 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

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

2. Content
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➢ 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

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.
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Type of Financial crisis

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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.

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

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

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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

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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

12. Impact or consequences of
financial crisis

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

14. ▸ 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.
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US Financial Crisis and the Sri Lankan Economy
Reasons :

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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.

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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.

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

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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.

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

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▸ 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.

21. Strategies to overcome Financial
crisis

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

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

24. Any questions?
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THANK YOU!