Business

Russia-Ukraine conflict: Economic implications for Sri Lanka

Published

4 years ago

2022/03/1

By Asanka Wijesinghe

The Russian invasion of Ukraine deepens the existing global economic woes – persistent supply chain bottlenecks and associated rising inflation – clouding the prospects of a smooth global economic recovery from the pandemic. The West, led by the US and the EU, swiftly imposed strict economic sanctions, targetting Russian banks, oligarchs, political leaders, and state-owned and private entities, generating additional uncertainty over the global economic outlook. The initial disunity in the West on cutting off Russia from SWIFT-a global financial telecommunication system that allows the smooth and rapid cross-border transaction of money- was resolved over the weekend. Such a move will inevitably make payments for Russian exports and imports hard. The ongoing military conflict in Europe could not have come at a worse time for Sri Lanka given its own prevailing high inflation, rising energy costs, and scarcity of foreign exchange. Against this backdrop, this article discusses the economic impact of the European conflict on Sri Lanka, the sectors that will be hit hard, and ways to mitigate the negative impact.

Global Economic Impact

Immediately after the Russian invasion on 24 February, commodity markets rallied up. The Brent spot price of a crude oil barrel reached USD 105 for the first time after 2014. Similarly, the cost of wheat futures for March 2022 in the Chicago Board of Trade (CBOT) exchange peaked, at its highest since mid-2008 (Figure 1). The Russian Federation and Ukraine-known as Europe’s breadbasket- are major cereal, fertiliser, critical minerals, and iron and steel exporters. Meanwhile, the Western powers were busy over the weekend in negotiations to tighten sanctions on Russia.

While the fate of Ukraine hangs in the balance, the consensus among analysts is that the Ukrainians were mounting a fierce and unexpected resistance, effectively increasing the costs for Russia. The US, EU and their allies are contributing to the military conflict by providing financial and military assistance to Ukraine while imposing sanctions on Russia to make dollar transactions difficult. Thus, the severity of the global economic impact will be determined by the scope and duration of the conflict and the effectiveness of Western sanctions.

Western countries will be keen to minimise the spillover effects of sanctions on their economies. Like Germany, the major European economies heavily depend on Russian energy, making it necessary to exempt the energy sector from sanctions. Indeed, the sanctions package unveiled by the Biden administration did not target the energy sector. As long as payments for energy-related transactions go through non-sanctioned and non-US financial institutions, an unconstrained flow of money is guaranteed. Thus, oil prices dropped with futures closing below USD 93 a barrel in New York. However, that optimism was largely fading in early trade on 28 February. The Brent price rallied over 100 dollars again while wheat, soybean, and corn futures were up. Cutting off Russia from SWIFT and imposing sanctions on the Russian Central Bank can deal a severe blow to the Russian economy in the long run. The collapsing ruble can be a harbinger of Russia’s economic collapse. A possible economic fallout will reduce Russian demand for foreign products, and if Russia cuts off natural gas to the European market, a likely outcome will be a recession.

Implications for Sri Lanka

Overall, Russia and Ukraine account for 2% of Sri Lanka’s imports and 2.2% of exports in 2020. However, both countries are vital import sources for wheat and export destinations for Sri Lanka’s black tea (Figure 2 and 3). Russia and Ukraine purchase about 18% of fermented black tea (>3kg) exported by Sri Lanka. Similarly, 45% of Sri Lanka’s wheat imports are sourced from Russia and Ukraine. In addition, more than half of Sri Lanka’s imported soybeans, sunflower oil and seeds, and peas are from Ukraine. Moreover, Russia and Ukraine are significant import sources for asbestos, semi-finished products of iron and steel, copper (cathodes), and potassium chloride for fertiliser.

Unless the Ukraine crisis is not solved immediately, the fuel and commodity prices can rally further. The inflationary pressure in the Western markets, especially in Europe due to high energy prices and supply chain bottlenecks, may reduce consumers purchasing power, lowering the demand for goods exported by Sri Lanka. Europe is a significant export destination for readymade garments, tea and spices, and seafood.

There is also a growing tendency for increased military expenditure in the long run, which might reduce the “peace dividends” for European households. For example, the German Chancellor committed 2% of GDP for defence expenditure, addressing an extraordinary session of Bundestag. Replacing consumerism with militarism will adversely affect countries like Sri Lanka that depend on the European export market. In addition, a prolonged crisis may impede Sri Lanka’s ability to purchase necessary raw materials like fertiliser. Importantly, Sri Lanka’s exposure to the situation is mainly through linkages to the commodity and European export markets rather than direct exposure to the two countries involved in the conflict.

