Sri Lanka overvalued rupee points to job losses: productive sector

Sept 25, 2009 (LBO) – Sri Lanka’s overvalued currency is hurting exports and a catch up in productivity inevitably points to more industrial job losses, private sector representatives have said. His comments came as an official survey by the government’s statistics office said 155,000 industrial jobs have been lost in the second quarter of 2009 from a year earlier.

Apart from the overvalued currency, exporters have been hit by a fall in foreign demand due to a global slump and industries catering to the domestic market including construction have lost workers.

Ekanayake said Sri Lanka’s labour laws made it difficult for companies to improve labour productivity by reducing labour.

Many companies have put hiring freezes and allowed natural attrition to reduce their workforces.

But firms need time to improve productivity, by moving to capital intensive production methods or completely new product lines, where workers with different skills are needed. The process results in structural unemployment.

Monetary Shock

When the inflationary shock is high, and the rupee is not allowed to move down, the adjustment shock falls immediately on export sector industrial wo