Global: Trade Supply Diversion won’t have an impact

Global trade supply diversion is likely not to impact Sri Lanka, however, supply chain disruptions are to be expected as Sri Lanka is a major producer of intermediary goods, Central Bank Sri Lanka Governor Dr. Nandalal Weerasinghe said at the Sri Lanka Economic and Investment Summit held last week (2).

“The only thing we need to monitor is the overall trade supply chain diversion. The exports from Asia, despite tariffs, still exports from China and all these markets are increasing at a very high phase,” Weerasinghe said, when questioned on the expected global shocks for the year ahead, which is to be faced within the domestic market.

Despite having faced prohibitively steep tariffs from the US Trump administration this year, Chinese exports grew by 5.9% in year-on-year terms, data released yesterday showed (8).

The surge was attributed to an increase in shipments to non-US markets, as the Chinese Government has been ramping up its efforts to diversify its export markets. Markets which have seen closer ties include the rest of Southeast Asia and the European Union.

Weerasinghe said that though this noted diversion may have an insignificant impact on the Sri Lankan market, it may lead to supply chain disruptions. 

“That is why I don’t see a significant impact on the trade diversion. But this impact will have a small shock in terms of supply chain disruptions, especially for our suppliers here, that we will have to manage.”

Sri Lanka is a niche supplier for intermediary goods such as rubber products, cables and textiles. It has been seeing the onset effects of the global tariff impact on its rubber export earnings, as revenues from finished products decreased by 6.22% to $ 467.81 million in the first six months of 2025 compared to the same period in 2024.

The Governor further noted that the sharp increase in imports in the last few months, owing to the pent up demand for vehicles, is to be balanced with the inflow of aid from multilateral agencies.

“On the domestic side we have seen in the recent months, especially from the increase in imports and the current account surpluses we have been generating for the first ten months of this year, turning into small deficits in the last two months, as a result of this demand for vehicle imports that has happened after the pent up demand. Now we can see that also settling down. As a result we saw some pressure on the external side last month, gradually settling down.”

“I don’t think this event will have a significant external shock in terms of the balance of payments, but we see there’s an immediate impact that will be mostly fiscal. For a period of time when the Government starts rebuilding within the budgetary framework, with some external support coming through the multilateral agencies, that can also be a set off.”

Source: The morning