Constitutional Crisis: another $ 100mn flees Sri Lanka’s capital markets last week

December 8, 2018 (LBO) – Last week, the recent trend of foreign outflow from Sri Lanka’s stock and bond markets picked up speed with almost US$100mn of outflows in just the last week.

This takes total outflows since the constitutional crisis to approximately US$350mn. Sri Lanka’s constitutional crisis started less than one and a half months ago on October 26, 2018. Total outflows since the start of 2018 are approximately US$900mn. The outflows before the crisis were due to global factors such as the increase in U.S. interest rates as well as quantitative tightening.

The 2018 trend of outflows from emerging markets is reversing in many countries, but Sri Lanka’s situation is worsening due to an unprecedented political crisis which some have even termed a coup de’etat.

The Sri Lankan Rupee (LKR) has been exceptionally weak during the last few weeks sitting at all time lows of close to 180/dollar. There has been some stabilisation in the currency in the last few days likely due to intervention by the Central Bank in the currency markets.  Market watchers will be eagerly awaiting updates in the foreign reserve figures in order to see exactly how severe the foreign currency drain has been.