Sri Lanka building contractors look outward as currency crisis slams sector

ECONOMYNEXT – Sri Lanka’s building contractors are looking outward for new business as a currency crisis hit the sector hard, Namal Peiris Chief Executive Officer of International Construction Consortium, one of the island’s largest construction engineering firms said.

Sri Lanka’s construction firms had been operating in the Maldives and the Middle East during a 30-year war but had focused more domestically as the business picked up at home.

“They were well established in Middle Eastern countries and the Maldives,” told forum organized by the Faculty of Management Studies and Commerce of the University of Sri Jayewardenepura.

“They were well established in middle eastern countries and Maldives.  When the war came to an end the country was moving and they were thinking why they should waste time in other countries, that they could do an impact here.

“Now once again they are looking to those places and talking to the people that they had been working with.”

Sri Lanka is currently in the grip of the worst currency crisis in the history of its soft-pegged (intermediate regime) central bank.

Sri Lanka’s rupee collapsed from 200 to 360 to the US dollar after two years of money printing.

When the currency comes under pressure due to previous artificially low borrowing costs, interest rates have to be raised to high levels to halt domestic credit and drive savings to the budget deficit and limit money printing.

As new investment is halted, construction investment is one of the hardest hit sectors. In a bid to reduce the deficit and eventually bring down interest rates the government also halts capital projects.

The government has said it owes over 200 billion rupees to suppliers.

To survive, contractors are reducing dependence on Sri Lanka.

“So, now they had understood they have realized that …they must have the right portfolio,” Pieris said.

“They have already started a few projects in Maldives and are trying to do something here and there.”

As the rupee fell, construction costs had risen with prices of items like steel going sharply up.

As money was printed to keep rates low Sri Lanka also slapped import controls.

The industry had to find alternatives.

Imported gypsum boards were replaced with alternatives made with paddy straw, he said.

Many industries in the country as well small businesses like salons were hit without raw materials when the import controls were imposed. (Colombo/Dec14/2022)