EU Trade Tariff Withdrawal Points To BoP Risks

We believe the suspension of preferential trade tariffs by the European Union underlines the growing risks to Sri Lanka's balance of payments position. With domestic demand roaring ahead amid continued dire straits for the export sector, we expect the current account deficit to widen to US$1.9bn (3.7% of GDP) in 2010 and US$2.6bn (4.3% of GDP) in 2011 and for foreign exchange reserves to decrease from US$6.0bn at the end of 2010 to US$5.5bn at the end of 2011.

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