Mitigation

Sri Lanka should focus on safeguarding access to vital raw materials and food commodities. Globally, responding to the crisis, countries are stockpiling grain and exploring alternative ways to do business with Russia in purchasing raw materials. Sri Lanka has limited options to mitigate the impact on already deteriorating food security conditions and access to raw materials. As wheat and rice are substitutes, high wheat prices may increase the demand for rice.

Thus, it is necessary to remove input shortages like fertiliser to ensure domestic production is adequate. Due to the current foreign exchange crisis, Sri Lanka’s ability to effectively face such shocks is constrained. Thus, the urgent priority is to resolve the current foreign exchange crisis to regain the ability to trade swiftly. Achieving debt sustainability and securing dollar inflows from multilateral institutes might be the options at Sri Lanka’s disposal. Then, entering forward contracts for raw materials and fuel and negotiations with friendly countries for food on predetermined prices are possibilities.

Link to Talking Economics blog:

Russia-Ukraine Conflict: Economic Implications for Sri Lanka

Asanka Wijesinghe is a Research Fellow at IPS with research interests in macroeconomic policy, international trade, labour and health economics. He holds a BSc in Agricultural Technology and Management from the University of Peradeniya, an MS in Agribusiness and Applied Economics from North Dakota State University, and an MS and PhD in Agricultural, Environmental and Development Economics from The Ohio State University. (Talk with Asanka – asanka@ips.lk)

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Business

Foreign Minister defends India pacts, sidesteps transparency demand

Published

24 hours ago

2026/01/6

Sahan Weerasooriya

The press conference held at the Foreign Ministry in Colombo yesterday. From left:Arun Hemachandra, Deputy Minister of Foreign Affairs, Vijitha Herath, Minister of Foreign Affairs and Tourism and Prof. Ruwan Ranasinghe, Deputy Minister of Tourism

In a press conference marked by both clarity and pointed omission, Foreign Affairs and Tourism Minister Vijitha Herath, yesterday offered a robust defence of two controversial bilateral agreements with India but conspicuously avoided committing to tabling their full texts in Parliament.

The minister’s appearance, billed as a year-opening briefing, took a sharp turn when questioned on the strategic implications of the India-Sri Lanka Defence Cooperation Agreement and Sri Lanka’s acceptance of the Indian Pharmacopoeia.

“No Indian military camps on our soil”

Responding in Sinhala to a question posed in English, Minister Herath moved first to allay what he suggested were widespread misapprehensions about the defence pact.

“This agreement is especially for data and information exchange purposes regarding drug trafficking, drug mafias, human trafficking, and any terrorist activities that could threaten regional security and peace,” Herath stated.

He emphasised that it would also facilitate “various support related to the defence sector.”

In his most definitive assertion, aimed at quieting a persistent national anxiety, the Minister declared: “We must clearly say that there is no plan or possibility of setting up Indian defence camps on Sri Lankan soil.” He categorised the pact not as a “defence agreement” but a “defence cooperation agreement in its real sense,” claiming it creates an “advantageous position” for Sri Lanka.

He linked recent post-‘Ditwah’ cyclone disaster support from India, as well as U.S. aerial support during recovery efforts, to the frameworks established by such cooperation agreements, arguing they have proven beneficial.

Indian Pharmacopoeia: A reputation-based advantage

On the equally contentious acceptance of the Indian Pharmacopoeia – a standard synopsis for drug manufacturing – Minister Herath framed it as a logical step that formalises existing practice.

“We already import a significant share of medicines from India,” he noted. The agreement, he explained, signifies the acceptance of medicines exported by a “reputed Indian pharmaceutical company” approved by its national regulators.

He assured the public that Sri Lanka’s National Medicine Regulatory Authority (NMRA) will continue to remain the monitor. “By entering into this, no disadvantage will happen to us. Only an advantage will happen… it will only be beneficial to us,” he emphasised.

The unanswered question

Despite the detailed assurances, the Minister pointedly ignored the final and arguably most critical part of the question posed by The Island Financial Review : whether the government would table the full text of the two agreements in Parliament for transparent debate and discussion.

This omission is likely to fuel further controversy, as opposition parties, civil society groups, and independent analysts have repeatedly demanded full parliamentary scrutiny, arguing that agreements touching on sovereignty and public health mandate the highest level of public transparency.

Tourism Pride

Shifting to his tourism portfolio, Minister Herath struck an optimistic note, citing record tourist arrivals and foreign remittances in 2025 as a sign of resilient recovery post-Ditwah.

The conference also touched on global affairs. When asked about the U.S. arrest of Venezuelan President Nicolás Maduro, Herath presented a nuanced governmental position. He stated that while his party, the JVP, condemns the action, the government’s official stance is to urge respect for national sovereignty in line with the UN Charter – a reflection of the coalition’s delicate balancing act between ideological roots and diplomatic pragmatism once in governance.

