The Central Bank of Sri Lanka (CBSL) issuing a statement on Thursday (01) to clarify the position with regard to the GSP+ scheme's impact on the country said it has regularly cautioned all stakeholders about the inherent uncertainties surrounding the continuation of the GSP+ facility, and advised all to prepare for the inevitability of the discontinuation of the scheme.
"As a consequence, this issue has been discussed widely over the past two years, and the government, CBSL as well as many Sri Lankan exporters to the EU have already taken many measures to deal with this risk," the Bank said.
The EU has told Sri Lanka the GSP+ benefits would end on August 15, 2010 if the government does not address 15 conditions put forward by the EU. The EU requested the Sri Lankan government to respond to their conditions by July 01.
The Sri Lankan government rejected the conditions set by the EU to extend the trade facility saying that the demands are politically motivated and unacceptably intrusive into the country's affairs.
The CBSL says the government has already taken several measures to counter the losses due to the withdrawal of GSP+ concession.
According to the Bank, ending the three-decade long armed conflict has significantly improved the Sri Lankan business environment and confidence levels as opposed to the environment prevailed when the GSP+ facility was granted following the devastation by the tsunami in 2004.
In addition the CBSL has brought down the inflation to single digits significantly reducing the pressure on cost of inputs and maintained low interest rates reducing the cost of borrowing substantially.
The CBSL further pointed out that it has managed to build up foreign reserves to historically high levels enhancing the investor confidence in the Sri Lankan economy and had ensured the stability in the Sri Lanka rupee exchange rate, enhancing predictability of the domestic foreign exchange market.
The country has achieved an unprecedented political stability currently which improves the confidence and reduce policy uncertainties, the Bank said.
Further measures include getting Sri Lanka removed from the underwriters' list of "high war risk" countries, improving internal work processes, and systems of exporting entities, leading to substantial productivity enhancements and establishing an enabling environment where Sri Lankan businesses could access international capital and debt markets for funding requirements at lower costs.
The CBSL further pointed out that the apparel exports to EU countries constituted about 50 percent of total apparel exports in 2009 and only 60 percent of that benefitted from GSP+ scheme.
The Bank said that Sri Lankan garment industry has faced challenges before and not only they adjusted but emerged even stronger and expanded their share in the world markets. This time too, with the favorable conditions prevailing in the country now and with the measures taken by the government, the industries will likely to overcome the non-GSP+ challenge, and emerge even stronger.
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