Sri Lankas GDP could decline by approximately 1.5 percent if the United States restores a 44 percent tariff on Sri Lankan exports and reduces tariffs on rival trading partners, according to an IMF country report.At present, Sri Lanka deals with a 10 percent export tax to the United States as the 44 percent tariff has been suspended till July 9.
The IMF said profit margins are thin, especially for the garment sector, which restricts the capability for companies to absorb this significant tariff boost.
The report stated exports might decrease by as much as 3 percentage points of GDP due to lower external need and diversion of trade.The IMF added that lower exports would partially be balanced out by the lower need for imported inputs, lower global commodity rates, and currency exchange rate depreciation.The reduction in Sri Lankas competitiveness and increased unpredictability would discourage business investment, contributing to a loss in GDP, the IMF said.The IMF likewise warned that unemployment would surge, and public pressure on the government to deliver support might decrease reform implementation and increase the threat of program underperformance.Source: Business Today-- Agencies