Minister Herath’s explanations provide the government’s clearest public rationale yet for the India agreements, directly confronting fears over militarisation and pharmaceutical quality. However, the deliberate sidestepping of the transparency query left a communication deficit at the heart of the press conference.

High-stakes diplomacy

It reflected a perception that while the administration is willing to defend its policy outcomes, it remains reluctant to subject the processes of high-stakes diplomacy to the full glare of parliamentary and public scrutiny. As these agreements continue to shape Sri Lanka’s strategic and health landscape, the call for their full disclosure is now accompanied by a louder question about the government’s commitment to open governance.

by Sanath Nanayakkare

Business

‘Vehicle-Testing Can Save Lives’

Published

24 hours ago

2026/01/6

Sahan Weerasooriya

Dharmasiri Gamage, Director, Presidential Secretariat, (4th from left), receiving the proposal from Prasanna De Zoysa (2nd from left), AAC Sectoral Chairman, Road Safety and Devapriya Hettiarachchi (3rd from left), Secretary, AAC at the Presidential Secretariat.

Automobile Association of Ceylon (AAC), in collaboration with the Federation Internationale de L’ Automobile (FIA) and under the UN Decade of Action for Road Safety has been consistently engaging in road safety enhancement programs for all citizens of Sri Lanka.

Current data indicates that while over 08 million vehicles are registered in the country, only heavy vehicles (less than 20% of the vehicle population) are subjected to compulsory road-worthiness tests.

Fatal accidents due to technical failures in vehicles are on the rise and the damage to lives and property is severe.

We also understand that there is a death every three hours and eight deaths per day in road accidents. This amounts to nearly 3000 deaths in road accidents per year.

AA of Ceylon has launched the “Vehicle Testing can Save Lives” project with the advice and support given to execute our campaign by the Minister of Transport, chairman, National Council for Road Safety (NCRC), Deputy Inspector General of Police (Traffic Division), Dr. Indika Jagoda, Deputy Director (Accident Service), National Hospital, president, Lions Club of Boralasgamuwa, Metro(Lions Club International – District 306 D 2) and other stake-holders to find a workable, low / cost solution for mandatory vehicle testing in Sri Lanka.

Therefore, this project aims to educate the public on the necessity of checking essential safety features in all vehicles and the benefits of same to all road users.

AAC has therefore respectfully requested Anura Kumara Dissanayake, President of the Democratic Socialist Republic of Sri Lanka, to consider implementing the proposal we have submitted to him, to minimize fatal accidents, injuries to people and damage to vehicles and property due to road accidents and to also implement a rule to have compulsorily road-worthiness checking of all vehicles. (AAC)

Business

INSEE Lanka appoints new Chief Executive Officer

Published

24 hours ago

2026/01/6

Sahan Weerasooriya

Eng. Thusith C. Gunawarnasuriya

Siam City Cement (Lanka) Limited (INSEE Lanka) has announced the appointment of Eng. Thusith C. Gunawarnasuriya as its new Chief Executive Officer, effective 01 January 2026. He succeeds Nandana Ekanayake, who will continue to serve as Chairman, ensuring leadership continuity and strategic stability for the organisation.

A long-standing contributor to INSEE’s journey, Thusith has worked with the company through its evolution under Holcim (Lanka) Ltd, LafargeHolcim and INSEE, playing pivotal roles that influenced both operational progress and strategic direction.

Rejoining INSEE Lanka in January 2025 as Chief Operating Officer, he has since demonstrated exceptional leadership, driving topline growth, improving EBITDA performance, and strengthening talent development initiatives that enhanced organisational capability and business outcomes.

His expertise in business strategy, operations excellence, and supply chain transformation is well-recognised, supported by over 25 years of multi-industry and multi-country leadership experience. His career includes senior positions at Lion Brewery (Ceylon) PLC, Hemas Manufacturing, Fonterra Brands Lanka, GlaxoSmithKline, MAS Active, and DMS Software Engineering. His international exposure spans India, Bangladesh, and Thailand.

Thusith is a proud alumnus of Dharmaraja College, Kandy, and holds a BSc (Hons) in Electrical & Electronic Engineering from the University of Peradeniya, an MBA from the University of Colombo, and an MSc in Business & Organizational Psychology from Coventry University, UK. He has completed executive leadership programs at IMD (Switzerland) and the National University of Singapore. He is also a member of IEEE (US), CILT (UK), ISMM (Sri Lanka), and IESL (Sri Lanka).

Chairman’s Quote – Nandana Ekanayake:

“Thusith’s deep understanding of our business, strong operational mindset, and proven leadership make him the ideal successor to lead INSEE Lanka into the next phase of growth. His experience within INSEE and across multiple industries, positions him well to deliver on our long-term ambitions and uphold the values that define the organisation.”