As the Britain voted to leave the European Union, with the Leave campaign securing around 51.8 per cent of the vote according to results released on Friday on the European Union Referendum, global markets are likely to see substantial volatility in the coming days as the shock effect of the results pan out and markets take into account the impacts, with substantial dampeners on international currency and capital markets, top Economists said on Friday.
“Volatility is likely to bottom out and stabilise over time as markets begin to price in the results. The impact on international capital markets as volatility affects borrowing costs for countries like Sri Lanka. This is a spanner in the already edgy financial markets. Generally, in times of volatility, investors tend to stay out of frontier and emerging markets like Sri Lanka and go to safer assets like Dollar and Gold,” a leading Economist said on the condition of anonymity.
Noting that Sri Lanka might have do a bilateral deal with Britain, as regaining GSP plus won’t help in the island’s market access to Britain, the Economist pointed out that this will certainly not be the first in line for the bilatarels as estimates suggest Britain will have to do over 100 bilateral trade deals, which would take years.
“In the longer-term, if Brexit triggers other exits by other member countries (and there is no reason to believe this is immediately likely), this will affect the Euro and increase trade costs in Europe, which of course affects market access and competitiveness of Sri Lankan exports to Europe,” the Economist said.
The official further pointed out that Sri Lanka could also be impacted by a wider slowdown in the global economy as economists have estimated that Brexit could cause global growth to dip below 3% which is tricky territory.
“Protracted political gridlock in the EU as a result of Brexit and the resultant negotiations for a post-Brexit deal can hurt policy coordination on economic issues, impacting business, trade and finance” the Economist said however indicating that the severity of each of these impact channels on Sri Lanka won’t be known for sometime as we are not able to quantify the impact at this stage.
Almost 10% of Sri Lanka’s exports go to the UK (US$ 1 billion; approx. Rs. 139 billion) and 28.8% of exports go to the EU as a whole (US$ 3 billion; approx. Rs. 411 billion) while close to 56% exports go to the USA and EU together.