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Economic Crisis Threatens Sri Lanka’s Apparel Exports

Sri Lanka’s garment exporters are urging lawmakers to rally to resolve the ongoing financial crisis—the worst the South Asian country has seen in decades—as power blackouts, sky-rocketing prices and severe shortages of everything from fuel to medicine continue to rain down misery on millions of people.

“Today we survived somehow, but I don’t know about tomorrow,” Ranjith Koralage, owner of Kolonna Manufacturing, which makes knitted garments for Levi Strauss and Victoria’s Secret, told BBC News of his struggles to find enough diesel to operate his company’s machines and steam rollers on Friday. “If [the] government doesn’t provide fuel we have to stop production; that affects customers’ deliveries. Our clients are already asking us daily if we will be able to complete the orders in time or not.”

The Joint Apparel Association Forum (JAAF), the apex body of Sri Lanka’s apparel industry, said Thursday that the government’s inability to find a “constructive solution” to the crisis could enact a heavy long-term cost by jeopardizing the country’s access to global markets.

“The current crisis has been brewing for several months, and the government’s procrastination has created considerable hardship for ordinary people,” a JAAF spokesperson said in a statement. “Power and fuel outages have already led to the shutdown of many small establishments and escalated the cost of production for others.”

Garments are the island nation’s single-largest foreign income earner, contributing 6 percent to the country’s overall gross domestic product while providing 350,000 people with direct employment. The sector was just seeing a pandemic bounce-back, with export earnings jumping by 23 percent year over year to $487.6 million in January.

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“Before the situation gets worse, we require immediate, decisive action to implement workable short and medium-term solutions to critical challenges,” the spokesperson added. “Given the magnitude of the crisis, all stakeholders in the country’s welfare and the people’s well-being should work together in the larger interest of the people and the nation.”

The JAAF is calling for negotiations with the International Monetary Fund to seek bridging financing for essential imports to address the massive protests raging across Sri Lanka. The organization said it also supports the immediate appointment of financial and legal advisors to begin discussions with the nation’s creditors, allowing debt servicing obligations to be paused and “relieving the pressure on the system.” The World Bank, too, could offer additional assistance by reallocating unused funds from existing projects towards emergency relief programs, providing an “immediate safety net” to those hit worst by the national emergency, it added.

The crisis is hurting Sri Lanka’s international reputation as a reliable sourcing destination and exporter, the JAAF said, and buyers of the country’s merchandise exports, investors and business partners are starting to fret as extended power cuts have disrupted production planning and manufacturing. The central bank’s demand that exporters repatriate foreign exchange earnings within 180 days of transactions—a move designed to boost Sri Lanka’s flagging foreign exchange reserves—is also complicating raw material imports, it said.

“It will be a steep, uphill battle to retain buyer relationships, which have been built with great effort over decades,” the JAAF spokesperson said. “We simply cannot afford to lose even a single one of these relationships. The negative impact on the industry and the economy and the export sector will be almost catastrophic, lead to loss of livelihoods and employment, limit the country’s ability to fund essential imports and badly damage its access to long-term external finances.”

Sri Lankan Prime Minister Mahinda Rajapaksa on Monday appealed for an end to the public eruption of anger demanding his resignation, saying his government has a plan to extricate the country from its predicament. He blamed the crisis on Covid-19 restrictions and the loss of tourism income.

“We are embarking on an enormous program to overcome the crisis we face today. Every second spent by the president and this government is used up exhausting avenues to rebuild our country,” he said. “Friends, every second you protest on the streets, our country loses opportunities to receive potential dollars.”

While the political parties that recently exited the nation’s ruling coalition have proposed forming an interim government with a new prime minister, Rajapaksa has refused to step down. Last week, Sri Lanka’s largest opposition party rejected an invitation by President Gotabaya Rajapaksa, the prime minister’s brother, to form a unity government. Shortly after, all 26 cabinet ministers handed in their resignations, reshuffling the deck but leaving many key positions unfilled.

“We invited all political parties represented in parliament to join us and uplift the country. But they did not join us,” Prime Minister Rajapaksa said. “As the party in power, we took up that responsibility.”

Sri Lanka announced Tuesday that it would be suspending payments on foreign debt totaling $51 billion as a “last resort,” marking the country’s first default since its independence in 1948. The decision was made to “prevent further deterioration of the republic’s financial position,” a finance ministry spokesperson said. “It is now apparent that any further delay risks inflicting permanent damage on Sri Lanka’s economy and causing potentially irreversible prejudice to the holders of the country’s external public debts.”

The president of the Tiruppur Exporters Association in India said that Sri Lanka’s woes might benefit it in “a small way” if Sri Lankan manufacturers with Indian facilities start moving orders there but that any potential gains are offset by the present cotton price surge.

“There may not be a major inflow of orders for units in Tiruppur owing to high cotton and yarn prices,” Raja A. Shanmugham told the Indo-Asian News Service. “The international brands may shift their sourcing to countries like Bangladesh and Vietnam.”

Yohan Lawrence, secretary-general of the JAAF, said he was hopeful that Sri Lanka will be able to emerge from the morass, but only if those in power seize the rapidly shrinking window of opportunity.

“Our urgent call is to all stakeholders that they put aside their political differences and work together in the interests of the country to form a new cabinet and give utmost priority to stabilizing the economy,” he told Sourcing Journal. “Sri Lanka has a history of resilience and of coming together as a nation to recover in the face of immense challenges. We believe this resilience will work now to ensure that there is a firm action taken to put the country back on track.”