on Friday, the largest decline for the index since August. The Stoxx Europe 600 index shed 7%—its steepest drop since 2008, while Japan’s Nikkei Stock Average fell 7.9%.

It is expected that the process for the UK to complete the exit from the EU would take at least two years, says the Action Plan which made five key suggestions to the Lankan government to implement to avoid repercussions detrimental to the national economy.

The Action Plan would be referred to the Cabinet Sub Committee on Economic Affairs within this week, government sources said.

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