Hinhalagoda lekamalage pulsi kavindya sandeepani ariyarathna

 
Question 07 
Does the current economics status in the country ( inflation rate and foreign currency 
exchange rate etc.) affect your business? (See figure 2.8) 
Economic Factors take a lead in the factors that determine the future of SMEs.Among 
the Economic factors , Inflation, Interest rate, exchange rate, tax rate, labor takes a front seat. 
As the price of goods and services rises, inflation reduces a currency's purchasing 
power.Surprisingly, prices rise quickly during inflation and then gradually decline, if at all. 
Inflation is not a linear phenomenon; it affects businesses in different ways at different times 
and in diverse ways.One of the most immediate consequences is a supply shortage, which could 
delay the completion of manufactured goods.When producers are unable to obtain all of the 
raw materials required to produce completed goods, the market as a whole collapses. 
Consumers spend more on their loans when interest rates rise because they pay more 
interest to lenders.As a result, they have less disposable income with which to purchase products 
and services.There is a larger chance that your company may experience a sales decline. 
Companies that do a lot of business internationally are more exposed to currency and exchange 
rate swings, which can make forecasting income challenging.Any small business will rely on 
income projections for the coming fiscal year, but the figure could shift dramatically depending 
on exchange rate fluctuations.
The cost of labor, often known as wage, is always a significant economic issue that has an 
impact on the economy.Many countries have begun to hire workers from other countries.The 
company establishes a plant or begins manufacturing in a low-wage area. Salaries paid to labor 
or employees are a direct expense to the company that is added to the cost of goods or services, 
affecting the economy. Another way earnings affect the economy is that when wages rise, one's 
purchasing power rises, increasing consumer spending. 

---

42 
Figure 2.8 Response to Question 07 (Author Construction) 
According to the responds received, 92.9% of the responders have selected “yes” and 
have agreed that current Inflation rate and other ecoomical factors in SriLanka is already 
affecting them.Sri Lanka has been draining its foreign reserves since the Impact of Covid in 
2019, to continue its international trades and to keep the essential services running. Sri Lanka's 
Central Bank printed about 130 billion rupees ($640 million) in the month of October alone, 
and the country's money supply expanded by 2.8 trillion rupees from December 2019 to August 
2021. (Central Bank of Sri Lanka, 2021) 
 
Figure 2.9 Foreign Exchange Reserves in Sri Lanka decreased Until October 2021 
(Central Bank of Sri Lanka, 2021) 
With effect from Oct. 21, the Lanka Indian Oil Company, which competes with the state 
run Ceylon Petroleum Corporation, announced a 5-rupee rise per liter of fuel.After losing 70 
billion rupees this year through August, Ceylon Petroleum Corporation has been seeking 

---

43 
clearance to raise fuel prices.Sri Lanka's inflation rate has risen from roughly 4% to around 7% 
this year, but has since fallen significantly in September.Meanwhile, when compared to two 
years ago, the September food index was up 22%.The top personal income tax rate is 24%, 
while the top corporation tax rate is 28%.A value-added tax is one of the other taxes.The total 
tax burden is 11.9 percent of gross domestic product.Over the last three years, government 
spending has averaged 19.6% of total output (GDP), with budget deficits averaging 5.9% of 
GDP.The public debt is equal to 86.8% of GDP. (Central Bank of Sri Lanka, 2021)