Financial Crisis

1. Analyze the impact of Financial Crisis on Sri Lankan Economy Nilmini Rajapaksha Yapa (Graduate Student) Financial Accounting National Institute of Business Management (NIBM)

2. Content Content ➢ What is financial crisis ➢ The nature and types of financial crisis ➢ Examples of financial crisis which had an impact on Sri Lankan economy ➢ Impact or consequences of financial crisis ➢ Strategies to overcome financial crisis 2

3. What is financial crisis ?

4. The nature and types of Financial Crisis

5. The Nature of Financial crisis ▸ In the 19th and 20th centuries many financial crisis were associated with banking panics. ▸ Financial crisis are often preceded by asset and credit booms that eventually turn in to busts. 5

6. Type of Financial crisis 6

7. 1. Currency crisis ➢ In a general, a currency crisis can be define as a situation, when the participants in an exchange market come to recognize that a pegged exchange rate is about to fail. 2. Banking crisis ➢ Example of the bank runs include the run on the bank of the united states in 1931 and the run on Northern Rock in 2007. 3. International financial crisis ➢ When a country that maintain a fixed exchange rate is suddenly force to devalue. This is called a currency crisis or balance of payment crisis. 7

8. Examples of financial crisis which had an impact on Sri Lankan Economy

9. ➢ In the recent past there have been many financial crises. The causes of these financial crises are different. 9

10. The US Sub-prime Mortgage Crisis ➢ The US sub-prime mortgage crisis was one of the worst hit and recent financial crises. The crisis began with the bursting of the United States’ housing bubble and high default rates on “sub-prime” and adjustable rate mortgages 10

11. Easter Sunday Attack ➢ Shocks from deadly suicide bombings on Easter Sunday in Sri Lanka are reverberating through out its economy in the worst crisis since the South Asian island nation’s civil war ended in 2009 11

12. Impact or consequences of financial crisis

13. ▸ US Financial Crisis and the Sri Lankan Economy ▸ Easter attack & Sri Lanka’s deep economic crisis 13

14. US Financial Crisis and the Sri Lankan Economy Reasons : ▸ Funds invested by Foreigners in Treasury Bonds & Bills flowed out from Sri Lanka. ▸ The Sri Lankan Nationals who have migrated abroad for employment couldn't send their valuable foreign currency. ▸ The export of Tea, Rubber, Coconut, Spices, Jewellery, Garments have badly affected. 14

15. Exports Declined : ▸ There was decline in exports such as Tea & Rubber. ▸ Decline in growth of Textile & Leather In 2007 7.3% but In 2008 3.1% slow growth. ▸ Exports of Gems & Jewellery also affected. 15

16. Economic Growth : ▸ The lowest economic growth of 1.6 % in the first quarter 2009 indicated the adverse effects of the global crisis on the Sri Lanka economy. ▸ Economic growth in 2009 was 3.5 % compared to 6% in 2008 which showed the adverse impact of the financial crisis on the Sri Lankan economy. 16

17. Unemployment ▸ The service sector growth in 2007 7.1% but in 2008 5.6% Inflation ▸ The average inflation in 2009 was 3.4% the lowest since 1985. 17

18. Tourism Sector ▸ Tourism arrival dropped by 11.2% in 2008 partly due to the global crisis. ▸ The tourist arrivals from the Western Europe & North American countries dropped by 15% in 2008 when compared to 2007. 18

19. Easter attack & Sri Lanka’s deep economic crisis ▸ Prior to the April 21stEaster attack, international rating agencies predicted that Sri Lanka’ s GDP growth rate that year would be 3.4 percent 19

20. ▸ The turmoil led to a downgrade in the country’s sovereign debt rating and the currency tumbled 16 per cent against the US dollar. ▸ Foreign reserves slipped below the amount needed to pay for four months of imports. ▸ Tourism contributes 5 percent of the country’s GDP. Before the attacks, tourism earnings were expected to rise from US $ 4 billion last year to $5 billion in 2019. This has been revised down to $3.5 billion. ▸ International credit rating agency Moody’s reduced its prediction for this year to 2.6 percent. 20

21. Strategies to overcome Financial crisis

22. For a country has main four options for getting out of Financial crisis ▸ Devalue ▸ Inflate ▸ Default ▸ Deflate 22

23. Conclusion we can't completely avoid the Financial Crisis, but through the continuous implementation of appropriate polices we can avoid the adverse impacts. 23

24. Any questions? 24

25. THANK THANK YOU YOU! ! 25