Elevated Risks in the World Economy: What are the Implications for Sri Lanka?

Recent political developments in North Africa and the Middle East, and the destructive earthquake and Tsunami in Japan, have created major uncertainties related to oil prices and international trade, resulting in elevated risks for all countries. The impacts of these phenomena are global in reach and will, therefore, have ramifications for the Sri Lankan economy. There are several channels through which the effects are likely to be transmitted: oil prices; tea and rubber prices; remittances; capital flows; changes in the value of the Yen; and businesses dependent on Japanese imports. At the macro level, prices (inflation), the balance of payments and possibly the budget are likely to be affected.