Spotlight: Econ Op-eds in Summary (Week ended 14th July' 21)
1. MMT-styled fiscal and monetary policies inject liquidity into the market, creating demand pressures
By: Professor Sirimevan Colombage
Sri Lanka laid the foundation for Modern Monetary Theory (MMT) to be implemented after the change in the political regime in 2019, given the proposals of sweeping tax cuts at the time. This is in line with the current policy agenda being followed, where low taxes are maintained, and money is printed to meet the budget deficit.
The CBSL Governor dismissed concerns on the ability of the government on repaying it’s domestic debt and ruled out negotiations of an IMF program. Raising domestic debt however, has become more difficult given the country’s sovereign downgrading’s and has resulted in auctions being persistently undersubscribed. This has led the CBSL to seek bilateral funding from different countries to help manage debt repayments.
The use of MMT has affected the macroeconomic environment through a sharp increase in market liquidity, putting pressure on inflation to rise and weakening export competitiveness. This in turn will cause a widening of the trade deficit and puts additional pressure on the currency to depreciate. These impacts are already being felt by the country, with lower income earners being disadvantaged the most due to higher inflation.
2. Remittances from around the world strengthen balance of payments
By Nimal Sanderatne
Remittances has been on the rise during the past couple of years. During the first five months of this year, remittances has grown by 18pc compared to last year same period. Majority of these remittances are from Middle East and the rest are from all over the world including countries from North America as well as South Asia. These remittances are the main strength of the country. in offsetting the trade deficit.
Usually, remittances are for varied reasons. Some are as support for their dependents, some for property purchases for retirement, some prefer the higher interest rates as well as to make gains out of depreciating rupee. It’s not only Middle East workers who remit money to Sri Lanka, Tamil diaspora consists of a large number of professionals who have left the country are some who remit money inwardly. Apart from that social services organizations, schools and NGO receive regular remittances.
Finally considering the above, it is not suitable to use the word “workers’ remittances” for the funds Sri Lanka receive. It should be corrected as foreign remittances. Also it is a misconception that if Middle East workers fail to remit it will severely impact the total remittances. Middle East workers’ remittances are only a part of the total foreign remittances Sri Lanka receive.
(Compiled by: Promodhya Abeysekara, Malitha Goonerathne & Mariyan Perera)
Disclaimer: This information has been compiled from sources believed to be reliable but Frontier Research Private Limited does not warrant its completeness or accuracy. The bullet points provided for each summarised opinion article is written by Frontier Research and has no connection to the respective author. Furthermore, the information contained in these reports/emails are confidential and should not be shared publicly. Disclosure, copying and distribution is strictly prohibited.