Sri Lanka’s earnings from merchandise exports declined by 11 percent in October 2022 compared to a year ago.

The last time Sri Lanka saw a decline in the year on year export was in March 2022. Cumulative export earnings in the first ten months of 2022, however, increased by eight percent over the same period in the last year. A looming recession in Sri Lanka’s main export markets has threatened the island nation’s top export garment sector as orders have slowed down significantly.

The main export markets, the United States and the European Union, gripped by inflationary pressures, are plunging into a recession stemming from Russia’s invasion of Ukraine. These global headwinds are expected to impact Sri Lanka’s apparel exports in the coming six months.In addition, the removal of the dual corporate tax rate structure, which is set to increase corporate income taxes on exports to 30 percent up from the earlier 14 percent, also threatens the competitiveness of the country’s exports, in particular when competing with countries such as Bangladesh and Vietnam.

The proposed changes to the personal income tax structure could also fuel brain drain from the country, further impacting the industry.