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COLOMBO, July 4: Sri Lanka's GDP could decline by up to 1.5 percent if the United States reinstates a 44 percent tariff on Sri Lankan exports and lowers tariffs on competitor trading partners, according to an IMF country report.
At present, Sri Lanka faces a 10 percent export tax to the United States as the 44 percent tariff has been suspended till July 9.
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The IMF said profit margins are thin, particularly for the garment sector, which limits the ability for firms to absorb this substantial tariff increase. The report said exports could decline by as much as 3 percentage points of GDP due to lower external demand and diversion of trade.
The IMF added that lower exports would partially be offset by the lower need for imported inputs, lower global commodity prices, and exchange rate depreciation.
The reduction in Sri Lanka's competitiveness and heightened uncertainty would discourage business investment, contributing to a loss in GDP, the IMF said.
The IMF also warned that unemployment would surge, and public pressure on the government to deliver support may slow down reform implementation and increase the risk of program underperformance.
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