ADB warns Sri Lanka of growth risks as US tariffs erode export competitiveness

As the developing Asian economies are among the hardest hit with the US tariff that went into effect this week, the Asian Development Bank (ADB) noted that for the Sri Lankan exporters, one of the key issues, among others, would be the erosion of cost competitiveness.

With the local apparel and rubber sector being the two most impacted industries, the outcome would be order cancellations, profit losses for the exporters, due to thin margins and spillovers to the non-exporters/services and shift of production.

A full implementation of the tariffs would force the ADB to revise down its GDP growth forecasts for Sri Lanka, it said, citing a likely sharp slowdown in goods exports and export-oriented manufacturing. 

The lender also pointed to the potential declines in foreign direct investment, weaker domestic capital expansion, rising unemployment and slower wage growth, all of which could weigh on private consumption and strain fiscal revenues.

To mitigate the fallout, the ADB urged Sri Lanka to pursue structural reforms, including closer regional cooperation and diversification into new markets. The suggested strategies included tapping into other Asian economies, targeting niche sectors within the European Union and expanding into electronics and higher value-added products.